In today’s markets businesses need ways to ensure that contract risk and liabilities are minimized and remedies to these risks are maximized. Contracts, no matter how large or complex, are promises negotiated between parties and should be written to ensure business agreements are fulfilled by both parties. Clarity of purpose is the hallmark of successful contracts because contracts are never free of interpretation (University of Phoenix, 2009) and poorly written contracts can ultimately result in the breach of contracts. In this business plan, I will identify the contract risks and opportunities of a company, address how managers can avoid risk with contract issues, minimize liabilities, and benefit from additional opportunities identified.
Improving the area in contract risks should be a main concern for most companies. In a recent study, The Contract of supplier contracts costs businesses $153 billion per year in missed savings opportunities” (Ernest Young, 2007). Most company’s business is guided by a contract of some sort. Globalization and the need for outsourcing in non-core business processes have contributed to the increase use and importance of contracts. During research for this paper, I found out that according to the Institute of Supply Management, companies in the fortune 1000 has over 20,000 contracts. However, as the number of contracts increases, so does the risks associated with those contracts. Therefore, learning to manage those contract risks has become extremely importance in the business world.
However, under most corporate risk management structures, contract risks are often not addressed using a systematic approach. For example, in a December 2006 Ernst & Young survey of 140 financial executives, only 52% or respondents considered their controls either very effective or effective. Of the remaining respondents, 22% “did not know” how effective their controls were and 26% of respondents indicated that their contract...