Cover

Managing Service Agreements

SLAs are much more than contracts; they embody relationships between organisations that have to be nurtured for the benefit of the concerned parties. By Kushal Shah

Service level agreements (SLA) are an integral part of doing business for both IT service providers and their clients. Service levels are defined in terms of the objectives of an organisation for a relationship between two entities. Service levels agreements are formed and signed at the beginning of any relationship and are used to measure and monitor a supplier’s performance. IT departments invest a lot of resources on developing robust SLAs to improve their operational efficiency, and the satisfaction of internal customers within their companies. There are many questions that have to be answered about the best way to manage these pieces of paper to which a lot of organisational value is attached. Some of these include the initial formation of a SLA, its attributes, management, penalties for failure and alternatives in case of failure.

Ingredients of a SLA

There are contradictory opinions about what an SLA should contain and how it should be written. Organisations sign or form an SLA for various purposes such as an Internet connection, ATM operations or even the complete outsourcing of back office work. All these different SLAs have various aspects to be looked at depending upon the business need.

According to Daya Prakash, Sr Manager IT - LG Electronics, “The basic components required for all SLAs are that of specifying broad objective or purpose, role and responsibilities of involved parties, description of services, the execution and monitoring processes to be used for the SLA, specification of review and reporting pattern and last but not the least the penalty clause against non performance. The most important aspect of an SLA is the matrixes, which are derived from the key performance indicators that are tightly aligned to the business.”

Process outsourcing is on a roll, but it’s not as easy as it sounds to outsource a process. Virender Aggarwal, Director & Sr. Vice President-Asia Pacific, Middle East, India & Africa, Satyam Computer Services Ltd. feels that it is important to know the level of services that a client wants and how much time it takes to finish that process. For e.g. if a process that generates invoices is being outsourced, how much time does it take to produce one and what should be done if the user of that service faces a problem. “If you are to make reports for an organisation it is necessary that the user of that report should get it within a specified period of time so that he can make decisions based on it,” says Aggarwal.

Pointing to some of the detailed components of SLAs, Aggrawal says, “SLAs should contain the number of days required to prepare a balance sheet, the time frame for the creation of payroll. If I raise a problem it should be resolved within the first call X percent of time. These all are few basic definitions of an SLA, depending on these and the percentages of time you meet the requirements, penalties are defined.”

“Identifying all the services clearly and defining the deliverables and quantifying penalties for failure to meet the deliverables against each service are the most important aspect of any SLA,” feels Zoeb Adenwala, CIO, Pidilite Industries Limited.

Caretakers and custodians

It’s not only about making the right SLA for the right services but also about managing it. Organisations have various means of measuring the performances of SLAs which is done by different people from the IT department. Chief – I.T & Head Infrastructure for I.T. along with HoDs of each team are part of forming and managing an SLA at Pidilite.

Satyam has formed a separate team called strategic deal group (SDG) which is responsible for most large outsourcing deals and related SLAs. “Apart from SDG, we have a commercial group which defines standards for the services that we buy. From our side we have SLA experts who negotiate SLAs with the client,” explains Aggarwal. At Satyam, the project management organisation in involved in managing SLAs when the company provides a service to a client. This shows the importance given to an SLA by outsourcing vendors.

End user companies engaging in large outsourcing deals take the help of external consulting firms while creating SLAs.

As a company that frequently takes advantage of outsourced services, LG electronics has a function called “IT Planning & Admin” which takes care of SLA Management from framing an agreement to monitoring it.

Managing SLAs: a mammoth task

Once an SLA is created by different bodies in an organisation, it becomes a mammoth task to manage everything committed on to a piece of paper. For managing SLAs, companies have various means. Some hold meetings on a monthly, quarterly or yearly basis. Comparisons are done on the basis of what is being offered and what was promised followed by the corrective measures needed.

SLAs initially were based on whims and fancies of what came to somebody’s mind until some degree of science came into the picture with a standard called ITIL (Information Technology Infrastructure Library) which dealt with the concept of ticketing.

Ticketing tools like Remedy are used for auditing at Satyam. Any issue which arises becomes a ticket. This assists in tracking information about how many calls it takes to resolving a problem. Apart from ticketing, performance dashboards are also used for auditing service levels.

Some companies even ask of what the offshore leverage is for solving a problem or about improvements in productivity over the years. “As an outsourcing company you should know the client’s business well. The next time a similar call comes, your staff should know that this problem is solved in a particular way and a solution should be given instantly without consulting which in turn improves efficiency,” says Aggarwal.

LG uses policies, checklists, agreements, and questionnaires as audit tools for SLA management. “The process followed at LG is that a yearly audit is conducted by our HO on IT controls. In addition to this we also get an external audit conducted twice in a year by our audit partners such as E&Y and Deloitte,” explains Prakash. The responsibility of auditing an SLA lies with the legal and commercial departments.

In companies like Pidilite, auditing is a complete automated process under the observation of the Infrastructure head.

Failure and remedies

It not possible to provide services one hundred percent of the time to a client. That said, organisations define uptime based on the criticality of an application. Most organisations ask for 99.999 percent uptime. “There is a significant difference between 99 and 99.999 percent. For e.g. if you consider the number of hours in a year, 99 percent uptime means a downtime of 87.60 hours a year while 99.999 percent uptime mean a downtime of around five minutes a year,” says Adenwala. There is a significant difference between these two numbers making it clear as to why CIOs ask for such high uptime.

For the credit card industry, any downtime whatsoever is intolerable. If you use a credit card and it is not accepted at an airport, restaurant, or railway station, you are in trouble. If an ATM stops working it is just not on. It is acceptable for your reports to get delayed but not for the Internet to stop working.

Depending upon criticality, organisations decide on the penalty to be imposed on service providers in case of failure to meet with an SLA. When the project is in its early stages failures are more likely to occur. It is only after a few months that vendors get accustomed to the processes and start providing better services.

In the form of penalties for failure, vendors are charged the amount of business lost due to failure, loss of contracts etc.

Organisations using critical operations need to keep backups ready in case of a failure. When a failure occurs, they can’t go through the contract and start crying over the agreement. Their first priority should be to keep the application running. Satyam has a business continuity planning centre running in Singapore and Malaysia. They have 1,000 visas pre-approved by the Singapore government so that if needed they can move in that many people in one shot without worrying about political problems.

Beyond paperwork: A relationship

SLAs are not just about the terms and conditions agreed upon a piece of paper. It is about the satisfaction of an organisation with the services provided by a vendor. Many a time companies go into negotiated contracts which run for many years even though they don’t really want to. The contracting parties in such a case need to realise that it is a partnership that they are signing. If they are not comfortable with each other culturally, then they will only be running through legal clauses and will be at each other’s throat all the time without any real gain.

“Many companies are extremely unhappy with their outsourcing vendor, but they can’t do any thing about it since they have signed a contract saying we will only work with you. The way out is to understand the needs of an organisation and be flexible with the contract,” says Aggarwal. One provision of the SLA should be such that the company should be allowed to engage with other vendors in case of failure by the first vendor.

SLAs should be made keeping customer satisfaction in the driver’s seat which would not only help the business grow but also help sustain a long term relationship with a client.

The contracting entities must have some reference point in case of a dispute and an SLA serves as the best reference point. It is a process which no organisation can get rid of.