Mistakes that get compounded over time are the ones that can really hurt an organization. A recent case study involving AT&T is ample evidence that small mistakes, especially when it comes to vendor costs, can add up to millions if not unchecked.
In a recent post on the HBR (Harvard Business Review) Blog Network, Thomas C. Redman recounts the story of an AT&T manager and his team’s search for invoice errors when paying other telephone companies for services. As Redman wrote, AT&T suspected it was overpaying, so it assembled a team to review the data.
Before long, sure enough, there was evidence of errors in the internal invoicing process. But the complex internal process made it difficult to identify the origin of errors. The data team stepped back and decided to look at the bigger picture and ask questions such as “how big is the problem?” and “where is (the process) broken?”
Redman recounts how the AT&T team first identified the scope of the problem (which was huge – only 40% of invoices made it through without errors). They then moved on to identifying the specific types of errors, and then their frequency. This gave them a good picture of how important some problems were compared to others – thus making it possible to focus resources and fixes where they counted most.
As Redman relates, there was nothing magical in any of this, but it is a good example of how a methodical review of data can make a huge impact. AT&T did end up saving tens of millions of dollars – and all from tracking down and identifying problems in the invoicing process.
The role of a contract database
There is also another lesson to be learned from the AT&T scenario. In any company, before it receives any invoice from any vendor, there’s usually an agreement of some kind (contract) on the cost of goods and services. How else would you know whether an invoice was accurate or not?
However, when invoices get generated and delivered to accounts payable, as the AT&T case study amply demonstrates, plenty of errors can crop up. And accounts payable or invoice departments are not always tasked with ensuring accuracy of the invoice itself.
So this begs the question of any company, large or small: without a contract management database, which records the agreed-upon prices from vendors, is your process any less error prone than AT&T’s? How can your organization verify payments to vendors are accurate if agreed-upon prices are filed away in documents that can’t be shared?
Your only real insurance against the kind of mistakes that were costing AT&T millions of dollars is to first ensure your organization knows what is an accurate charge and what’s not. That means a contract management database needs to be established and kept up to date.
This is, of course, easier said than done in many organizations. The sad fact is that many companies simply store vendor contracts away in hard copy or electronic form, and never refer back to them. Except when disaster strikes – such as a huge hole in the operating budget half way through a fiscal year.
Often companies rely on audits to ensure invoices match in amounts and frequency – but how often are these conducted? The best insurance policy against incorrect, inaccurate or simply error-prone payments to vendors is a contract database.
More pluses with a database solution
Contract Assistant is contract management software that creates such a database, and the benefits of Contract Assistant go far beyond simply having a database to refer to. Active management of contracts is far easier when managers and administrators have the right tools.
Contract Assistant allows managers to encourage good contract habits such as periodic reviews of contracts by setting alarms or sending scheduled emails to remind stakeholders when to review contracts. The database also allows for quick access to key financial data and key contract terms – an invaluable time-saver when questions crop up on invoice matters.
With high-value contract management software, organizations not only end up with a database for quick reference (or deeper analysis), but they are assured they have the tools to prevent mistakes from compounding over time.
After all, if a resource-rich company like AT&T can encounter these “small mistakes” that end up costing millions, couldn’t your business?