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The budget is downstream of the contract · The Leading Edge

• 0:03
  SPEAKER_02: Welcome to the Leading Edge, a series which offers in-depth insights into the key challenges, innovations, and evolving dynamics of the contract and commerce landscape.
• 0:14
  SPEAKER_02: I am your host, Izzy Drinkle, Director of Strategic Alliances at World CC.
• 0:20
  SPEAKER_02: Today's episode focuses on the budget is downstream of the contract.
• 0:26
  SPEAKER_02: We're excited because this episode is the final in a four-part series called A Letter to the CFO that we have created in collaboration with Malbec.
• 0:36
  SPEAKER_02: Just to recap, the first part on the neglected asset shows why the contract's portfolio is finance's richest signal of both value and exposure and how to make it visible.
• 0:48
  SPEAKER_02: The second part was written against Deloitte's European CFO survey for spring 2026, shows why squeezing suppliers fails to recover margin, weakens the resilience you need and makes supply disruption more likely.
• 1:05
  SPEAKER_02: The third part shows why cutting input cost may defend short-term margins, but how margin gained this way is borrowed against quality, loyalty, and resilience, downstream costs which remain invisible to the CFO.
• 1:20
  SPEAKER_02: So if you have missed those, make sure you head to the CCM Institute website to catch up.
• 1:27
  SPEAKER_02: The fourth part, which takes this argument to the contract itself and to why the move you are already making towards continuous planning needs a contract that can move with it, is the basis of today's conversation.
• 1:39
  SPEAKER_02: And I am delighted to be joined by Matt Patel, COO and co-founder of Malbec, and Armita Rostamiyan, Chief Financial Officer of ClearGov, a GovTech SaaS company backed by Legal Edge Capital.
• 1:55
  SPEAKER_02: Matt Armita here to guide us through this evolving landscape.
• 1:58
  SPEAKER_02: So welcome to the leading edge.
• 2:01
  SPEAKER_02: Matt and Armita.
• 2:03
  SPEAKER_00: Thank you, Izzy.
• 2:04
  SPEAKER_00: Thank you, everyone, for joining us.
• 2:05
  SPEAKER_00: Pleasure to meet all through this podcast.
• 2:08
  SPEAKER_00: And my name is Matt Patel, as Izzy mentioned, one of the founders of Malbec.
• 2:13
  SPEAKER_00: We're an enterprise CLM solution platform.
• 2:16
  SPEAKER_00: And I've been in this environment and this space for almost 25 years, working with sales, procurement, legal, finance professionals through technology, trying to solve ever-changing business pain points.
• 2:29
  SPEAKER_00: So it's going to be a great conversation.
• 2:31
  SPEAKER_00: Pleasure to be talking with Armita.
• 2:33
  SPEAKER_00: Armita, if you can introduce yourself.
• 2:36
  SPEAKER_01: It's a pleasure meeting everyone and hearing everyone.
• 2:39
  SPEAKER_01: I'm Armita Rosemion, CFO at ClearCop.
• 2:43
  SPEAKER_01: We are actually budgeting and planning software for local government.
• 2:49
  SPEAKER_01: And this episode is actually very close to home for me because not only do I look at the PL for our business and budgeting forecasting for our business, but also I look at the customer budget as well.
• 3:04
  SPEAKER_01: So I understand that closely.
• 3:05
  SPEAKER_01: And before that, I was a CFO at the company called Vagoro, which basically is a SaaS and payment platform.
• 3:13
  SPEAKER_01: So I've been sitting on both sides of the contract and uh CFO position.
• 3:20
  SPEAKER_01: So looking forward to this episode.
• 3:23
  SPEAKER_02: Thank you so much, Matt.
• 3:24
  SPEAKER_02: Armita, Armita, just to correct myself, you're back to my lead edge capital.
• 3:28
  SPEAKER_02: I'm afraid I got carried away with yet more leading edge apologies for that.
• 3:33
  SPEAKER_02: So um, how about we start with the first question?
• 3:37
  SPEAKER_02: Allow me to put this to you, Armita.
• 3:39
  SPEAKER_02: The article starts with the shift towards continuous planning and rolling forecasts, but then points to a less visible problem underneath it.
• 3:50
  SPEAKER_02: The contracts that feed those forecasts.
• 3:53
  SPEAKER_02: So, Armita, what what does finance miss when it can see the budget and forecast clearly, but cannot see the commercial commitments that are driving future cost and revenue?
• 4:06
  SPEAKER_01: So I would say with the recent changes, with AI, with all the tools have been that has been rolled out, the budgeting and forecasting these days has become robust.
• 4:17
  SPEAKER_01: And then a lot of finance teams are really able to really good forecasting, have a really robust forecasting to be able to do scenario planning, prepare for 12 or 18 month forecast.
• 4:31
  SPEAKER_01: But those are all purely based on assumption.
• 4:34
  SPEAKER_01: Like what is our average revenue has been, what is our average, but uh I would say what finance haven't been looking at, it's the contract, because those your assumption is as good as your like what is sitting in the contract.
• 4:50
  SPEAKER_01: And when you look at your um, like for example, when their finance is sitting, assuming that we're gonna renew at the same price or a small price increase, and then you all of a sudden get surprised because a contract was signed 16 months ago, 18 months ago, and there is like 7% price increase in there.
• 5:11
  SPEAKER_01: Or on the customer side, you have contract that uh basically has uh price increase or uh opt-out option, and now finance gets surprised.
• 5:22
  SPEAKER_01: But those assumptions uh finance is not looking at because it's sitting somewhere in the contract, especially when you get to SaaS business, your retention is all about your contract.
• 5:35
  SPEAKER_01: What is our contract gonna be renewed?
• 5:37
  SPEAKER_01: Is this auto-renewed?
• 5:39
  SPEAKER_01: Is this price increase in it as well?
• 5:41
  SPEAKER_01: And that's how your retention can calculate.
• 5:44
  SPEAKER_01: So I would say your um rolling forecast tells you where you think you are going, but the contract is the one that you are where you are really committed to go, and that's when you need to connect the two together.
• 6:00
  SPEAKER_02: Matt, can you add anything else to this?
• 6:04
  SPEAKER_00: Sure.
• 6:05
  SPEAKER_00: So, you know, I'm gonna use an analogy because contracts often are looked at this legal instrument in a company that is I have a request, I redline, negotiate, uh, get it signed, and we celebrate.
• 6:19
  SPEAKER_00: Oh, contract's done.
• 6:20
  SPEAKER_00: Think about if you're renovating your home or doing anything uh big in your in your house, the first thing the architect's gonna ask for is blueprints, your architectural blueprints before you can plan to make changes.
• 6:33
  SPEAKER_00: So, in a way, isn't a contract instrument or your repository of your commercial agreements basically that blueprint of your business, right?
• 6:42
  SPEAKER_00: This that's where your commitments, obligations, risk, everything is buried.
• 6:47
  SPEAKER_00: However, it's been treated as this uh archaic document sitting in some kind of a repository that only a few people have access to.
• 6:56
  SPEAKER_00: So uh Armita's point that you know, as as we make decisions, um, especially from the Office of the Finance and the CFO's view, uh, they're making decisions based off of what they know in an Excel sheet, uh budget forecast.
• 7:13
  SPEAKER_00: Uh but what about the dynamic change in the environment we're facing?
• 7:18
  SPEAKER_00: Uh, one thing that has been very constant in the last few years is change.
• 7:22
  SPEAKER_00: Uh, we didn't expect some of the things that have happened in the last six years ever: pandemic, tariffs, you know, uh Middle East and oil crisis, increasing fuel price, whether you're directly affected or not, um, a lot of these things change what you had expected with your suppliers and your customers.
• 7:43
  SPEAKER_00: And with the availability of advanced AI connected to your contracting system, the potential of surfacing this information for CFO is immense.
• 7:55
  SPEAKER_00: Um think about how you analyze a contract obligation.
• 8:00
  SPEAKER_00: Um, and wouldn't it be great if if you have a customer contract where you're obligated to deliver certain goods or services, but to deliver those, you're relying on a supplier uh that or a chain of supply supply chain that is feeding you that uh the products or materials or services.
• 8:20
  SPEAKER_00: And if one of those suppliers is affected by a global or economic change, that's going to trickle down to you, which eventually affects your ability to deliver.
• 8:30
  SPEAKER_00: And the way systems are working now, with your contracts in place and with AI monitoring not only the regulatory and compliance environment, but global economic situations, it can actually check and tell you that hey, this change in oil price that just happened last week is gonna affect these two suppliers out of the 20 that you're working on for these obligations to your customer.
• 8:51
  SPEAKER_00: It's that powerful.
• 8:53
  SPEAKER_00: And imagine, Armita, you having that information to know that in in three months, that supplier is gonna trigger a price increase or something that is allowed in their contract, uh, which you otherwise would not have known until you saw the bill.
• 9:07
  SPEAKER_00: And then you're like, wait a minute, let me look go look at this contract and look at emails and historic information that is taking forever for you to find, right?
• 9:17
  SPEAKER_00: To figure out what just happened.
• 9:19
  SPEAKER_00: So, long story short, there's power in information.
• 9:22
  SPEAKER_00: And with current technology, there's really no reason CFOs have to rely on just PDF documents in the repository or Excel spreadsheets.
• 9:32
  SPEAKER_02: Right.
• 9:32
  SPEAKER_02: Thank you, Matt.
• 9:33
  SPEAKER_02: Matt, if I may uh ask you the second question, the article argues that a fixed commitment is itself a form of exposure when the business around it is changing.
• 9:43
  SPEAKER_02: We see this in technology contracts, but the argument is that the same principle applies sort of much more broadly.
• 9:51
  SPEAKER_02: Matt, what is driving the move away from fixed price and fixed scope towards variable consumption-based and performance-linked commitments?
• 10:01
  SPEAKER_02: And what does that change actually give the buyer and supplier?
• 10:08
  SPEAKER_00: So this is an I don't know if there's ever going to be a solution to it.
• 10:12
  SPEAKER_00: When you're selling as an organization, you're trying to have variable pricing because you don't want to be locked into a fixed bid.
• 10:19
  SPEAKER_00: When you're buying, you want the supplier to give you a fixed price.
• 10:23
  SPEAKER_00: You can't have it both ways.
• 10:25
  SPEAKER_00: It's got to be fair.
• 10:26
  SPEAKER_00: And and the thing about contracting, and in my experience and me providing a contract management solution, our goal is how do we help customers create terms and conditions and provisions that are fair to both sides so you can negotiate and get contracts done faster.
• 10:44
  SPEAKER_00: So organizations have to think about both sides.
• 10:47
  SPEAKER_00: Like, you know, fixed price is great because the other side wants predictability.
• 10:54
  SPEAKER_00: When you're you're selling to a customer, and the customer is like, hey, I need to know what my commitment to you is over the next three to five years.
• 11:03
  SPEAKER_00: And because my CFO has to approve this, uh, I can't have you just have a open pricing or no price cap.
• 11:10
  SPEAKER_00: I need something fixed so I can budget for it.
• 11:13
  SPEAKER_00: Because as a seller, I need to respect the fact that the person I'm negotiating with is not the only approval.
• 11:20
  SPEAKER_00: They have to get uh finance to approve it too, because they got to predict cost.
• 11:25
  SPEAKER_00: Uh, but that puts me at risk because now if I fix it, and imagine I fixed things six years ago, and I just mentioned uh in the previous question all the things that have happened in the last six years, uh economic and global changes that have affected us that we never expected.
• 11:42
  SPEAKER_00: Now, what do I do?
• 11:43
  SPEAKER_00: I'm gonna lose money when I fix the price.
• 11:47
  SPEAKER_00: So we've got to find a balance with enough uh flexibility for both sides where a very uh specific event, unexpected event, will trigger uh a change out of that fixed price.
• 12:01
  SPEAKER_00: So carving out those exceptions rather than going one extreme or the other.
• 12:06
  SPEAKER_00: Uh fix it with a scope and enough buffers in it, but then create some exceptions uh for those types of unexpected events that happen.
• 12:15
  SPEAKER_02: Thank you, Matt.
• 12:16
  SPEAKER_02: Armita, I'd love your insights on this.
• 12:19
  SPEAKER_01: I would say I agree 100% agree with Matt.
• 12:22
  SPEAKER_01: It's like when you look at that on a fixed contract, it's like uh it's like a bet, right?
• 12:28
  SPEAKER_01: You are making it the saying that uh I'm gonna make a bet on my strategy, on the volume that I'm gonna get, I'm gonna bet on the market, and if your bet goes well, that's perfect.
• 12:42
  SPEAKER_01: Like that's a perfect situation for you because now the bet has worked, you have a fixed contract, everything is working perfectly.
• 12:49
  SPEAKER_01: But on a CFO perspective, I would say that has changed a little bit because now you have um Matt touched on it in the previous question as well.
• 13:00
  SPEAKER_01: It's a volatile market.
• 13:01
  SPEAKER_01: Now I want to be able to modify, I want to be able to, uh if something changed, I would be able to react to it as well.
• 13:09
  SPEAKER_01: So that's one of my main points.
• 13:12
  SPEAKER_01: Um is do I really want a fixed contract or no, I don't want a fixed contract.
• 13:18
  SPEAKER_01: The second piece is now with the cloud and usage base, that's when you we want to have that flexibility.
• 13:26
  SPEAKER_01: And as a finance person, I also want to always protect my margin, right?
• 13:32
  SPEAKER_01: So if my revenue goes up, I want to be able to adjust my cost as well.
• 13:38
  SPEAKER_01: So and the other side, if my revenue, so for me, my job is to protect my margin.
• 13:45
  SPEAKER_01: So yeah, sometimes that fixed contract, it locked me in, and now I'm like stuck in that place that I cannot adjust.
• 13:54
  SPEAKER_01: And so again, you can't say either one is like better.
• 14:00
  SPEAKER_01: You have to, it's based on the situation, and you have to decide what works in this situation versus that situation, because also consumption-based contracting, also it's not 100% because, especially on the volume, um, like if you are a payment processing, you are you you have to make sure you are truly know the detail of that contract, you are able to calculate the pricing, you are able to know what is that tier structure in your contract.
• 14:29
  SPEAKER_01: So there is it goes now for contract and finance goes again, going back to our first question, it's like it has to go hand in hand so we can calculate the data that ties to that contract as well.
• 14:42
  SPEAKER_01: So I agree, it's um you have to find the balance between the two.
• 14:48
  SPEAKER_02: That's great.
• 14:48
  SPEAKER_02: Thank you, Armita.
• 14:49
  SPEAKER_02: Armita, there's an important distinction in the article between flexibility and genuine outcome-based contracting.
• 14:57
  SPEAKER_02: The the research cited suggests that simply paying for performance does not by itself produce better results.
• 15:06
  SPEAKER_02: The design of a contract and the way the outcome is measured are critical.
• 15:11
  SPEAKER_02: So, I mean, what should organizations be thinking about when they decide whether an outcome-based model is actually appropriate?
• 15:21
  SPEAKER_01: I definitely think outcome-based contracting is a great concept, but the execution piece is the part that a lot of people don't like realize it can be difficult.
• 15:36
  SPEAKER_01: Because when you, for example, if you are implementing a software, that is a perfect like outcome-based because you can put uh you can put like delivery data and say, by this time, you need to deliver this um part of the software implementation.
• 15:53
  SPEAKER_01: Or um you are like, we need to achieve certain milestones when we are implementing a software.
• 15:59
  SPEAKER_01: So that's a perfect outcome-based uh situation for us.
• 16:04
  SPEAKER_01: But then you have another contract in another situation that you assign a company to help you to improve your profitability.
• 16:12
  SPEAKER_01: But there are so many factors that go into that profitability.
• 16:16
  SPEAKER_01: You have your head number of head count, or the market is still exactly the same way that we signed at the time of we asked you to do help us through the profitability exactly the same thing, or the sales team is performing exactly the same.
• 16:32
  SPEAKER_01: So there is so many variables that then now you have to, at the end of the day, you have to go back and forth to decide who who resulted in that profitability.
• 16:44
  SPEAKER_01: And if the result is not that, so you're basically thinking about now this is uh ready a contract that's at the end of the day, it's gonna result in disagreement.
• 16:56
  SPEAKER_01: So I would say the most important part if you're going to do that, to is uh you should be able to clearly measure the outcome to understand what is our outcome, are we able to measure it or not?
• 17:10
  SPEAKER_01: And then uh basically meaningful control, the supplier should be able to clearly control the outcome as well.
• 17:19
  SPEAKER_01: Yes, the buyer is also contributing, but supplier should be able, and then at the third time, we should really agree what are we expecting.
• 17:28
  SPEAKER_01: So these are the factors that when we do the agreement based on the outcome base, we all on the buyer and seller to be able to actually measure and calculate and agree on, otherwise, we're gonna end up to be at the end of the day on a disagreement on a contract.
• 17:52
  SPEAKER_00: So um when it comes to the outcomes, um, it really depends on the industry you're in and what you're delivering.
• 18:02
  SPEAKER_00: If it's a straightforward product and volume and you need to deliver it every week, every month by a certain timeline, you can decide on an outcome and measure it and have penalties or SLA credits if you miss those deliverables.
• 18:18
  SPEAKER_00: There are certain types of services, or even in the software world.
• 18:23
  SPEAKER_00: Um, Armitta, you mentioned, you know, if it's a project and there's deliverable milestones, you can measure towards it and pay based on each milestone.
• 18:33
  SPEAKER_00: But I'm gonna flip it from my side as a vendor.
• 18:36
  SPEAKER_00: Here's where we often get uh stuck in our contract negotiation.
• 18:41
  SPEAKER_00: When we're delivering a software product as a service, which is pretty much all SaaS software cloud delivery now.
• 18:49
  SPEAKER_00: Um yes, there are fixed milestones.
• 18:53
  SPEAKER_00: You know, when you migrate my 10,000 contracts, that's a milestone done.
• 18:58
  SPEAKER_00: You get paid X number of dollars, you know, say 20% of the contract value.
• 19:03
  SPEAKER_00: When you finish testing and ready to go live with the software, you get another 30% payment.
• 19:09
  SPEAKER_00: There is usually an acceptance clause.
• 19:12
  SPEAKER_00: Um, and that's where it becomes a gray area that okay, the remaining, you know, whatever, let's say 20% is the last milestone, will be paid based on an outcome of acceptance by the customer.
• 19:24
  SPEAKER_00: And when they say, Well, I like everything you've done and now I'll pay you.
• 19:29
  SPEAKER_00: What does that mean?
• 19:30
  SPEAKER_00: And how do you measure it?
• 19:31
  SPEAKER_00: Because the risk is on the in that clause, the vendor side.
• 19:36
  SPEAKER_00: And if I'm the CFO of the vendor selling, that CFO has got to know that all right, we might not get that 20% payment for a long time if the customer chooses to just delay, saying, I don't like X, Y, and Z, and you need to change it.
• 19:51
  SPEAKER_00: And and the vendor could argue, well, we did X, Y, and Z based on the requirements and how the software works.
• 19:59
  SPEAKER_00: Um, just because one person doesn't like it, you cannot hold acceptance.
• 20:03
  unknown: Right?
• 20:03
  SPEAKER_00: I don't know if you've ever run into this, but this is a very common occurrence in the software world where there's clause is always in that agreement.
• 20:12
  SPEAKER_00: And and most customers are reasonable, and you know, if I don't like the color white and I want to make it blue, that's not gonna hold up acceptance.
• 20:21
  SPEAKER_00: But there's so many subjective opinions and ways that a system can be configured that acceptance may never come.
• 20:28
  SPEAKER_00: My point is the outcome-based pricing is increasing um and in the current industry, and and look at AI as well.
• 20:40
  SPEAKER_00: You're buying tokens and and consumption-based pricing on AI usage.
• 20:46
  SPEAKER_00: How do you how do you forecast that?
• 20:48
  SPEAKER_00: You don't know how many tokens your team is gonna use in 2027.
• 20:52
  SPEAKER_00: Uh, or if you cap it, let's say everybody's allowed up to use, I don't know,$200 a month on token usage.
• 21:00
  SPEAKER_00: Uh, is that enough for everyone to do their work with AI?
• 21:04
  SPEAKER_00: So there is gonna be a lot of uh variables coming into defining the outcomes or consumption uh when you're negotiating contracts with your suppliers and your customers.
• 21:14
  SPEAKER_00: And um I at the current time, I don't think there's a straight answer that yes, you should do everything outcome-based or consumption-based, or no, you shouldn't.
• 21:23
  SPEAKER_00: Um, it may be a hybrid for now.
• 21:26
  SPEAKER_00: There are certain things that are fixed that you pay, and then you can take out a carve out a component of the overall cost and say that's gonna be based on outcome or acceptance or consumption and um make it fair to both sides.
• 21:41
  SPEAKER_02: Great.
• 21:42
  SPEAKER_02: Thank you, Matt.
• 21:43
  SPEAKER_02: Uh Matt, the article describes the forward book, the contracts, renewals, and supply terms that carry next year's costs and revenue as something that needs to reach the planning layer in a form finance can use.
• 21:57
  SPEAKER_02: Um what would that visibility?
• 22:00
  SPEAKER_02: Actually, look like in practice?
• 22:02
  SPEAKER_02: And how could a commercial intelligence officer help bring together information that currently sits across procurement, legal, sales, and delivery?
• 22:13
  SPEAKER_00: So the acronym for that becomes CIO.
• 22:15
  SPEAKER_00: And historically, CIO is not the same person we're talking about.
• 22:19
  SPEAKER_00: Commercial Intelligence Office is very different now.
• 22:23
  SPEAKER_00: Um, it's not the technologists or IT or the information officer, but it's intelligence office or officer.
• 22:30
  SPEAKER_00: And the reason that why this is becoming increasingly important is when you're negotiating a contract and managing the contract and its amendments and the whole contract family, it's not just sales or procurement or legal or finance.
• 22:48
  SPEAKER_00: You've got everyone involved in making sure that that agreement and that commercial relationship with the supplier or the counterparty or the customer is beneficial and profitable.
• 23:01
  SPEAKER_00: Um, because we don't we don't create contracts just because we're friends, we're creating contracts to do business and both sides are looking to gain something from it, whether it's revenue or it's a product or service that helps them.
• 23:15
  SPEAKER_00: Now, the CIO office needs to have representation from all of these departments besides sales, legal, and procurement, that typically deal with contracts.
• 23:25
  SPEAKER_00: Finance has to have a seat.
• 23:28
  SPEAKER_00: Um, I would say even your somebody from your product team or RD or delivery, whoever's actually building and delivering the product or services, because if your sales team or procurement team is negotiating something and it requires that delivery or product team to build or or or create something, they need to know.
• 23:52
  SPEAKER_00: Otherwise, you're gonna miss the obligations and the contract is gonna have an issue.
• 23:56
  SPEAKER_00: So um measurable uh output of of this uh forward book, each uh each of those representatives in the office of the CIO or commercial intelligence office needs to define about three to five terms that are important to them.
• 24:16
  SPEAKER_00: So the term of the contract, CPI or price uh indexing, uh volume commitments, SLAs, payment schedule.
• 24:27
  SPEAKER_00: You know, typically finance gets pinged whenever there's a payment term that is non-standard, or there's a penalty for termination termination without uh cause um or with cost for that matter.
• 24:42
  SPEAKER_00: No, but finance needs to be more involved in all those terms, you know, the delivery schedule, uh, if there's outcome-based pricing, currency, if it's a global international contract, uh you need to also look at uh whether the contract is in a fixed currency or be fluctuating because with the rates changing all the time, that could actually change your revenue uh by a few dollars or lots of dollars.
• 25:09
  SPEAKER_00: Um renewal terms are is it auto-renewing?
• 25:13
  SPEAKER_00: Is it only renewing based on confirmation but with an advanced notice?
• 25:17
  SPEAKER_00: Um, there's lots of but my point is each of those parties in the office of CIO has to have defined metrics that they can track in a contract.
• 25:29
  SPEAKER_00: Uh monthly phasing or tracking for that group to meet and see how you are doing against those uh measurable uh outcomes that you're tracking or the feels that you're you're trying to capture.
• 25:43
  SPEAKER_00: Are you always negotiating outside the norm?
• 25:46
  SPEAKER_00: Because if 80% of the time you're approving exceptions, then what's the point of having those standards?
• 25:53
  SPEAKER_00: Um a decision-making calendar is another one where you can you can change on a quarterly basis, the team meets and decides on variables that you want to change, um notifications for the the suppliers or the third party to uh you know uh to allow you to make those changes across amendments and and contract families that you might trigger certain changes.
• 26:21
  SPEAKER_00: Um and then uh reporting what kind of output does each representative in that group, CIO, uh the commercial intelligence office need on a monthly or a quarterly basis so that they can actually track their own team's performance or obligations against those contracts.
• 26:42
  SPEAKER_00: So the the forward book or whatever terminology that um finance may want to use, they will need this control and this process in place to be able to track um what they're negotiating and and and managing on those contracts.
• 26:59
  SPEAKER_02: Great.
• 27:00
  SPEAKER_02: Thank you, Matt.
• 27:00
  SPEAKER_02: Armita.
• 27:02
  SPEAKER_01: I would say exactly the same thing because again, it's not a matter of that we are missing the information, it's a matter of this is information that are scattered all over the place.
• 27:15
  SPEAKER_01: For example, our revenue uh sits in this some CRM solution that the sales team knows about it, and then legal has all the uh executed agreement that is some saved somewhere, and then procurement is managing the expenses, finance is using assumption, historical numbers.
• 27:37
  SPEAKER_01: So all this information exists somewhere, it's just all over the place and scatter, and there is no connected dot to each other, and that's when the commercial intelligence office or CIO office comes in handy because that's the place that all of this can come together and create that cohesive uh journey for the organization.
• 28:02
  SPEAKER_01: That where are we going?
• 28:04
  SPEAKER_01: What is our supplier?
• 28:06
  SPEAKER_01: Uh, is the uh agreement that we did like a couple of years ago still relevant?
• 28:12
  SPEAKER_01: Is it delivering that value that we want to and like align the direction of the direction that organization moves with these commercial agreements as well and gets us where we need to be.
• 28:27
  SPEAKER_01: So exactly as Matt said, that we need to all these offices that have the information need to get together, define those uh main points and item that we all care about, and it's gonna contribute to our organization and it's gonna grow our organization, and that's when the CIO office becomes extremely important that we are able to utilize and contribute to overall growth of the organization.
• 28:58
  SPEAKER_02: Wonderful.
• 28:59
  SPEAKER_02: Collaborate for clarity, great.
• 29:01
  SPEAKER_02: This is the fourth and final article in our letter to the CFO series, and there is a common thread running through all four pieces.
• 29:10
  SPEAKER_02: The contract is much more than a legal document.
• 29:14
  SPEAKER_02: Armita, if I can pose this final question to you first.
• 29:17
  SPEAKER_02: If we accept that contracts are effectively shaping the financial future of the organizations, what needs to change in the way CFOs and their organizations manage the contract portfolio?
• 29:31
  SPEAKER_02: And what is the first step towards making that shift?
• 29:36
  SPEAKER_01: I think it we definitely, and um the it the world has evolved around, like especially at the office of CFO.
• 29:44
  SPEAKER_01: CFOs uh have moved so much from the traditional CFOs that it used to be, but at the same time, we have to move away that from that traditional looking at the contract, we sign, agree, move it aside, and only we look at contract when a renewal is coming up or some problem has arisen now.
• 30:07
  SPEAKER_01: We need to go look at those contracts that has evolved.
• 30:11
  SPEAKER_01: As the office of CFO, I would look at it as like the same way I used to look at it as my balance sheet.
• 30:19
  SPEAKER_01: Uh, it's my asset and liability, right?
• 30:22
  SPEAKER_01: So I need to monitor that, I need to make sure that one have a close watch on it.
• 30:28
  SPEAKER_01: And it doesn't mean that CFO should sign every single contract, need to be involved and act like a legal person, but at the same time being involved at like what is our financial exposure?
• 30:42
  SPEAKER_01: Um, and did the commitment, again, going back to what I said before, did the commitment that we made a couple months ago or 18 months ago still is contributing the same way to our organization so we can review it again.
• 30:58
  SPEAKER_01: Again, uh, I would say uh it's uh this is the powerful question that we should all uh ask ourselves.
• 31:07
  SPEAKER_01: That is the commercial commitment that we have made a couple months ago, a couple of years ago still is relevant and it's contributing the same value that at the time of signage we use it still, and that's when it's critical for us to treat the contract at the same way we used to treat the all the just our balance sheet or our PL.
• 31:32
  SPEAKER_01: So that becomes extremely critical to us.
• 31:36
  SPEAKER_01: And um, again, our forecasting should not purely be based on our financial and how our historical has been.
• 31:44
  SPEAKER_01: It should make it uh for forecasting, it should become kind of an organization commercial decision for us as well.
• 31:53
  SPEAKER_01: That's how we're gonna be able to grow the company.
• 31:57
  SPEAKER_02: Wonderful.
• 31:57
  SPEAKER_02: Matt, have the final note, please.
• 32:00
  SPEAKER_00: I I shouldn't be talking, I'm absolutely not the CFO.
• 32:04
  SPEAKER_00: I did take finance class in college, but um, so Armita's word on this one holds true.
• 32:11
  SPEAKER_00: You know, she's the expert.
• 32:12
  SPEAKER_00: Um, all I can say is from watching our customers use our contracting technology.
• 32:21
  SPEAKER_00: Um, one thing is contract reviews and contract management playbooks have historically been considered a legal playbook.
• 32:30
  SPEAKER_00: So attorneys, GCs design a playbook on what should a contract have or not have, and what are the terms they want to stick to or allow versus not allow.
• 32:42
  SPEAKER_00: I think each department, including CFO, CFO has to have their own playbook.
• 32:48
  SPEAKER_00: That while CFOs don't have to sign a contract or be owning any of that, with the latest in AI and agents running across these CLM systems, Armita, think about you having your own bot or agent or playbook agent that says for every new supplier or customer agreement, run this Armitha AI agent.
• 33:10
  SPEAKER_00: I'm not gonna be reviewing it and look for the payment term, look for the CPI or the price index for price increase, look for renewal terms.
• 33:20
  SPEAKER_00: Uh, is there a termination without penalty?
• 33:23
  SPEAKER_00: Is there a late fee?
• 33:24
  SPEAKER_00: Whatever things, five or ten things that you care about in a contract, and bother me if the contract is vastly different from my preferred terms.
• 33:35
  SPEAKER_00: So now you're in the review process and making sure that you are uh protecting the financial health of the company in every contract without having to be a bottleneck for the team that is trying to get that contract negotiated.
• 33:50
  SPEAKER_00: The only other point I will make is in any contract negotiation, both sides are coming in as if, you know, yeah, I'm here you are ready to build a relationship, and we're already talking about a divorce.
• 34:02
  SPEAKER_00: What bad things could happen where if we break up, or if you don't do this, if you don't do it, it's a very negative way of negotiating.
• 34:09
  SPEAKER_00: Instead, if both sides agreed, okay, what are the five most important terms and conditions for you?
• 34:15
  SPEAKER_00: And here are the five important things that I care about.
• 34:18
  SPEAKER_00: Uh, and be fair.
• 34:20
  SPEAKER_00: And and so rather than pick every little thing, pick and choose what's important to you.
• 34:25
  SPEAKER_00: For example, let's just take the easiest one.
• 34:27
  SPEAKER_00: Finance often will enforce a 30-day payment term or 15-day or 45-day, whatever your cash flow situation is and what you prefer.
• 34:36
  SPEAKER_00: If you're a bigger company and if it's not that critical that you get paid in 30 days, and if if a few days more is better for the supplier, because maybe they're a my MWBE or a smaller organization that you want to work with, give on that and maybe ask for something else.
• 34:55
  SPEAKER_00: So prioritize what are your main things, and if if don't ever negotiate because that's how I've always done things, that's not a valid reason to negotiate terms.
• 35:06
  SPEAKER_00: Uh so pick the pick your battles, as they say, right?
• 35:10
  SPEAKER_00: Negotiate the terms that are really important rather than trying to be nitpicky and the big guy forcing the small guy in the contract relationship to do the things their way.
• 35:20
  SPEAKER_02: Excellent.
• 35:21
  SPEAKER_02: Thank you.
• 35:22
  SPEAKER_02: Well, unfortunately, that's all we have time for in this episode of the leading edge.
• 35:27
  SPEAKER_02: The move towards continuous planning reflects a fundamental reality.
• 35:31
  SPEAKER_02: The business does not stand still.
• 35:33
  SPEAKER_02: So the way we plan for it cannot stand still either.
• 35:37
  SPEAKER_02: But as we've explored today, that principle has to extend beyond the budget.
• 35:43
  SPEAKER_02: The contracts underneath the forecast determine how much of the organization's cost and revenue can actually move when circumstances change.
• 35:52
  SPEAKER_02: They determine where flexibility exists, where exposure sits, and how quickly the business can respond.
• 35:59
  SPEAKER_02: That makes the contract portfolio an integral part of the CFO's forward view.
• 36:05
  SPEAKER_02: And that brings us to the end of our four-part letter to the CFO series.
• 36:10
  SPEAKER_02: Across these episodes, we've explored the contract portfolio as a neglected financial asset, examined the relationship between supplier pressure and resilience, challenged the idea of margin that is simply borrowed from the future, and of course, finally looked at why the contract itself needs to evolve alongside the move towards continuous planning.
• 36:33
  SPEAKER_02: The message running through all four is perhaps a simple one.
• 36:37
  SPEAKER_02: If the CFO wants a more dynamic, resilient, and forward-looking business, then the contracts that underpin that business need to become dynamic, resilient, and forward-looking too.
• 36:50
  SPEAKER_02: Thank you to Matt and our meter for joining me today.
• 36:53
  SPEAKER_02: Thank you both so very much.
• 36:58
  SPEAKER_02: Thank you.
• 36:59
  SPEAKER_02: And thank you for listening.
• 37:01
  SPEAKER_02: Stay tuned for our next episode where we'll continue to explore the ideas, innovations, and leadership shifts shaping the future of commerce and contracting.
• 37:11
  SPEAKER_02: Until then, keep challenging, keep adapting, and keep leading.