Irreversible breakdown in relations, loss of reputation, financial penalties, services taken back in house and termination of contract. These are just some of the outcomes can occur when clients and service providers agree to poorly worded, unclear and unfair Service Level Agreements (SLAs) and Key Performance Indicators (KPIs).
The critical nature of SLAs, KPIs and Operating Level Agreements (OLAs) and their effectiveness is all too often undervalued. SLAs, KPIs and OLAs are easily ‘glossed over’ during the sales and contracting process and not dealt with in sufficient detail or in a timely manner. Once services have transitioned to the outsourcing provider and work is in ‘business as usual’ the reality of agreeing to ‘skim over’ this section of the contract really comes to light.
SLAs, KPIs and OLAs are widely accepted as the best way to manage on-going outsourced services, however, it is alarming that whilst most managers have a general idea of there purpose many don’t really understand the difference between them nor appreciate the significance of getting them wrong.
So what are the unglamorous “just do it” things which a client should focus on to make sure the deal they contract for actually gets delivered? Certainly the following:
What are SLAs, KPIs and OLAs?
A Service Level Agreement (SLA) is a formal negotiated agreement which defines parameters and responsibilities for the delivery of a service. A good SLA will stipulate:
- The exact service that the contractor will provide to the client in a clear and
accurate way
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The timeframes in which the service will be delivered
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The quality and standard of service that is expected
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The framework intended to measure performance
Key Performance Indicators (KPIs) are quantifiable measures used to determine efficiency and effectiveness of the service. The number of KPIs measured should be kept to a manageable number of important performance measures. These should summarise the key service elements and give an indication of achievement against company or departmental goals.
An Operating Level Agreement (OLA) is a SLA that works in reverse, so it details the obligations the client has to the service provider. The service provider’s ability to achieve their SLAs will be dependent on the client delivering their OLAs.
What is their purpose?
The purpose of an SLA is to ensure that both parties have a clear understanding of the services to be provided. SLAs should clearly stipulate responsibilities and define the obligations. They should reduce any misunderstanding and assist in managing expectations. SLAs need to be measured against set criteria which is used to assess the level of performance achieved.
The purpose of a KPI is to provide focus and priority of service. KPIs should be linked to an organisations overall objectives and therefore these are crucial for providing prioritisation for the service provider.
The purpose of the OLA is to ‘level the playing field’. In many of the original out sourcing contracts the obligations of the client were not documented as the contracts were one way. OLAs clearly stipulate the clients obligations towards the service provider.
SLAs and KPIs can be used to effectively manage performance and the relationship with the outsource provider, however the following pitfalls need to be avoided.
Avoiding the pitfalls
In developing SLAs, KPIs and OLAs there are many mistakes that one can fall foul to. The most common errors are discussed below and the steps you need to take to avoid them have been summarised in a simple acronym. This is to help you remember the points you need to consider to ensure your organisation does not agree to poor service levels.
The pitfalls are applicable similarly across all SLAs, KPIs and OLAs so from this point the generic term service level has been used to encompass all three.
S. Keep it simple and specific
Keeping your service level simple and specific will ensure they are understandable and cannot be misinterpreted or translated differently.
The use of common everyday English and addition of exact details including timings and percentages helps ensure a common and clear understanding, which after all is what is required.
T. Don’t measure too much in each service level
Service levels should focus on reporting performance for key performance areas only.
A common mistake made when setting service levels is to try and consolidate several points or service levels into one. This is in an effort to maintain a manageable number of service levels whilst still measuring as much of the processes and outputs as possible. By incorporating too much into one service level devalues it, can make it too complicated and can lead to dispute over interpretation.
O. One owner
Service levels should only have one owner regardless of whether the service level measures the whole or part of a process. It is important that the process which the service level measures can be ‘ring-fenced’ and clear accountability assigned to it. If several parties have input into a process separate SLAs and OLAs should be developed and documented for each part. A service provider cannot sensibly be held responsible if they do not have control over the whole process. If a service level has more than one owner and the service level fails, identifying the responsible party is likely to be problematic and disruptive to performance and the relationship.
R. Measure the Right thing
This point may seem to state the obvious however it is alarmingly common to find service levels and their corresponding measures referring to different things, which ultimately ends up in measuring the wrong thing. This is best explained with an example.
Whilst working on a service levels project in a Payroll department problems were encountered with measuring the wrong thing. This happened due to careless and inconsistent use of words. The wording used in the SLA did not correspond to the wording of the measurement. The SLA originally stated that ‘Over 96% of items had to be reconciled by the 10th working day of the month’. The measure however calculated success dependent on the number of accounts that were reconciled, not the number of items in each account, as suggested by the SLA. On review it was decided that it was the number of accounts that was important and this would be reported on. The wording of the SLA was amended so over 96% of accounts had to be reconciled.
When setting service levels managers must ensure that the service level and measure use consistent language and measures what they actual want.
M. Measure what Matters
Recently while developing Finance and Accounting service levels prior to off-shored the Clients’ Managers had a tendency to try and measure everything. The Managers were keen to measure as much as possible however this resulted in an unwieldy number of service levels and removed the focus of measuring the performance of key deliverables.
Measuring every part of the process and using service levels to maintain control is common as Managers are hesitant to relinquish control of their processes. However Managers need to remember SLAs, KPIs and OLAs are not there to detail every step of the process; this is what procedures are for; their purpose is to measure achievement or failure of critical goals. Therefore service levels need only measure the final overall result. Service levels typically, do not need to focus on mid-process outputs and this should reduce over measurement.
I. Don’t try and measure the Immeasurable
Service levels need to be measurable and measured against criteria that is clear and specific. If performance against a service level cannot be accurately and objectively measured then the service level needs to be rewritten and what you are trying to measure reconsidered.
Whilst working for a Chemical company setting service levels the Country Finance Manager was adamant that accuracy of all journals posted during the month was measured. This would be very difficult to measure and feasible only through manual measurement. Manual recording of information should be avoided due to the scope of error in recording and due to the increase in work load in capturing this information. The value of recording every journal and adjustment posted by everyone in the month was questionable, and this was raised to the Manager. This takes us back to an earlier point of measuring what matters, which in this case is the number of journal adjustment made after month end deadline. Ultimately this is what matters and is what should be measured, rather than measuring lots of information which will add no value.
Getting it right
We now have an understanding of the differences between SLAs, KPIs and OLAs and have identified the ‘STORMI’ conditions that will be encountered if attention is not given to agreeing simple, clear and concise service levels.
However the final question remains as to how to ensure your organisation ‘gets it right’. The importance of constructing good service levels has been addressed in detail however another crucial element is timing. To maximise the benefit of your SLAs, KPIs and OLAs they should be implemented and performance against them measured before any decision, such as outsourcing, is made.
Organisations need to have information about the performance of their on-shore teams so they have a solid understanding of in-house service capabilities and service levels. This information can obviously only be collected when the services are still in-house, but this information is invaluable. Once you have collected this performance data it may not alter your decision to off-shore or use shared services however it will equip you with valuable management information. This information will fully prepare your organisation as it will either confirm that performance is at a level that will not be improved through outsourcing or, more likely, it will provide you with baseline data that can be used to compare against future service provider performance.
To get it right; think about the STORMI you may experience without paying them enough attention and ensure you time it right. |
