Trakti Smart "Legal" Contracts Blog

Linking contracts to contract balanced scorecards

on March 16, 2023

Generally, contracts regulate long-term relationships, governing complex transactions that demand collaboration and flexibility. Issues can arise due to their incompleteness or because parties do not have a comprehensive view of their contracts. The former point addresses the concept of relational contract; the latter to the need of setting the right KPIs. Parties usually measure and monitor each other’s performance (two-way) and automate their reporting using a balanced scorecard, linking contracts to contract balance scorecard. 

KPIs allow businesses to better identify bottlenecks, inefficiencies, the value of the contracts. The best practice is to define, agree and implement measurable KPIs.  

Identifying, measuring and monitoring the right KPIs is fundamental for each business in order to minimize unnecessary risks, increase revenues, achieve the objectives and implement the best practise to thrive. 

Linking contracts to contract balanced scorecard enables both contractual parties to benefit by jointly managing these indicators concurrently throughout the life of the contract, rather than reacting to after the-fact reporting. The goal of such requirements is to add joint accountability for results to the buyer-seller relationship. 

A balanced scorecard involves both qualitative, as well as quantitative measures; it monitors the adherence to the KPIs agreed, tracks, visualizes, and rates the contract performance. 

But how can we introduce KPIs in our organization and how choose few and smart KPIs? 

The best way to adopt metrics is having all your contracts in one single place: one platform, a single source, where quickly find them. Furthermore, it is crucial to have a compliant structure that identifies the authorized persons to approve and sign the contracts; thereby the risk of security breaches is minimized. 

When it comes to selecting the right KPIs, bear in mind which are the objectives of the company: establish the objectives in a result-oriented way; be specific, accurate and realistic: the objectives have to be measurable and achievable. 

Measurability poses questions like these: 

  • Who creates data? And what data is needed for a certain KPI? 
  • How it is accessed and how manage it to have a meaning? 

The technological capabilities of the company play a fundamental role in answering these questions: before raw data transforms into useful information, it needs to be thoroughly analysed; only subsequently can they be used to take appropriate actions to improve the business.   

A clear governing structure for reporting and monitoring is essential. By using smart contract technology, API and oracles we are able, for example, to measure contractor performance, collect all the data on the performance indicators to assess the extent to which the contractors are successfully implementing the agreed services. 

The result is a dynamic and outcome-based contract, characterized by automatic measurements

In the contracts service, for example, Trakti can collect service requirements to enable monitoring and reporting against agreed service levels. The quality of the service detected triggers the price linked to the type of: f the provider of the service achieves specified performance levels, the precise amount that the provider can earn back can be calculated. With this implementation, to each level of service detected corresponds a different price.  

Linking contracts to contract balance scorecard represent the best way to the management of contracts. 

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