seven ways to ruin an sla discussion

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By OC Staff Writer

SEVEN WAYS TO RUIN AN SLA DISCUSSION

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.

“Get over it: SLAs will make or

break 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 W A Y S T O R U I N A N S L A D I S C U S S I O N

Seven 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, way back when “we’ve done this for 20 years, SLAs are a piece of cake!” was a standard way of thinking. If you still feel that way, you might be stuck in old habits. Because SLAs then and SLAs now are not the same.

How you approach a service level discussion has radically changed over the past few years. Thanks to process standards like ITIL, new service delivery models like cloud computing and techniques like virtualization, almost anyone can deliver quality IT services. What really differs is the experience of how well people and services around the service work—that means service management and governance.

But how do you provide an SLA to measure service management or governance?

If you’re not careful, an SLA can be your worst nightmare—read on to find out how these nightmares happen so you can avoid them.

What is an SLA? SLAs can serve many purposes. But they really focus on only three things:• Upgradeagoodcontracttoabetterone(orviceversa)• Giveyourbusinessacumenaboost(orproveyoudon’thaveany)• Ensurethebuyerrenewswithyou(orwalks)

GiventhevitalroleofSLAs,therearedefinite,known,provenandtestedwrong, bad, incorrect and crazy ways an SLA can wreck havoc. There may be others, but the list below of the top seven offenders should be sufficient to keep you out of the SLA minefields.

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The Seven Tips

UnderstandinghowoutsourcingbuyersandprovidersuseSLAsisvitalinrealizing how they can go badly wrong.

1. “Keep it Simple, Silly”Buyers seem to constantly forget the proverbial “KISS” principle when developingSLAs. Lengthy SLAs only make things more complicated and thereforeshouldbemoreaptlynamedSLDs(ServiceLevelDisagreements)!It’s not uncommon to see multi-tower service agreements with hundreds of service level metrics, all of which someone has to measure, report, analyze and govern. No wonder the entire SLA process has gotten a bad reputation! Buyers often start writing SLAs without first defining the underlying services or understanding what they are supposed to achieve. Too often the the buyer has little understanding of how to build and negotiate services and SLAs. In effect they are defining the services as well as the SLAs—perhaps unwittingly.

A well-written service level agreement should: • Improveservicebydefiningandfocusingonkeyservicesrequiredto meet business requirements• Disciplinetheprovidertoreviewitsabilitytomeetthebusiness requirements• Disciplinethebuyertoexamineitsrequirementsforkeyservices• Alignexpectationsinallpartiesastotheactuallevelsofservicethe provider will provide at the agreed-upon cost• Improveunderstandingandworkingrelationships

2. Avoid fee increasesIncreasing provider fees does not ensure better performance. Higher levels of service must mean better service, right? No! Most often increasing service levels only goes to increase the service fees and has little correlation to better performance.

Most service providers have a ‘sweet spot’ in terms of how they are organized and structured to deliver any given service at an optimal service level.Usuallythisrepresentstheiroptimalcostpointaswell.Duediligencein better understanding how the provider achieves its stated SLA, with deviation(ifany)fromits‘standard’deliveryserviceofferingisfundamentaltothe conversation on performance.

Also keep in mind one of the most important things to a service provider is to not to lose your business over service performance. An SLA “outage” clause that allows you to terminate the contract with little or no penalty is also a key component of the conversation on performance and SLAs.


© Outsourcing Center 2013. 3




SLA metrics should be limited in number, reflect market-based targets, measure small performance windows, provide for service credits and incorporate improvement formulas over time

Ensure a Common Understanding of SLAs

Maximum Monthly At Risk PercentageTotal Category Allocation Pool

Category Allocation Pool Assigned

1.1 On-Budget Application Development Projects1.2 Application Development Project Milestones Delivered to Schedule1.3 Application Development First Time Right Into Production

2.1 On-Time Minor Enhancements 2.2 Time to Respond to Requests for Minor Enhancements

3.1 Applications Availability - Critical (Gold) Applications3.2 Applications Availability - Important (Silver) Applications3.4 Applications Availability- Support (Bronze) Applications

Service Level

Category Allocation

%

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

$ 9,465.58

95.00%

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%

Service Level Item

Allocation %

"Measurement Window"

Monthly

Monthly

Monthly

Monthly

Monthly

Monthly

Monthly

Monthly

Percent Designated Fees at Risk

Expected Service Level

Minimum Service Level

Average Performance Credit assuming

Annual of:

Maximum at risk

$ 37,862.30

$ 4,543,476 SCHEDULE H-1 SERVICE LEVEL MATRIX

ADM 1: Development Changes

ADM 2: Maintenance Enhancements

ADM 3: Applications Availability

10%250%250%

Percent at risk of total monthly run rate

Allocation percentage availableto the SLA categories

Confirmation that allocation is assigned

Specific allocation percentage assigned toeach SLA category, all equal 200%

Effective date with burn-in months for SLA when no metrics exist Measurement period

Fees at riskpercentage

Weighted allocationwithin a SLA category

Sub-weighted allocationwithin a SLA category

Expected and Minimum for eachline item SLA.

3. Resist tougher SLAsIncreasing the accountability of the provider won’t necessarily result in superior provider performance.

The law of diminishing returns is alive and well when it comes to SLA performance and the overall success of the outsourcing relationship. The buyer may find that it is spending valuable resources analyzing an overabundance of SLA reports or that it is overpaying for services that exceed its business needs, while its service provider may be focusing on meeting performance metrics that have little impact on the operations of the buyer’s business.

it is critical for the buyer to understand its business requirements because then it can convert those needs into service metrics. Buyers also have to learn as well as how to apply incentives to those metrics so they create an outsourcing arrangement that:• Provideshighquality,cost-effectiveservices• Allowstheorganizationtosuccessfullypursueitscorebusinessinterests

Having a shared and common understanding of the SLA structure is also very important. SLA metrics should:• Belimitedinnumber• Reflectmarket-basedtargets• Measuresmallperformancewindows• Provideforservicecredits• Incorporateimprovementformulasovertime

These are depicted in the graphic below.




Maximum Monthly At Risk PercentageTotal Category Allocation Pool

Category Allocation Pool Assigned

1.1 On-Budget Application Development Projects1.2 Application Development Project Milestones Delivered to Schedule1.3 Application Development First Time Right Into Production

2.1 On-Time Minor Enhancements 2.2 Time to Respond to Requests for Minor Enhancements

3.1 Applications Availability - Critical (Gold) Applications3.2 Applications Availability - Important (Silver) Applications3.4 Applications Availability- Support (Bronze) Applications

10%250%250%

Service Level

Category Allocation

%

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

$ 9,465.58

95.00%

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%

Service Level Item

Allocation %

"MeasurementWindow"

Monthly

Monthly

Monthly

Monthly

Monthly

Monthly

Monthly

Monthly

Percent Designated Fees at Risk

Expected Service Level

Minimum Service Level

Average Performance Credit assuming

Annual of:

Maximum at risk

$ 37,862.30

$ 4,543,476

SCHEDULE H-1 SERVICE LEVEL MATRIX

ADM 1: Development Changes

ADM 2: Maintenance Enhancements

ADM 3: Applications Availability

ADM 4: Problem Resolution

4. 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 provider behavior. But, SLAs should never be intended for revenue generation, and penalties will never fully compensate for a missed SLA. An SLA is a financial instrument, not a technical one. If an application is business critical, no provider is going to provide an SLA that begins to compensate for the business loss resulting from an outage.

Here’s the key: buyers don’t want money back—they want the service to work and be available as agreed. They lose money when the service stops.

Usingaservicelevelcalculatorisaneffectivetoolindevelopingthefeeatrisk structure. The figure below depicts such a calculator that incorporates market best practices including:• At-riskpercentages• Categoryallocationpools• Multipliers• Servicelevelcategoryanditemallocations• Theexpectedandminimumservicelevelrequirements

A calculator used for scenario analysis is useful in determining the optimal balance and weightings of service level metrics; it clearly shows which metrics have enough weight to affect proper behavior without being overly excessive and punitive. In one example, a buyer had all the right elements in its SLA metric structure, but many of the fee at risk calculations resulted in trivial levels of fee credits for missed service levels. This essentially rendered the entire SLA fee at risk schedule useless in terms of achieving its intended impact for provider behavior to affect service performance.




5. Remember end-to-end accountability is not always goodProviderscan’ttakeresponsibilityforthosethingstheyaren’tperforming—and won’t anyway!

Whereas end-to-end accountability might have been the provider’s selling point ‘du jour’ in the past, more and more buyers are sourcing individual towers of service. The outsourcing marketplace continues to evolve away from single sourcing to multi-sourcing providers within individual service towers to support the buyer’s overall business requirements.

For a buyer to be able to effectively manage service performance in this multi-sourcing generation, it is important to understand the relationships and dependences between the business requirements, service and SLAs and their underpinning service performance metrics, as depicted below.

BusinessProcess

Business Units

BusinessProcess

BusinessProcess

BusinessProcess

SystemH/W

SystemH/W DBMS Network

Infrastructure

Environment Data Applications

Service A

OLA

SLA

Service LevelAgreements

(SLA)

ServicePerformance

Metrics

ServicePerformance

MetricsSupportingServices

Internal Support Teams

Support Team(i)

Suppliers

Supplier (i)

SupportingServices

Application

NetworkPlatform

DesktopService Desk

Contract

How Service Relationships and Dependencies are Managed




EachSLAdocumentcapturesnotonlytheend-to-endservicelevelfroma buyer perspective, but also each of the components the provider must accomplish in order to meet the service level. The service performance metrics associated with each constituent component are contained within underpinningagreements(e.g.serviceprovidercontracts,operatinglevelagreements(OLAs))dependingonwhoisresponsibleforprovidingthecomponent service.

In any outsourcing arrangement, the service provider will only be responsible for certain components of the end-to-end SLA. The temptation at this point is to focus the contract on the specific technology group performance metrics that apply to that service provider. However, a properly constructed outsourcing contract will focus on the service level agreement and clarify how the service provider performance metrics are incorporated into the calculation. This allows formation of SLAs that are truly meaningful in business terms and maintains the service provider’s focus on the buyer’s business goals.

6. Provide no guarantees It is best to go into the SLA with an understanding of expectations, specific deliverables and ownership. But never ever believe it’s guaranteed.

Canservicelevelagreementsguaranteeimprovementinserviceperformanceand thus improve the relationship between IT and the business? In short, no. The SLA itself does not guarantee that the provider will always meet the expected service levels, even if there are penalties if they do not. This may influencetheprovidertoonlycommittoalowservicelevel—renderingthedocument meaningless.

Alternatively, if the SLA level is unrealistically high and the provider cannot meet the targets, the buyer will be disappointed because the provider did not meet promised expectations. This usually damages working relationships.Generally,justabouteverythingITthinksitdoesisusuallyannoyingtonon-ITpeople. Why? Because SLA discussions with the business are usually too technicallyfocused—they’renotcouchedinbusinessterms.Generally,SLAshave not been effective for the IT organization to show or prove its value to the business units, because the business units don’t care about 99.99% of anything—they want proactive management and the applications available when they need them.

In another example, the IT organization kept getting better services from the service provider, and the service provider kept improving service levels. They were quite pleased, thinking ‘we’re doing such a great job,’ but the business wasn’t. They were getting more dissatisfied while IT and the service provider thought they were doing things better. Through a series of facilitated




workshopstheCIO’steamandbusinessleadersrevisedtheSLAstoalignthem to the most important business requirements; this enabled them to achievethebusinessservicelevel.Oncethatwasinplace,thebusinessleaders became much happier—they weren’t hearing about 99.99% of something—they were hearing the things that were important to them.

7. Keep it alive The parties often renegotiate SLAs at renewal. But there’s no reason why an SLA discussion can’t occur before renewal if all parties agree. Better, more frequent communication often results in a better deal for all vs. staying the course and suffering collectively.

OneofthestatementsthatisalwaysatriggerforneededSLAconversationis: “The SLA metrics are ‘green’, but the buyer sees and feels ‘red’ with the service.” Whenever you hear that, it’s a sure sign the SLAs are not achieving their intended objectives and the business is not receiving the service it expected. Time for a check-up!

An important component of service management is to operationalize the agreement by documenting the end-to-end processes for delivering theservicesattheagreedservicelevels.UsingtheITILframeworkandservicemanagementprocessesisagoodplacetostart.Clarityinrolesand responsibilities between the internal and external service providers as well as end users and other stakeholders is imperative for achieving SLA expectations. Identify opportunities to enhance service delivery processes through regular and recurring SLA performance reviews. Link the reviews back to the original process assumptions for validation, especially when the users feel red when SLA metrics are green.

Service levels and processes should evolve over time and not remain stagnant. As the business changes, the supporting IT services should facilitate that change, not inhibit them.

Summary

How do you make your SLAs successful? Follow these steps and you’ll stay away from the top offenders list: • Startwithservices–understandwhatcurrentservicesyouprovideand what you need to redesign for improvement• Askthebusinessleaderswhattheywant…orwhattheythinktheir services are• Usesimpleandappropriatelanguage




• KeeptheSLArealisticandachievable• OnlysetupanSLAyoucanmeasure• Keepthemshortandconcise…otherwisenoonewillreadthem• Bewillingtochangeandadapttostayalignedwiththebusiness

Conclusion

The basic reason for having an SLA is simple—it’s a catalyst to improve service quality. The SLA process is a quality improvement process above all else, 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 time validating the services and service levels the buyer really needs to support and enable its business. When you do, the SLA metrics will not only show green but also feel green. This is a tried and tested way to keep you out of the SLA minefield.