SLA compliance does not guarantee that outsourcing will work out. Avoid seeing red when all the lights on the service dashboard are green. Here is the list of dos and don'ts of the SLA.
Service level agreement (SLA) is still a crucial part of outsourcing contracts. They form the core of service delivery reporting over the life of the IT service agreement. In the long run, any mistakes made in the way SLAs are written can make it difficult to measure service delivery accurately. This can lead to a report that doesn’t match what’s happening on the ground. When all the lights on the service delivery dashboard are green, but the customer sees red, it can be bad for the relationship. So it’s essential to get SLAs right as much as possible. Here are 10 dos and don’ts to keep in mind when crafting more effective SLAs.
Dos and Don’ts to Think About When Writing SLAs
1. SLAs Should Be Written with Common Sense
People who set unrealistic or irrelevant service levels only make it more difficult to run the arrangement. There will be a lot of extra work for everyone if there are too many metrics.
So Saurabh Gupta, CEO of outsourcing consultancy HfS Research, says that instead, “Choose the few metrics that actually matter to achieve your business goals.” As a rule of thumb, “Be practical and use SLAs to ensure your work meets a certain standard.”
Randy Wiele, a managing director with KPMG’s shared services and outsourcing advisory, says that “You should aim for fewer, but more complete, service levels so that you can save money.”
Besides that, “All sides need to be honest about their tolerance for failure,” says Clay Calhoun, a partner and leader of ISG’s sourcing advisory service. It’s almost always more than IT professionals think. This way saves Money and explains why the service levels are as they are to the people who use them.
2. Paying Fines Doesn’t Save You Money
SLAs often have clauses that say that if an outsourcing deal goes wrong, the company will get paid. But there is a downside to doing so, especially when it comes to taking credits to make up for poor grades.
“Enterprises need to understand that SLA Agreement-related financial penalties are meant to make service providers do the right thing, not give them money at the drop of a hat,” says Sharma.
Pushing too hard to make too many ‘Critical Performance Indicators,’ which are metrics linked to financial penalties, will make the most critical measures less critical.
Marc Tanowitz, the managing director of outsourcing consulting Pace Harmon, says that “Buyers have realised that credits don’t always cover them for the bad service they get.” “There is more emphasis on finding the root cause of a problem and setting up and implementing a plan of action to fix it.”
3. Do Think About Pushing Back Against “Earn Back Clauses”
Outsourcing providers have the right to not pay a service level credit if they meet specific standards later on. Earn back clauses do this because they allow them to do this. These clauses are becoming less popular for a good reason, so they should be aware of that when they write them.
“We have seen a big drop in earning back clauses in modern contracts because clients think that service loss at one time can’t be made up for by overachieving later,” Sharma says.
4. Never Mix up Metrics
If you work for Pace Harmon, Tanowitz says that all SLAs should be separate from each other and not measure the same things. Service Level Agreement needs to look at different parts of the symptom and show how the client’s operating environment and how it works.
5. Do Not Be Too Vague with SLA Agreement
There should be as many facts and figures as possible in an SLA. It’s important to be clear about what you’re measuring, how you’re calculating it, evaluating it, and if there are any exceptions or exemptions, says Tanowitz of Pace Harmon.
ISG’s Calhoun says that before the contract goes into effect, the client and the provider should meet to look at each service level for measurability, figure out how to measure them, and think about how the changes could affect the business.
“It’s surprising how often, even when the contract was made with the best intentions, this evaluation turns up problems that need to be fixed.”
6. Do Not Raise the ‘Risk Fee’ Too High
If the service provider has more to lose, people think they will be more motivated to do well. As a result, clients often tie a portion of an outsourcer’s fee to how well they do. Even so, that can have some other side effects, too.
“If the risk of paying fees goes above a certain point, this could lead to higher prices from the service provider because the extra cost is baked in as a buffer,” Sharma says.
7. Give People Time to Pay
If there isn’t a lot of data available at the start of the contract, the SLA Agreement and its financial penalties should not be used at the start of the project. Sharma says that the first 60 to 120 days should be a time for you to learn without being punished.
8. Don’t Pay Extra for Better Service
If your company is looking for a high level of service, paying more may not be the best way to get it. KPMG’s Wiele says that “generally, service providers have a single way of providing service.” It’s more of an allocation of risk than an improvement in the service that costs more.
9. Do Change SLAs Over Time
If a service level doesn’t meet business needs or causes other problems, you don’t have to live with it, says Calhoun. You don’t have to keep it.
Automation and other service-optimization technologies, for example, have made some metrics obsolete and made new ones important. Make changes to service level agreements with the provider.
Sharma: “Metrics and their associated stringency targets are being looked at as part of the governance process and changed or edited as needed and with everyone’s approval,” he says.
10. Think of SLA Adherence as Not Being a Guarantee of Success
“The biggest mistake is to think that just adhering to the SLA Agreement will make things better,” says Gupta.
However, IT leaders who take the time to write thoughtful Service Level Agreements (SLAs) will be able to use them to check the health of their relationships and act on them. If you have problems with performance, don’t expect service levels to help. KPMG’s Wiele says this. “They are used to find out what’s wrong; good service management and governance are needed to improve service.”
Conclusion
Crafting an effective SLAs is crucial to maintaining a successful partnership. By following the 10 dos and don’ts outlined above, you can ensure that your SLA is well-defined, realistic, and effective. Remember to seek input from legal and business experts, establish clear communication protocols, and document everything. By doing so, you can avoid disputes, maintain accountability, and foster a strong and productive relationship.
Read More:
