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Page 4 of 8
Provision and Management Basics
Once the contract has been signed, the service must be put into operation. The
service then must be monitored to ensure the SLA is being met and that other
aspects of the vendor-client relationship remain satisfactory to both parties.
Service contracts must continue over a period of time, which may include
business and technology change. Contract management needs to handle the
ongoing processes and relationships.
SLA Management
The SLA sets acceptable levels of service and spells out specific remedies if these
levels are not met. The SLA requires ongoing management, which includes:
- Monitoring.
- Reporting.
- Review.
- Feedback.
- Adjustment.
These steps are illustrated in Figure 3.
Figure 3. SLA Management
Enlarge Image
Monitoring. Monitoring an SLA requires establishment of metrics and set
periods for measurement that may be linked to time periods or to specific
events. Monitoring is an ongoing process, and should include advance
notification of any potential problems with the service or process. This
is most easily accomplished if the metrics are simple and can be easily
quantified. In other cases, day-to-day monitoring may be established by
looking at related factors such as marketing success, customer complaint
numbers, overall sales, or employee retention levels. If peripheral
measures are used, it is important that they accurately reflect the attribute
that they are intended to measure.
Overall results of the service also need to be periodically measured,
particularly in the case where some process improvement or value-added
benefit is required. It is easy to become caught up in the measurements
themselves, and lose track of the ultimate outsourcing goals.
- Reporting. A regular reporting structure needs to be established, so that
results can be viewed by all who might be affected. The SLA may, after
a time, require changes and it is only through accurate reporting that an
adequate picture of service levels and service history can be established.
- Review. Establishing a periodic review with the supplier also helps to
ensure that the service remains on track and that the two parties continue
to be in agreement as to what is required. Additionally, there must be
structures in place to resolve issues as they appear, before penalties are
raised or the agreement goes sour.
- Feedback. Constant feedback is to be encouraged. An SLA is an
agreement between two disparate organizations that have inherently
different goals. Continuous communication and open feedback channels
ensure that potential issues can be spotted before they become
problems.
- Adjustment. The service level agreement is the key to the outsourcing
contract because it defines the service to be provided, the level of
service that is expected, details of that service, and metrics for measuring
success or failure in meeting requirements. Redefining the SLA is generally
on the same conditions as redefining the contract.
Managing the Relationship
There are numerous ways in which a service contract arrangement can go
wrong. Fundamentally, a service contract creates a complex relationship
between two parties that intertwines business processes. This means the
relationship needs to be carefully managed to ensure that both parties remain
happy with the arrangement. The primary reason for failure is poorly defined
expectations, manifested by a lack of defined service objectives and inadequate
measurement of service-related activities.
Potential trouble areas include the following:
- Selection and contracting.
Lack of an adequate supplier selection and evaluation process. This
could include insufficient definition of the scope of services required in
the RFP or bidding stage.
Lack of understanding of the basic structure of the agreement by
the service buyer, including attempts to micro-manage or force
the supplier to adopt a specific method rather than relying upon
the supplier's expertise. The buyer may also lack a complete
understanding of the processes being outsourced.
Cultural differences between the buyer and supplier resulting in a
mismatch between the goals and objectives of the two sides.
- Contract provision and management.
Inflexibility in the agreement, with insufficient provision for change in
technology and/or business.
Inadequate service-level specifications, inadequate metrics for
judging performance, or lack of enforcement of service-level
agreements.
Inadequate management, due to underestimation of time and
attention needed to oversee the relationship, or due to a lack of
a sufficient management structure. Lack of adequate planning,
particularly not developing contingency plans for potential disruptive
events during the transition phase.
Problems can arise at any stage up to the point of termination. If not handled
correctly, the outsourcing arrangement can become uncomfortable,
unprofitable, or inefficient. Most problems result from the issues that impede
relationships of any sort: misunderstanding, poor communications, unreasonable
expectations, and lack of adequate rules (contract provisions or remedies). In
many cases, problems can be corrected if they are caught early enough and
given due attention.
Change Management
Conditions seldom remain static, particularly in areas of advancing technology.
Business conditions are also constantly shifting. Change that requires adjustment
to contracts can occur within the business environment, within the legal
environment, due to new business strategies, or as a result of major events such as
acquisitions and mergers. Flexibility provisions are needed to provide a response
to unanticipated change. Change might also result during the ordinary course of
operations. Typical issues include:
- Technology change flexibility. In long-term contracts, the service provider
needs to assume some risk of changes in technology, and plan on the
basis of benchmarks (such as Moore's Law), and relationships between
price and performance.
- Change control procedures. Long-term service agreements require
change-control procedures, which are carefully implemented and
monitored to avoid use of short-term solutions for long-term problems that
require systemic approaches.
- Re-pricing issues. Pricing schedules should incorporate bands of services
at varying and foreseeable levels. This facilitates financial planning for
both parties.
Both buyer and supplier need to bear in mind their competing interests in
negotiating key contract clauses and both should include a viable renegotiation
and exit strategy in the contract that represents their respective interests.
Next: Contract Management Practices
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