Why Contract Managers Must Focus on Financial Performance

An interview with Chris Attenborough, Director of Contract Management at BT

Contracts are at the core of commercial transactions, yet too often contract management professionals are not viewed as core to their financial impact. The connection between contracts and financial performance is fundamental, influencing revenue, costs, savings, cash flow, and ultimately profitability and affordability. However, many organizations fail to equip their contract managers with the financial insight necessary to maximize value, and many negotiations suffer from a similar lack of understanding on one or both sides.

This article explores why contract managers should be more financially astute, how they can enhance financial performance, and why a shift in mindset is necessary to elevate contract management from a compliance-driven function to a value-generating business discipline.

Contracts as Financial Instruments

Contracts define the commercial relationship between parties, setting out obligations, deliverables, timelines, and payment terms. Every clause in a contract has financial implications—whether it's pricing mechanisms, payment terms, penalties, incentives, or service levels. Despite this, contract management is often perceived as an administrative or legal function rather than a commercial one.

A well-negotiated contract should not just meet legal and operational requirements; it should also optimize financial outcomes. This requires contract managers to think beyond compliance and recognize their role in managing revenue, controlling costs, and improving margins throughout the contract lifecycle.

The Lifecycle View: Tracking Financial Performance

One of the most critical responsibilities of a contract manager should be overseeing the financial health of a contract from inception to completion. This means:

1. Pre-Award: Ensuring Financial Viability Before a contract is signed, pricing models, cost structures, and risk allocations should be carefully assessed. Contract managers need to understand whether the deal is financially viable and how key terms will impact profitability.
2. Post-Award: Monitoring and Optimizing Performance Once a contract is active, contract managers should track financial performance against forecasts. This includes monitoring revenue realization, cost trends, and contract efficiency. If financial targets start slipping, they should proactively identify and address the root causes—whether it's scope creep, inefficient service delivery, or unfavorable terms.
3. Commercial Transformation: Adjusting for Long-Term Profitability In many cases, contract inefficiencies stem from outdated or rigid terms. Contract managers must be able to renegotiate terms that no longer reflect operational realities, exploring opportunities for cost reduction, automation, or better alignment between customer needs and service delivery.

Organizations that view contracts as lifecycles rather than as static documents are better positioned to capture financial value.

The Problem of Limited Financial Access

Despite their central role, contract managers in many organizations lack access to financial data. Research indicates that contract teams are often excluded from cost and revenue discussions, leaving them unable to negotiate effectively.

For instance, negotiating payment terms without understanding cash flow implications is risky. Similarly, discussing pricing without visibility into cost structures can lead to unsustainable deals. Without financial data, contract managers are left managing documents instead of driving financial performance.

Some believe that having greater knowledge or expertise than your counterparty represents an opportunity to outwit them, to profiteer. While this may be true in a commodity transaction, it represents a very short-sighted view in a longer-term relationship. If both sides understand their financial position and its drivers, they are far better placed to maximize future value and create the environment for continuing improvement. This is essential to prevent the cycle of disappointment that leads to increasing contention and potentially the customer returning to the market.

One way to address this is by ensuring contract teams have direct access to relevant financial metrics, such as:

• Profit & Loss (P&L) Statements – To understand contract profitability over time.
• Cost-to-Serve Metrics – To assess operational efficiency and identify cost reduction opportunities.
• Revenue Forecasts and Actuals – To track how well financial targets are being met.
• Cash Flow Analysis – To evaluate the impact of payment terms and invoice cycles.

Providing contract managers with financial insight empowers them to make informed decisions and align contract terms with business objectives.

Beyond Compliance: Contracts as a Business Management Tool

A key shift needed in contract management is moving from a compliance mindset to a business mindset. Many organizations still treat contract management as a legal or administrative function rather than as a strategic discipline that contributes to financial outcomes.

Some organizations have begun rebranding their contract management teams as business management teams to reflect a broader scope that includes financial oversight, risk management, and commercial strategy. This approach ensures that contract professionals are not just managing documents but actively shaping financial performance.

To achieve this, contract managers must:

• Think beyond contract enforcement – Instead of just ensuring obligations are met, they should analyze whether terms are financially sustainable.
• Consider the total financial picture – Looking at costs, revenue, and operational efficiencies rather than isolated contractual elements.
• Engage with finance and sales teams early – To shape contracts that support long-term business objectives, rather than being brought in after financial terms are set.

The Impact of Commercial Models on Financial Performance

Another area where contract managers can drive financial impact is in the structuring of commercial models. Different pricing and charging mechanisms, such as fixed-price, cost-plus, or performance-based contracts, have vastly different implications for financial risk and reward.

For example:

• Fixed-price contracts provide cost certainty but can lead to margin erosion if costs increase.
• Cost-plus contracts shift risk to the buyer but may reduce cost control incentives.
• Outcome-based models link payment to performance, aligning incentives but requiring robust measurement mechanisms.

Despite the importance of commercial models, many contract managers are not brought in early enough to influence these decisions. By the time they engage, pricing

structures and financial commitments are already locked in. Organizations need to integrate contract teams into the commercial design phase to ensure financial sustainability.

Bridging the Gaps: A Call to Action for Contract Managers

To elevate their impact on financial performance, contract managers should adopt the following approaches:

1. Develop Financial Acumen Understanding financial metrics, cost drivers, and revenue levers is essential. Contract managers should invest in financial training to enhance their ability to analyze and improve contract profitability.
2. Gain Access to Financial Data Organizations should provide contract managers with visibility into cost and revenue data. Without this access, their ability to influence financial outcomes is severely limited.
3. Engage Early in Commercial Strategy Contract managers should be involved at the deal structuring stage to shape pricing models, payment terms, and risk allocations. Late involvement often results in financial compromises that could have been avoided.
4. Advocate for a Business-Centric Approach Rather than being seen as compliance enforcers, contract managers should position themselves as commercial advisors who optimize financial performance throughout the contract lifecycle.

Conclusion

Contracts are financial instruments, yet contract managers are often disconnected from their financial impact. By integrating financial awareness into contract management practices, organizations can improve profitability, reduce risk, and ensure long-term contract success.

A shift in mindset—from contract management to business management—is essential. Contract professionals must see themselves as drivers of financial value, not just guardians of contractual terms. By embracing this role, they grasp one of the critical elements that transforms contract management from an administrative necessity into a strategic advantage.

Chris Attenborough was in conversation with Tim Cummins and Tara Bevan from the Commerce & Contract Management Institute.