Most big companies are now outsourcing services and transactional work from either onshore or local third-party companies. Services that are usually outsourced include payroll, accounting, employee training, and property management among others. It is therefore not surprising that even IT services are now being outsourced. Companies choose to outsource because it is believed that by doing so, businesses can become more productive and profitable. It is understandable for smaller businesses which tend to shy away from this practice because outsourcing can get pretty risky especially if they do not know when or how to take advantage of it.
The success of outsourcing lies on how well the Service Level Agreement (SLA) is formulated. Here is a ten-step guide to make IT outsourcing successful for your business:
1. Define service levels.
As in all agreements, it is necessary to define everything that covers it. In this case, every service level must be defined so both parties are well-informed of the expectations such as deadlines, quality of work, efficiency, reliability, capacity, etc.
2. Determine the expected outcome of the SLA.
After defining the service levels, determine the outcome expected from the third party company. Are you aiming for 99% reliability and efficiency or your outcome is quota-based? Whatever your goal is, make sure that it is clearly communicated to your supplier to avoid future disputes.
3. Determine how performance will be measured.
To determine if the outcome is favorable, you need to determine the corresponding method for measuring actual performance. Is it based on how much time is consumed before something is resolved? Is it measured by how many cases are escalated and fixed? This is usually discussed between the business owner and the contractor, and thereby agreed upon by both parties.
4. Define the timeframe of measurement.
Every project has a deadline. You need to define the timeframe when results are expected for both overall project and individual steps within the process. For the latter, measurements can be any increment and are typically weekly, monthly or quarterly.
5. Define the reports expected from the supplier.
Reports are necessary to track progress and performance. It is therefore so much easier if you provide the reporting structure to the contractor from the beginning. Include a timetable for reporting so if issues occur while in progress, these can already be addressed right away.
6. Define the supplier’s performance level.
The SLA should state the minimum performance level as well as expected performance levels. Offer incentives when the expected performance levels are achieved to motivate contractors. Failure to achieve minimum performance level does not mean breach of contract right away. It only becomes a failure if performance levels are not reached within a pre-defined time.
7. Define how the minimum and expected service levels may change over time.
This may especially apply to long-term SLAs because minimum service levels may possibly change or evolve while the project is ongoing. Consider including automatic adjustments that may be based on changing volumes, technological improvements, or supplier performance. By accepting that changes may occur, response to expected or unanticipated deviations could be easier.
8. Define service level credits.
The business and the outsourcing company must understand that service level credit is necessary for the protection of both parties. Contractor is bound to provide credit in the form of monetary refund, credit towards future services, or other form of compensation should they fail to achieve the expected performance. This practice eliminates any confusion or misunderstanding should these arise later on.
9. Define any and all service level bonus structures.
If there are service level credits, it sounds fair to have service level bonuses given to the contractor. This can help optimize performance.
10. Cover any contingency.
SLAs can possibly be terminated when there is breach of contract but what constitutes a failure and a breach must be clearly included in the SLA. Define particular events when both parties would allow termination for cause.
Service level agreements must be outlined clearly and precisely for the protection of both parties while also promoting efficient and successful IT outsourcing.