Service level agreements (SLA) are crucial to ASP buyers. SLAs create structure for the relationship and help both parties measure performance. But how do you write an SLA? How do you monitor them? Who is responsible for managing the SLAs?
Outsourcing Center consultant Robert Damm, an ASP specialist, says the basic rule for SLAs is: Suppliers do nothing for free. “If you ask for it, you pay,” he points out.
Damm says executives must decide what they need to monitor before they start penning SLAs. “Be sure you need that special report,” exhorts the consultant. Too often, he notices companies make extraneous — and expensive — requests that do not materially affect the operation of the business. There is a better use of precious capital, in his opinion.
For that reason, the first crucial step in establishing strong SLAs is to always have the business executives and the IT professionals make decisions jointly. Damm says each side has a wish list that the other side tempers with reality. Together they can craft a decision that works on all fronts.
The second step is to ensure all SLA have some kind of penalty associated with failure. Damm says buyers need to understand the goal of the penalty is to capture the vendor’s attention and announce that this area is important to you. Penalties can never recapture the amount of money lost if a supplier does not perform according to plan. Damm says penalties end up reimbursing the buyer for only a portion of the loss at best.
Three Musts for SLAs
Damm says the one of the most popular ASP uses is for enterprise resource planning (ERP) software. In this case, he says there are three major elements to measure. Each needs its own SLA and should be written at the component level.
- Response Time. The buyer must measure response times for the server, the application, the database and customer support. The business plan and customer behavior play a part in this decision. Damm says global companies may elect to have a 24/7 response time from their ASP suppliers since one part of the world is always awake and online. However, companies located in one area, like the Northeast United States, may only need availability during business hours.
- Availability. This is one area where both decision-makers have to agree. One side might want the availability to reach the gold standard – three 9’s or 99.9 percent. But that SLA will be a costly one. Both sides need to weigh the availability time versus the cost to reach a decision that makes business sense for the company.
- Account management. Damm says buyers often forget this SLA. But that is a big mistake because this SLA sets up the relationship’s governance model. This SLA states in black and white when a buyer will receive specific reports and meet with the supplier. It will state the single point of contact at the vendor so the buyer knows who to call with concerns. The SLA also outlines how the two parties will solve any problems that arise. “If there are changes, problems or projects, the SLAs will set the framework for the discussion,” he says.
The Importance of Enforcement
SLAs do no good if you, the buyer, do not follow up. Too often buyers get so wrapped up in the day to day details they forget about the SLAs. “If you don’t ask for a report when it’s due, it will slide,” observes Damm. If a report is due on the first of the month, that’s when you want it. If your monthly meetings have to be some time during the first week , schedule them accordingly. The consultant says a vendor will assume you’re not interested in SLA monitoring if you become lax about the deadlines. If you view them as ironclad, they will be.
What should you do if an ASP vendor is violating an SLA? Damm suggests sitting down with the vendor face to face, if possible, and ferret out the various reasons why the SLAs are not being met.
Damm says it is easier to play detective and solve problems when the buyer measures the components of the ERP system and does not look at the system as a monolithic whole. The consultant suggests using the four measures for each of the ERP components. For example, you can see the servers are always up but the network connection keeps going down. “Compartmentalizing allows you to talk intelligently with the vendor about what’s going wrong. That way you don’t get a song and dance from the vendor,” says Damm.
Lessons from the Outsourcing Primer:
- Both the business side and the IT side must work together to make decisions about SLAs.
- Buyers must know what they need to know to make their business run profitably. Ordering special reports at extra cost that add nothing to the business is a waste of resources.
- SLAs should apply to each component of the application. Do not view the application as a monolithic whole.
- Don’t ignore the governance SLAs.
- Don’t let deadlines slide. The vendor will assume they are not important to you.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].