Companies have many reasons for outsourcing, such as increased productivity and reduced costs.  Outsourcing allows an organization to focus on its core business.  Many outsourcing relationships will last for several years, which is why it is important to ensure that the terms and conditions of the contract are being upheld.  A service level agreement, also referred to as an SLA, is an essential tool for measuring whether the arrangement is operating as agreed.  It is a document that should be negotiated up front as part of the outsourcing contract.  If created properly, a service level agreement can help a buyer control the outsourcing process.

Service level agreements define the boundaries of the project, including the functions and services that are to be provided by the vendor.  This legal document details the volume of work and costs involved.  It also specifies the needs of the outsourcing company and sets expectations for both parties.  An effective service level agreement should minimize disputes that may arise between the buyer and supplier.

Creating a good service level agreement requires a set of steps.  First, the buyer and vendor must agree on the terms that will be included in the contract.  Next, performance measurements should be established.  These metrics will be used to measure the global sourcing provider’s overall performance and determine whether the objectives are being met.  For example, measurements may be used to evaluate the volume of work, quality of deliverables and efficiency.  It is important that the measurements are set to reasonable performance levels. 

The service level agreement should also detail how the performance metrics will be tracked and communicated, whether through regular performance reports or through real-time monitoring.  Reports often include summaries of results rather than a long list of metrics.  A simple reporting system is usually more advantageous to the buyer and supplier.  The frequency of communication and the information included will depend on the project, buyer and supplier. 

A good service level agreement will include a process for resolving situations where the service provided is unacceptable.  If this process is discussed and agreed upon in advance, it will make it easier if such a circumstance arises.  When the resolution process is clearly communicated, the outsourcing company would then know how to handle the situation until it is resolved with the vendor.  If a dispute cannot be resolved, the service level agreement should detail what constitutes a termination of the contract.

Service level agreements are crucial when it comes to establishing a good working relationship with a vendor.  A&E Consulting assists companies looking to take advantage of global IT sourcing and will oversee the first outsourced project.

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