Setting expectations is a must for every partnership—this rings true for businesses outsourcing workers. Without defining your goals and desired outcomes, relations may break down, and you may lose more time and money than you should.
Any mistake or delay can be costly, so sealing your business partnerships in a binding contract is essential. This is where an outsourcing Service Level Agreement (SLA) comes into play. Before hiring an outsourced team, both parties must agree to an SLA to know their responsibilities and work on agreed-upon terms and timelines.
Check the visual guide below to learn more about the importance of an outsourcing SLA and the factors to consider when creating one.
What is a Service Level Agreement (SLA)?
An SLA is a contract between an outsourcing company and a client, defining the products and services the former will deliver, both parties’ targets and responsibilities, and the agreement’s performance metrics. It also outlines the necessary actions, penalties, and contact persons if either party fails to achieve the agreed-upon service levels.
Why Do You Need an Outsourcing SLA?
An outsourcing SLA offers many benefits for you and your outsourced team. Below are some you’ll enjoy if you delegate some of your business functions to third-party professionals.
Aligns expectations between the client and service provider
An SLA aims to clearly define both parties’ responsibilities, goals, and expectations. Having a clear baseline prevents misunderstandings and miscommunications that can lead to delays and errors. Ultimately, an SLA allows you to work seamlessly with your outsourced team and meet your objectives.
Improves service quality and performance
The agreement ensures that your outsourcing service provider is held accountable for delivering services at the agreed-upon level of quality, which can result in improved service quality and customer satisfaction.
It also includes provisions for monitoring and reporting on your partner’s performance, allowing you to track progress, identify areas for improvement, and ensure that your outsourced team meets the agreed-upon metrics.
Reduces risks and costs associated with outsourcing
Business partnerships often come with many risks. An SLA will help reduce and mitigate those by setting protocols that help reconcile problems as they come and prevent them from happening in the first place.
Enhances accountability and transparency
An SLA specifies what your outsourcing service provider must deliver and helps you know what you will receive, creating accountability on both sides. It also establishes specific metrics that can measure your outsourcing team’s performance, ensuring they deliver the expected level of service.
Lastly, an SLA establishes clear communication channels between you and your outsourced team, ensuring that both parties know and promptly address any issues or concerns.
Factors to Consider When Making an SLA
The success of outsourcing depends on a well-defined and detailed SLA. Here are some key factors to consider when creating an SLA with your chosen outsourcing service.
Which aspects will you measure?
Before drafting the SLA, you must define first which aspects of the outsourced service you want to measure to ensure they align with your business objectives. These aspects usually revolve around the provider’s service availability, technical quality, error rates, and their impact on your business performance.
What will be the performance metrics?
Once you’ve identified the aspects you want to measure, the next step is determining how to measure your outsourcing service provider’s performance throughout your agreement. You can use metrics such as uptime, response time, resolution time, customer satisfaction, and other factors that impact service quality.
Additionally, your performance metrics should reflect factors within your outsourcing service provider’s control. For instance, you can’t penalize them for delays from your end, like if you change direction for a particular task. Ensure that your SLA also measures your performance as a client to ensure the agreement is fair.
How will they be measured?
Your SLA should outline how to measure your chosen performance metrics, such as the methodology, tools, and reporting mechanisms used. The key is selecting metrics you can easily and automatically collect.
You and your outsourcing service provider must understand how performance will be measured and reported. This will serve as documentation once the decision to retain or terminate the contract is in process.
When will they be measured?
Your SLA should specify the frequency and timing of performance measurement. Some businesses and outsourcing companies measure and report service levels monthly, quarterly, or annually. However, some critical metrics may require daily, weekly, or more frequent monitoring.
Nonetheless, you should base the measurement on the service being provided, the level of criticality, and the SLA’s complexity.
Regular and consistent metrics monitoring helps ensure that your outsourcing service provider meets the agreed-upon standards and works with you in identifying and addressing issues promptly.
When does failure to meet expectations warrant termination?
Any business would want a smooth partnership with its outsourcing service provider. However, you must prepare for all circumstances to ensure business continuity.
As such, your SLA should clearly outline the consequences of not meeting the agreed-upon metrics and service levels. Some common reasons for terminating an SLA include poor performance, breach of contract, cost overruns, and change in business objectives. Having a clear guideline prevents a messy litigation process from happening later on.
Will the other party agree to this?
Before finalizing your SLA, you and your outsourcing service provider must agree to the terms and conditions. Both parties should clearly understand the performance expectations, metrics, and consequences of failure to meet expectations. Doing so ensures that the outsourcing company is fully committed to meeting your expectations and delivering quality service.
What Provisions Should Be in an SLA?
A well-crafted SLA can help you mitigate risks and ensure quality service from your outsourcing service provider. Below are the key provisions you should include in your SLA to protect your interests and achieve your desired outcomes.
Summary of the agreement
The first component of your SLA should be a summary of the services to provide, their recipients, and the method by which the service’s success will be evaluated. It sets the foundation for the remainder of the agreement to help its readers understand the content of the documents. This section can also include a glossary of terms and contractual parameters.
Dedicate a section of your SLA to your goals and objectives, specific deliverables, timeline, and expected outcomes. Goal-setting ensures you and your outsourced team understand the services provided, the desired results, and how to measure success.
Remember that your SLA’s goals should align with your broader business objectives. They should also be specific, measurable, achievable, relevant, and time-bound (SMART) so you can realistically achieve your outsourcing goals while working on other core business functions.
Points of contact
Having many people to communicate with is bound to produce miscommunications from happening. Hence, you should designate points of contact (POCs) who will be the respective liaisons between both parties. You should also designate official channels to use for correspondence to simplify the flow of communication.
By clearly defining your and your outsourced team’s obligations in your SLA and who’s accountable for each, you prevent miscommunications and assumptions from both parties.
For instance, your responsibilities as the client can include providing all necessary information and tools your outsourced team would need to perform their jobs and communicating any amendments in your agreement.
On the other hand, your outsourced team’s responsibilities can include providing expert services, meeting deadlines, maintaining confidentiality and security, and submitting regular reports on performance and progress.
Specify the requirements expected from you and your outsourced team to ensure you know what to expect from each other. As the client, your outsourcing requirements can include the following:
- Scope of work
- Expected outcomes
- Service quality
- Communication protocols
- Escalation procedures
- Reporting processes
- Data security and confidentiality
- Compliance with applicable laws and regulations
On the other hand, your outsourced team may require you to provide the following:
- Payment terms
- Service delivery timelines
- Necessary resources for service delivery
- Project expectations
Metrics, benchmarks, and parameters of performance
Performance metrics provide a measurable way to evaluate whether your outsourced team meets the agreed-upon expectations and goals. Some metrics you can outline in your SLA include the following:
- Service availability and quality
- Output quality
- Customer satisfaction
- Response time
Ensure that your metrics inspire you and your outsourced team to perform favorably. As mentioned, your performance metrics should also reflect factors within your outsourced team’s control so the agreement is fair for both parties.
This provision involves managing changes to the services or processes outlined in the SLA, such as the scope of services, service level targets, or pricing structures. It ensures that you and your outsourced team agree to, document, and implement the amendments in the SLA. You should clearly outline the change management process to ensure both parties know the steps involved.
Quality management involves ensuring that your outsourced team meets the agreed-upon quality standards. This step includes defining quality metrics and targets, monitoring performance against those metrics, and taking corrective action if necessary.
It may also involve regular audits of your outsourced team’s processes and procedures to ensure they meet industry best practices and regulatory requirements.
\Issues are inevitable in every aspect of a business, including outsourcing. For this reason, it’s important to include a problem management section in your SLA. It should outline the reporting and escalation procedures, the expected response and resolution times, and the criteria for prioritizing and classifying problems.
Your SLA should also define the consequences and penalties for contract breaches. These measures can help you minimize the impact of incidents on your operations and ensure that the outsourced services are delivered based on the agreed-upon SLA metrics.
Fees, expenses, and payments
Finances play a big part in any business partnership. As such, dedicate a section of the SLA to your outsourcing project’s fees, expenses, and payments. Outline the prices for the services provided and any additional expenses you and your outsourced team may incur, such as travel or equipment costs.
Specify the payment schedule, frequency, method, and any penalties for late payment. Additionally, your SLA should outline the processes for handling any financial disputes and define any taxes or other financial obligations to ensure that both parties understand their respective financial responsibilities.
It’s important to review and update the financial aspects of your SLA regularly to affirm that they remain relevant and reflective of your current outsourcing relationship.
Contract renewal and termination
Your SLA should clearly state the conditions for renewing or terminating your outsourcing contract. This step includes specifying the length of the initial contract term and any renewal terms and outlining the process for terminating the agreement.
The SLA should also outline the conditions under which either party may terminate the contract, such as failure to meet performance metrics, breach of contract, and other reasons. The notice period required for termination and any penalties or fees associated with early termination should also be specified.
In addition to termination, the SLA should address the contract renewal process. This may include outlining the renewal terms, such as any changes to the service level or pricing. Regularly review and update the contract renewal and termination provisions to ensure they remain relevant and reflect the outsourcing relationship.
Build a Strong Relationship With Your Outsource Service Provider
Creating an outsourcing SLA is crucial to a successful relationship with your outsourced team. This agreement sets out the expectations and responsibilities of both parties and serves as a roadmap for your outsourcing project.
Approach the creation of an outsourcing SLA with careful consideration and attention to detail to ensure you and your outsourced team can enjoy a successful and fruitful partnership. Use the pointers above to create a well-detailed SLA and handle outsourcing more efficiently.
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