Today more than ever, companies are finding ways to reduce costs and improve efficiency by outsourcing parts of their operations. Service-level agreements (SLAs) have become the stock in trade of modern corporate culture because they define the relationship between the customer and the outsourcer.
An SLA that doesn’t include all the key elements will benefit supplier by reducing their obligations and incentives to perform well.
Here are 10 steps you can follow to ensure effective outsourcing with every SLA you enter into with a supplier.
Step 1: Define the Service Levels
It’s important that you define every service level that will be covered by the SLA. These include not just deadlines and quality, but speed, efficiency, conformity, timeliness, user-friendliness, reliability, capacity, availability and effectiveness of services.
Factors should include a strong correlation with the value that the supplier delivers, as well as availability of reliable date to measure real performance.
Step 2: Determine What Will Be Measured by the SLA
For an SLA to be effective, it’s necessary to carefully define what each of the service levels will measure. If you don’t suppliers who don’t meet service levels can argue that the terms weren’t crystal clear.
The way to do this is to define a clear standard that fits the specific processes and technology that are applicable to the SLA. If you aren’t up to speed on these processes, recruit somebody from within your organization to help you draft an iron-clad SLA that will get you what you want while protecting your business’s interests.
Step 3: Determine How Performance Will Be Measured
For every aspect of the service level, there must be a corresponding method for measuring actual performance. This measurement method will allow you to rely upon reported results to determine whether or not the goals of the SLA are being achieved according to the definitions outlined in the document.
The key issues in determining how performance will be measured can include accuracy, cost and visibility.
Step 4: Define the Measurement Period
Essentially, this requires defining the deadline for both the overall project and the individual steps within the process. Measurements can be any increment, but typically they are by the week, month or quarter.
Step 5: Define the Reports the Supplier Will Provide
In most cases, it will be easier for you if you lay the burden of providing a reporting structure at the feet of the supplier. Within your SLA, define the information that should be included within the report, as well as the timetable for reporting – such as on a daily, weekly or monthly basis – so that you can measure progress and identify and address problems before they become bigger.
Step 6: Define the Suppliers Performance Level
The SLA should include both minimum performance levels and expected performance levels. The supplier will be required to meet at least the minimum service levels as they are defined in the document, with failure to do so representing a breach of the agreement.
Expected service levels also can be measured. There may be incentives included for meeting or exceeding these expectations or credits associated with failing to achieve them. But a failure would not be a breach of contract unless there were multiple failures with a pre-defined time.
Step 7: Define How the Minimum and Expected Service Levels May Change Over Time
Especially in longer-term SLAs, the minimum service levels and your expectations may evolve over the length of the contract, so you should consider including automatic adjustments to service level requirements. These can be based on such things as changing volumes, technological improvements, or supplier performance.
By making adjustments within the life of the SLA, you can respond to expected or unanticipated changes in your business.
Step 8: Define Service-Level Credits
It’s important that both parties understand the process for providing service level credit should the supplier fail to achieve the service level as defined in the SLA. This could take the form of a monetary refund, a credit toward future services, or some other form of compensation.
If the service level credit is already defined within the SLA, it eliminates any confusion or misunderstanding later and protects both parties within the terms of the agreement.
Step 9: Define Any and All Service Level Bonus Structures
Any type of service level bonus needs to be defined up front so that it can provide the proper incentive to the supplier to optimize their performance.
Step 10: Cover Every Contingency
Most SLAs can be terminated for cause if there is a material breach by either party. But clear language needs to be included to define what constitutes a service level failure sufficient enough to constitute a material breach of contract.
Define particular events that both sides agree would allow termination for cause. These can include such things as minimum service levels or the amount of accumulated service level failures that justify termination.
Having every aspect of the service agreement outlined clearly and precisely in the SLA protects both parties and promotes the efficient and successful outsourcing of the aspect of your operation you want to turn over to an outside vendor.