2013By OC Staff WriterSEVEN WAYS TO RUIN AN SLA DISCUSSIONW W W . O U T S O U R C I N G - C E N T E R . C O M © Outsourcin...
“Get over it: SLAs will make orbreak your business (and career).”W W W . O U T S O U R C I N G - C E N T E R . C O M© Outs...
S E V E N WAY S T O R U I N A N S L A D I S C U S S I O NThe Seven TipsUnderstanding how outsourcing buyers and providers ...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 4S E V E N WAY S T O R U I N A N S L A D I S...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 5S E V E N WAY S T O R U I N A N S L A D I S...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 6S E V E N WAY S T O R U I N A N S L A D I S...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 7S E V E N WAY S T O R U I N A N S L A D I S...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 8S E V E N WAY S T O R U I N A N S L A D I S...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 9S E V E N WAY S T O R U I N A N S L A D I S...
W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013.An Outsourcing Center Paper
Upcoming SlideShare
Loading in …5
×

Seven ways to ruin an sla discussion

1,475 views

Published on

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,475
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
26
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Seven ways to ruin an sla discussion

  1. 1. 2013By OC Staff WriterSEVEN WAYS TO RUIN AN SLA DISCUSSIONW W W . O U T S O U R C I N G - C E N T E R . C O M © Outsourcing Center 2013.
  2. 2. “Get over it: SLAs will make orbreak your business (and career).”W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013.S E V E N WAY S T O R U I N A N S L A D I S C U S S I O NSeven Ways to Ruin an SLA Discussion“Get over it: SLAs will make or break your business (and career).”I heard that from more than one of my managers early in my career, wayback when “we’ve done this for 20 years, SLAs are a piece of cake!” was astandard way of thinking. If you still feel that way, you might be stuck in oldhabits. Because SLAs then and SLAs now are not the same.How you approach a service level discussion has radically changed over thepast few years. Thanks to process standards like ITIL, new service deliverymodels like cloud computing and techniques like virtualization, almostanyone can deliver quality IT services. What really differs is the experience ofhow well people and services around the service work—that means servicemanagement and governance.But how do you provide an SLA to measure service management orgovernance?If you’re not careful, an SLA can be your worst nightmare—read on to findout how these nightmares happen so you can avoid them.What is an SLA? SLAs can serve many purposes. But they really focus ononly three things:• Upgrade a good contract to a better one (or vice versa)• Give your business acumen a boost (or prove you don’t have any)• Ensure the buyer renews with you (or walks)Given the vital role of SLAs, there are definite, known, proven and testedwrong, bad, incorrect and crazy ways an SLA can wreck havoc. There maybe others, but the list below of the top seven offenders should be sufficient tokeep you out of the SLA minefields.2
  3. 3. S E V E N WAY S T O R U I N A N S L A D I S C U S S I O NThe Seven TipsUnderstanding how outsourcing buyers and providers use SLAs is vital inrealizing how they can go badly wrong.1. “Keep it Simple, Silly”Buyers seem to constantly forget the proverbial “KISS” principle whendevelopingSLAs. Lengthy SLAs only make things more complicated andtherefore should be more aptly named SLDs (Service Level Disagreements)! It’s not uncommon to see multi-tower service agreements with hundreds ofservice level metrics, all of which someone has to measure, report, analyzeand govern. No wonder the entire SLA process has gotten a bad reputation!Buyers often start writing SLAs without first defining the underlying servicesor understanding what they are supposed to achieve. Too often the thebuyer has little understanding of how to build and negotiate services andSLAs. In effect they are defining the services as well as the SLAs—perhapsunwittingly.A well-written service level agreement should:• Improve service by defining and focusing on key services required to meet business requirements• Discipline the provider to review its ability to meet the business requirements• Discipline the buyer to examine its requirements for key services• Align expectations in all parties as to the actual levels of service the provider will provide at the agreed-upon cost• Improve understanding and working relationships2. Avoid fee increasesIncreasing provider fees does not ensure better performance. Higher levelsof service must mean better service, right? No! Most often increasing servicelevels only goes to increase the service fees and has little correlation to betterperformance.Most service providers have a ‘sweet spot’ in terms of how they areorganized and structured to deliver any given service at an optimal servicelevel. Usually this represents their optimal cost point as well. Due diligencein better understanding how the provider achieves its stated SLA, withdeviation (if any) from its ‘standard’ delivery service offering is fundamental tothe conversation on performance.Also keep in mind one of the most important things to a service provider is tonot to lose your business over service performance. An SLA “outage” clausethat allows you to terminate the contract with little or no penalty is also a keycomponent of the conversation on performance and SLAs.W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 3
  4. 4. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 4S E V E N WAY S T O R U I N A N S L A D I S C U S S I O NSLA metrics should be limited in number, reflect market-based targets, measure small performance windows, provide forservice credits and incorporate improvement formulas over timeEnsure a Common Understanding of SLAsMaximum Monthly At Risk PercentageTotal Category Allocation PoolCategory Allocation Pool Assigned1.1 On-Budget Application Development Projects1.2 Application Development Project Milestones Delivered to Schedule1.3 Application Development First Time Right Into Production2.1 On-Time Minor Enhancements2.2 Time to Respond to Requests for Minor Enhancements3.1 Applications Availability - Critical (Gold) Applications3.2 Applications Availability - Important (Silver) Applications3.4 Applications Availability- Support (Bronze) ApplicationsServiceLevelCategoryAllocation%10%25%100%100%30%40%30%100%50%50%100%45%30%25%0.30%0.40%0.30%98.00%98.00%99.00%$ 1,135.87$ 1,514.49$ 1,135.87$ 4,732.79$ 4,732.79$ 17,038.04$ 11,358.69$ 9,465.5895.00%95.00%99.90%99.85%99.75%99.85%99.75%99.60%90.00%90.00%95.00%95.00%98.75%1.25%1.25%4.50%3.00%2.50%ServiceLevel ItemAllocation %"MeasurementWindow"MonthlyMonthlyMonthlyMonthlyMonthlyMonthlyMonthlyMonthlyPercentDesignatedFees at RiskExpectedServiceLevelMinimumServiceLevelAverage PerformanceCredit assumingAnnual of:Maximum at risk$ 37,862.30$ 4,543,476SCHEDULE H-1 SERVICE LEVEL MATRIXADM 1: Development ChangesADM 2: Maintenance EnhancementsADM 3: Applications Availability10%250%250%Percent at risk of total monthly run rateAllocation percentage availableto the SLA categoriesConfirmation that allocation is assignedSpecific allocation percentage assigned toeach SLA category, all equal 200%Effective date with burn-in months forSLA when no metrics exist Measurement periodFees at riskpercentageWeighted allocationwithin a SLA categorySub-weighted allocationwithin a SLA categoryExpected and Minimum for eachline item SLA.3. Resist tougher SLAsIncreasing the accountability of the provider won’t necessarily result insuperior provider performance.The law of diminishing returns is alive and well when it comes to SLAperformance and the overall success of the outsourcing relationship.The buyer may find that it is spending valuable resources analyzing anoverabundance of SLA reports or that it is overpaying for services thatexceed its business needs, while its service provider may be focusing onmeeting performance metrics that have little impact on the operations of thebuyer’s business.it is critical for the buyer to understand its business requirements becausethen it can convert those needs into service metrics. Buyers also have tolearn as well as how to apply incentives to those metrics so they create anoutsourcing arrangement that:• Provides high quality, cost-effective services• Allows the organization to successfully pursue its core business interestsHaving a shared and common understanding of the SLA structure is also very important. SLA metrics should:• Be limited in number• Reflect market-based targets• Measure small performance windows• Provide for service credits• Incorporate improvement formulas over timeThese are depicted in the graphic below.
  5. 5. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 5S E V E N WAY S T O R U I N A N S L A D I S C U S S I O NMaximum Monthly At Risk PercentageTotal Category Allocation PoolCategory Allocation Pool Assigned1.1 On-Budget Application Development Projects1.2 Application Development Project Milestones Delivered to Schedule1.3 Application Development First Time Right Into Production2.1 On-Time Minor Enhancements2.2 Time to Respond to Requests for Minor Enhancements3.1 Applications Availability - Critical (Gold) Applications3.2 Applications Availability - Important (Silver) Applications3.4 Applications Availability- Support (Bronze) Applications10%250%250%ServiceLevelCategoryAllocation%10%25%100%90%100%30%40%30%100%50%50%100%45%30%25%100%0.30%0.40%0.30%98.00%98.00%99.00%$ 1,135.87$ 1,514.49$ 1,135.87$ 4,732.79$ 4,732.79$ 17,038.04$ 11,358.69$ 9,465.5895.00%95.00%99.90%99.85%99.75%99.85%99.75%99.60%90.00%90.00%95.00%95.00%98.75%1.25%1.25%4.50%3.00%2.50%ServiceLevel ItemAllocation %"MeasurementWindow"MonthlyMonthlyMonthlyMonthlyMonthlyMonthlyMonthlyMonthlyPercentDesignatedFees at RiskExpectedServiceLevelMinimumServiceLevelAverage PerformanceCredit assumingAnnual of:Maximum at risk$ 37,862.30$ 4,543,476SCHEDULE H-1 SERVICE LEVEL MATRIXADM 1: Development ChangesADM 2: Maintenance EnhancementsADM 3: Applications AvailabilityADM 4: Problem Resolution4. Do not grandstandTougher service level penalties won’t really get the provider’s attention.Designed properly, fees at risk are a tool that will incent proper providerbehavior. But, SLAs should never be intended for revenue generation,and penalties will never fully compensate for a missed SLA. An SLA is afinancial instrument, not a technical one. If an application is business critical,no provider is going to provide an SLA that begins to compensate for thebusiness loss resulting from an outage.Here’s the key: buyers don’t want money back—they want the service towork and be available as agreed. They lose money when the service stops.Using a service level calculator is an effective tool in developing the fee atrisk structure. The figure below depicts such a calculator that incorporatesmarket best practices including:• At-risk percentages• Category allocation pools• Multipliers• Service level category and item allocations• The expected and minimum service level requirementsA calculator used for scenario analysis is useful in determining the optimalbalance and weightings of service level metrics; it clearly shows whichmetrics have enough weight to affect proper behavior without being overlyexcessive and punitive. In one example, a buyer had all the right elementsin its SLA metric structure, but many of the fee at risk calculations resulted intrivial levels of fee credits for missed service levels. This essentially renderedthe entire SLA fee at risk schedule useless in terms of achieving its intendedimpact for provider behavior to affect service performance.
  6. 6. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 6S E V E N WAY S T O R U I N A N S L A D I S C U S S I O N5. Remember end-to-end accountability is not always goodProviders can’t take responsibility for those things they aren’t performing—and won’t anyway!Whereas end-to-end accountability might have been the provider’s sellingpoint ‘du jour’ in the past, more and more buyers are sourcing individualtowers of service. The outsourcing marketplace continues to evolve awayfrom single sourcing to multi-sourcing providers within individual servicetowers to support the buyer’s overall business requirements.For a buyer to be able to effectively manage service performance in thismulti-sourcing generation, it is important to understand the relationships anddependences between the business requirements, service and SLAs andtheir underpinning service performance metrics, as depicted below.BusinessProcessBusiness UnitsBusinessProcessBusinessProcessBusinessProcessSystemH/WSystemH/W DBMS NetworkInfrastructureEnvironment Data ApplicationsService AOLASLAService LevelAgreements(SLA)ServicePerformanceMetricsServicePerformanceMetricsSupportingServicesInternal Support TeamsSupport Team(i)SuppliersSupplier (i)SupportingServicesApplicationNetworkPlatformDesktopService DeskContractHow Service Relationships and Dependencies are Managed
  7. 7. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 7S E V E N WAY S T O R U I N A N S L A D I S C U S S I O NEach SLA document captures not only the end-to-end service level froma buyer perspective, but also each of the components the provider mustaccomplish in order to meet the service level. The service performancemetrics associated with each constituent component are contained withinunderpinning agreements (e.g. service provider contracts, operating levelagreements (OLAs)) depending on who is responsible for providing thecomponent service.In any outsourcing arrangement, the service provider will only be responsiblefor certain components of the end-to-end SLA. The temptation at this pointis to focus the contract on the specific technology group performancemetrics that apply to that service provider. However, a properly constructedoutsourcing contract will focus on the service level agreement and clarifyhow the service provider performance metrics are incorporated into thecalculation. This allows formation of SLAs that are truly meaningful inbusiness terms and maintains the service provider’s focus on the buyer’sbusiness goals.6. Provide no guaranteesIt is best to go into the SLA with an understanding of expectations, specificdeliverables and ownership. But never ever believe it’s guaranteed.Can service level agreements guarantee improvement in service performanceand thus improve the relationship between IT and the business? In short,no. The SLA itself does not guarantee that the provider will always meet theexpected service levels, even if there are penalties if they do not. This mayinfluence the provider to only commit to a low service level—rendering thedocument meaningless.Alternatively, if the SLA level is unrealistically high and the provider cannotmeet the targets, the buyer will be disappointed because the provider did notmeet promised expectations. This usually damages working relationships.Generally, just about everything IT thinks it does is usually annoying to non-ITpeople. Why? Because SLA discussions with the business are usually tootechnically focused—they’re not couched in business terms. Generally, SLAshave not been effective for the IT organization to show or prove its value tothe business units, because the business units don’t care about 99.99% ofanything—they want proactive management and the applications availablewhen they need them.In another example, the IT organization kept getting better services fromthe service provider, and the service provider kept improving service levels.They were quite pleased, thinking ‘we’re doing such a great job,’ but thebusiness wasn’t. They were getting more dissatisfied while IT and the serviceprovider thought they were doing things better. Through a series of facilitated
  8. 8. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 8S E V E N WAY S T O R U I N A N S L A D I S C U S S I O Nworkshops the CIO’s team and business leaders revised the SLAs to alignthem to the most important business requirements; this enabled them toachieve the business service level. Once that was in place, the businessleaders became much happier—they weren’t hearing about 99.99% ofsomething—they were hearing the things that were important to them.7. Keep it aliveThe parties often renegotiate SLAs at renewal. But there’s no reason why anSLA discussion can’t occur before renewal if all parties agree. Better, morefrequent communication often results in a better deal for all vs. staying thecourse and suffering collectively.One of the statements that is always a trigger for needed SLA conversationis: “The SLA metrics are ‘green’, but the buyer sees and feels ‘red’ with theservice.” Whenever you hear that, it’s a sure sign the SLAs are not achievingtheir intended objectives and the business is not receiving the service itexpected. Time for a check-up!An important component of service management is to operationalizethe agreement by documenting the end-to-end processes for deliveringthe services at the agreed service levels. Using the ITIL framework andservice management processes is a good place to start. Clarity in rolesand responsibilities between the internal and external service providers aswell as end users and other stakeholders is imperative for achieving SLAexpectations. Identify opportunities to enhance service delivery processesthrough regular and recurring SLA performance reviews. Link the reviewsback to the original process assumptions for validation, especially when theusers feel red when SLA metrics are green.Service levels and processes should evolve over time and not remainstagnant. As the business changes, the supporting IT services shouldfacilitate that change, not inhibit them.SummaryHow do you make your SLAs successful? Follow these steps and you’ll stayaway from the top offenders list:• Start with services – understand what current services you provide and what you need to redesign for improvement• Ask the business leaders what they want…or what they think their services are• Use simple and appropriate language
  9. 9. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013. 9S E V E N WAY S T O R U I N A N S L A D I S C U S S I O N• Keep the SLA realistic and achievable• Only set up an SLA you can measure• Keep them short and concise…otherwise no one will read them• Be willing to change and adapt to stay aligned with the businessConclusionThe basic reason for having an SLA is simple—it’s a catalyst to improveservice quality. The SLA process is a quality improvement process above allelse, as it highlights gaps and problems in the process of servicing the busi-ness requirements.So how do you stay out of the SLA minefields? Agree to spend more timevalidating the services and service levels the buyer really needs to supportand enable its business. When you do, the SLA metrics will not only showgreen but also feel green. This is a tried and tested way to keep you out ofthe SLA minefield.
  10. 10. W W W . O U T S O U R C I N G - C E N T E R . C O M© Outsourcing Center 2013.An Outsourcing Center Paper

×