What is the best way to assess supplier contract risks and benefits?

1 Identify your goals and priorities

Before you start comparing contracts, you need to have a clear idea of what you want to achieve and what you are willing to compromise on. What are your main objectives and criteria for selecting a supplier? What are the key performance indicators (KPIs) and service level agreements (SLAs) that you expect from them? What are the potential risks and opportunities that each contract presents for your business? By defining your goals and priorities, you can focus on the most relevant and important aspects of each contract and avoid getting distracted by minor details.

2 Use a contract review checklist

A contract review checklist is a tool that helps you analyze and compare different contracts based on a set of questions and criteria. It can cover various topics, such as scope, quality, price, delivery, payment, warranty, liability, termination, dispute resolution, and more. A contract review checklist can help you identify the strengths and weaknesses of each contract, as well as any gaps, ambiguities, or inconsistencies that need clarification or revision. You can use a standard checklist or customize one according to your specific needs and preferences.

3 Perform a risk-benefit analysis

A risk-benefit analysis is a technique that helps you weigh the pros and cons of each contract in terms of their impact on your business. It involves estimating the probability and severity of each risk and benefit, as well as the potential costs and benefits associated with them. You can use a risk-benefit matrix or a decision tree to visualize and compare the different scenarios and outcomes of each contract. A risk-benefit analysis can help you determine which contract offers the best value for money and aligns with your goals and priorities.

4 Seek expert advice

Sometimes, you may need external help to assess supplier contract risks and benefits, especially if the contracts are complex, technical, or legal. You can consult with experts, such as lawyers, accountants, engineers, or consultants, who can provide you with professional guidance and insights. They can help you understand the implications and consequences of each contract, as well as suggest improvements or alternatives. You can also seek feedback from your peers, colleagues, or stakeholders, who may have relevant experience or knowledge.

5 Negotiate and finalize the contract

Once you have assessed the supplier contract risks and benefits, you can proceed to negotiate and finalize the contract with the selected supplier. You can use the information and insights that you gathered from the previous steps to support your position and arguments. You can also use the contract review checklist and the risk-benefit analysis as references to ensure that the contract meets your expectations and requirements. You should aim to reach a mutually beneficial agreement that minimizes the risks and maximizes the benefits for both parties.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?