In the complex landscape of modern business, effective contract management is essential for operational success and strategic agility. Organizations often find themselves handling thousands of active contracts, each varying in scope, scale, and significance. The challenge lies in deciding which contracts to prioritize during the authoring and post-execution phases. Traditional frameworks typically used to determine resource and time allocation often focus on parameters such as contract value, spend category, and region. While these factors are essential and provide a foundational approach to managing contracts, there is an emerging need for a more nuanced approach. This is where the RICE framework comes in, offering a data-driven approach to contract prioritization.
What is the RICE Framework?
The RICE framework is a scoring system developed initially by product managers to prioritize features for product development. RICE stands for:
- R - Reach: How many people will be impacted by this product?
- I - Impact: How significantly will this product affect the business?
- C - Confidence: How certain are we about the reach and impact estimates?
- E - Effort: How much time and resources will it take to manage this product?
Applying the RICE Framework to Contract Management
Drawing from RICE, contract managers can refine the concept to suit their specific needs regarding contract prioritization. For contract management, a more useful RICE framework evaluates contracts based on Risk, Impact, Complexity, and Engagement. It identifies contracts to focus on by systematically measuring potential risks, gauging the business impact, analyzing complexity, and ascertaining engagement with counterparty.
Below are examples of the RICE framework applied to real-world scenarios in contract management:
Risk
In contract management, it is important to consider the risk factors of a contract. Contractual risk involves assessing the potential negative outcomes of a contract and their likelihood. This assessment can span various dimensions, including financial, legal, operational, and reputational risks. Contracts with high-risk factors might involve significant financial commitments, engage with new or less established partners, or entail complex regulatory compliance requirements. Prioritizing these contracts for closer monitoring can mitigate potential issues by ensuring more rigorous oversight and management capabilities.
Impact
Impact refers to the potential positive outcomes a contract could deliver to the organization. This could encompass revenue generation, strategic partnerships, market expansion, or innovation facilitation. Contracts with a high impact potential are critical to the organization's success and growth objectives, necessitating their prioritization in management efforts. Understanding a contract's impact helps allocate resources more effectively, ensuring that the contracts driving significant value receive the attention and support they need to realize their full potential.
Complexity
The complexity of a contract depends on numerous factors, such as the number of parties involved, the scope and type of work, geographic mixture, the role of new technologies, and emerging regulations. Multi-party contracts, for instance, are prone to conflicts, while contracts that cover highly technical scopes require precise definitions of deliverables. Geographic diversity complicates contracts further due to varying legal and cultural norms. Within the RICE framework, the complexity component emphasizes that complex agreements, due to their intricate terms and execution challenges, often demand significant resources for effective management, including specialized legal advice and rigorous compliance monitoring.
Engagement
Finally, engagement considers the quality and history of the organization's relationship with the other party or parties in the contract. In this adapted framework, a company’s strategic and standing relationships with third parties are factored into consideration. Contracts involving strategic partners or critical suppliers with whom the organization has a strong, positive history may be prioritized differently than those involving newer or less tested relationships. The strength of the relationship can influence contract negotiations, execution, and dispute resolution, making it a crucial factor in prioritization.
Step-by-Step Guide to Using the RICE Framework
Here's how you can leverage the RICE framework for contract management:
1. Identify Contracts:
List all the contracts that require your attention.
2. Assign Scores:
For each contract, assign a score (typically 0-10) based on each RICE factor.
- Risk: Consider risk elements such as regulatory, financial, operational, and environmental. The higher the risk, the higher the score.
- Impact: Evaluate the potential financial or operational positive impacts of the contract. A contract with significant financial gain would score high.
- Complexity: Assess a contract’s complexity by looking at factors such as the number of parties, scope of work, geographic variations, and emerging regulations. A complex contract would score high.
- Engagement: Consider the intensity of the relationship with the counterparty. Long-term strategic relationships would score high.
3. Calculate the RICE Score:
The higher the score, the more priority a contract should receive. A sample formula could look like the sum below.
RICE Score = Risk + Impact + Complexity + Engagement
4. Prioritize Contracts:
Rank the contracts based on their RICE scores. Contracts with higher scores should be prioritized for careful negotiation, post-signature monitoring, and renewal.
Benefits of using RICE for Contract Management
Using the RICE framework for contract management enables organizations to allocate resources efficiently by prioritizing the contracts that have the highest risk or the highest impact first.
Data-driven decision making:
RICE systematically evaluates contracts, reducing bias and emotion from the prioritization process.
Improved Efficiency:
By focusing on high-impact contracts first, contract managers can optimize their workload.
Reduced Risks:
Early attention to high-risk contracts can help mitigate potential problems.
Better Resource Allocation:
RICE helps contract managers allocate resources to contracts that will yield the greatest return.
Limitations of RICE
The RICE framework, much like any tool that enables speed and scale, has its drawbacks. Here are a few factors to consider.
Subjectivity:
Scoring can be subjective, depending on individual interpretation. While it offers a systematic way to prioritize contracts, it cannot completely eliminate human bias.
Qualitative Factors:
RICE doesn't account for qualitative factors important to an organization, such as its business relationships or long-term goals. For example, a contract with a strategic partner that aligns with a company’s long-term vision might not necessarily have a high Impact score based on immediate numbers, yet could be strategically important. In these instances, human judgment might be crucial.
Limited Visibility into Dependencies:
The RICE framework doesn't explicitly consider dependencies between contracts. If they're interdependent, a seemingly low-effort contract might hold up the progress of higher-scoring contracts. However, this limitation can be overcome with the help of a contract management platform, where associated contracts can be easily surfaced to be included in the analysis.
Icertis Contract Intelligence – a Data-Driven Platform
The RICE framework is a valuable tool for contract managers to prioritize their workload. While it doesn't replace professional judgment, RICE provides a data-driven approach to ensure that the most critical contracts receive the necessary attention. By combining RICE, your legal team’s expertise, and a best-in-class contract management platform, your organization can streamline contract management on a central platform and achieve optimal business outcomes.
The advent of AI in contract management, like the Icertis Platform, represents a paradigm shift. It provides the ability to process and analyze vast amounts of unstructured contract data. This powers the large-scale analysis of thousands of contracts across departments and makes their evaluation along a standard framework like RICE possible.
To see how contract management has evolved to use AI technology, see this article here.
Today, more than a third of the Fortune 100 companies trust the Icertis Contract Intelligence platform to transform contract management at their organizations. From automated tracking of obligations and contract analysis to risk assessment, Icertis uses AI to empower you to extract valuable insights from your contracts, reduce errors, and ensure compliance.
To learn more about how Icertis Contract Intelligence can help you prioritize your contracts, request a demo today.
