Create Comprehensive Service Level Agreements for Software Outsourcing

In any software outsourcing arrangement, it is important to protect both the business and the service provider—that is, the software development team. That’s why we have service level agreements (SLAs). These contracts are standard for the technology industry and have become an integral part of an outsourcing arrangement.

Even when you have carefully researched and vetted your dedicated development team, an SLA is important. In a nutshell, this agreement lays out the terms of the services and standards expected. Any business leader looking to work with an outsourcing provider should never underestimate the importance of an SLA—it is critical not only for customer satisfaction but also for the protection of the software outsourcing agency and the contracting business alike.

What does a service level agreement entail? And how do you write a successful one? What are the key elements to include? Here are the steps and fundamentals to consider.

Fundamentals of SLAs For Software Outsourcing

First, let’s take a look at the most important elements of an SLA. These are the critical factors to consider when you are entering into your arrangement with your service provider.

Components of an SLA

An SLA typically includes the following elements, variable from project to project and business to business:

Description of the software development services: An overview of the services the outsourcing provider will deliver to the contracting business

Scope: The boundaries and requirements of the project

Goals: The specific objectives and targets you are trying to achieve

Performance metrics: The metrics you are using to evaluate and measure different aspects of the software’s performance

Roles and responsibilities: The responsibilities of both parties to carry out the project with an eye on compliance, laws, and regulations, along with the different roles of the key members of each team

Service availability: The parameters or limits on the downtime of the service rendered

Depending on the project and the nature of each organization involved, you may include additional components within your SLA. The different elements depend on what is most important to your service or product and how you will evaluate the end result and the success of your partnership and project.

SLA Types

There are several different types of service level agreements in outsourcing and beyond in the technology world.. Here, we will break down some of the most common agreements you will find in software development outsourcing, as well as look at the pros and cons of each.

Customer-Based SLA

A customer-based SLA is an agreement that is customized or tailored to meet the particular needs, requirements, demands, responsibilities, constraints, and goals of the unique client and the project at hand. This differs from the more standard type of SLAs, which serve the general client base.

The main advantages of a customer-based SLA include:

Personalized/customized service for the client
Greater likelihood of customer satisfaction due to the uniqueness of the service provided
Well-defined metrics and goals
Greater potential for a long-term relationship between the client and vendor

There are also some drawbacks to consider, such as:

Higher costs due to customization
Complexity with regard to both the partnership and SLA itself
Greater need for maintenance and updates
Less flexibility for the provider

Service-Based SLA

A service-based SLA is specific to the product or service the outsourcing partner is providing, outlining only the components and metrics of the particular service the software development team will deliver. Its main focus is the service itself, rather than other elements of the partnership.

The advantages of a service-based SLA include:

Process and partnership standardization
Clarity surrounding goals and objectives
Scalability in terms of user and client groups
Flexibility in terms of what a service provider offers

Some drawbacks of the service-based SLA are:

No personalization or customization available
Lack of differentiation in terms of relationships with clients
Less suitable for complex projects
Fewer metrics available for specific clients or consumers

Multi-Level SLA

A multi-level SLA involves different definitions of services and products rendered for different tiers of clients, each with its own performance metrics and terms of service. Also known as a hierarchical SLA, this type of agreement contains several different levels, as the name implies, each specific to a different clause of stakeholder or client.

The main benefits of multi-level SLAs are:

Service levels tailored to the specific client or consumer
Scalability and ability to accommodate larger consumer bases
Ability to allocate resources more effectively and efficiently
More effective resource allocation

Some of the main drawbacks of multi-level SLAs include:

Complex structures for management for the outsourcing company
Higher demand for strong communication
Difficulty differentiating and segmenting clients and consumers
More effort to communicate and manage expectations

Operational SLA

The operational SLA focuses exclusively on the daily operations of the provider delivering the service expected. The SLA looks at the day-to-day metrics and objectives of the agreement, rather than only on the bigger-picture goals and objectives. This type of SLA can apply not only to a partnership between two different organizations but also to various departments within a single organization as well.

The main pros for the operational SLA include:

Clearly defined metrics and standards for assessing performance
Greater accountability and transparency
More immediate problem resolution
Immediately available operational metrics

Cons for this type of SLA are:

Lack of full-service coverage
Lack of flexibility
Difficulty in measuring performance and reporting
Less customer centricity in terms of metrics and overall experience

Key Considerations for Crafting an SLA

What do you need to think about when you are creating these service commitments? These are the key considerations to have in mind.

Aligning with Business Goals

Above all else, it’s critical to ensure that the objectives within the SLA align with your business needs and overarching goals. That’s because the very purpose of an outsourcing relationship is to add value to your company and help you achieve better business outcomes.

When you’re defining objectives within your SLA, you should always have your overall business goals in mind. In fact, it’s best to start with your mission statement, values, and objectives and consider why you are setting up this partnership in the first place.

Think about what the relationship is bringing to your business and servicing your goals, and then explore how each and every objective you define helps you further your mission as an organization.

Establishing Performance Metrics

Every SLA agreement must establish key metrics and performance standards. This is important both for driving the direction of the project and evaluating the service performance and business results. Without these SLA metrics in place, you risk not being able to declare your project finished or knowing what success looks like.

The first step is to outline key performance indicators (KPIs), which are metrics you’ll define upfront as tools to measure the success of your project. They act as a guide for you to evaluate your partnership and the product or service. In software outsourcing, examples of KPIs include timeliness of delivery, cost savings, response time, and satisfaction.

You should also establish other metrics for evaluating the success of the project and partnership. Measurement standards (KPIs) establish how your project will be evaluated, while goals are less concrete values, although they can still be metrics. They refer to outcomes, rather than progress toward the end result.

Work with your provider to establish relevant metrics and set clear targets, as well as KPIs to monitor progress toward your end goals. This will be a process, but the terms should always be clear in your SLA. For example, outline how frequently you will assess progress and the tools you will use to evaluate it.

Defining Responsibilities and Expectations

In a custom software development arrangement, everyone has a role, including members of the the service provider’s team and the business’s team. In the service level agreement, you should outline the responsibilities associated with the services provided.

There are several types of responsibilities, roles, and expectations involved in a relationship between the software development team and the business. Examples include:

Key points of contact for each party
Reporting processes
Each role on the outsourcing team
Each role on the contracting team that is involved in the project and service delivery
Expectations regarding communication, collaboration, and teamwork between and within each party

Penalties and Incentives

Unfortunately but unsurprisingly, not all outsourcing partnerships go swimmingly. That’s why the SLA should outline penalties for violations or the contract, as well as incentives for both parties involved.

By defining appropriate behavior and the penalties and incentives teams will incur upfront, you will be better equipped to motivate each party to perform optimally and comply with the SLA. Both parties should work together to create an effective penalty and incentive structure, incorporating specific elements including:

The definition of service level breaches
Rewards for successfully delivery within a timely manner
The dispute resolution process

When you create an effective penalty and incentive clause within your SLA, you will be able to navigate disputes professionally and avoid larger-scale issues.

Monitoring and Managing SLAs

Even after you have completed your SLA, you are not completely finished with the contract. As with any business arrangement, it is important to continue to monitor and manage your SLA to navigate the relationship and make it successful.

Regular Reviews and Updates

First, it is critical to conduct regular procedural and process reviews. At every stage of the project, the business should know where it stands. There should be a regular schedule for monitoring progress that will be outlined in the SLA. Beyond that, the agreement should note that in emergency situations, the service provider will notify the contracting organization immediately, outside the boundaries of the defined schedule.

Moreover, the contracting organization should have multiple opportunities to conduct reviews of the project and its project. They should be able to monitor results in real-time at every stage. The SLA should outline how the business can identify areas for improvement. In order to avoid scope creep, this contract should establish how and when the business can request improvements, as well as the scope of the improvements themselves.

It is also important to note that the SLA can be adjusted, as long as both parties agree to a process for updates upfront. Within the contract, you should outline the process for adjustments, in addition to how and when they can occur.

Communication and Collaboration

Communication and collaboration are critical elements of any working relationship. When you’re partnering with a dedicated development team in another area of the world, it is especially important to hone a system for connecting seamlessly. This will help you avoid problems down the line.

Most service providers will have established channels of communication to navigate different time zones, working hours, and differences in collaboration styles with other cultures. In any case, it is essential to outline your preferred methods of communication and collaboration in your SLA. You should note various aspects of this process, including the frequency of your interactions, the preferred modes of communication, and the tools you will use.

It is important to be very specific about these different modes and practices when it comes to collaboration. There are a number of different elements to include, such as:

The preferred tools for communicating and collaborating, including videoconferencing platforms, chat apps, and project management software
The preferred hours of communication and times of availability
The circumstances, if any, under which one party can contact the other outside of standard business hours
The main points of contact for each party for various processes and circumstances
The frequency of check-ins and longer meetings

Conclusion

A service level agreement is an important part of any software outsourcing arrangement and will play a critical role in the success of partnerships and projects. By creating an SLA that establishes the terms and conditions of your outsourcing relationship, you can create a stronger working partnership and prevent problems from arising or escalating down the road.

If you enjoyed this article, be sure to check out some more outsourcing articles.

FAQs

Why are service level agreements important when working with an outsourced software development service provider?

A service level agreement is important when working with an outsourced software development service provider because it outlines expectations, risk mitigation, and performance management in clear terms, protecting both the business and the outsourcing partner.

How do I determine the right performance metrics for my SLA?

Determining performance metrics for your SLA is an important step in a relationship between the service provider and the contracting business. You should choose metrics that are relevant to your project requirements and business goals and meet industry standards.

How can I ensure effective communication and collaboration in SLA management?

To ensure effective communication and collaboration in SLA management, leaders should define channels, processes, and tools in the service level agreement. They should also establish the frequency of communication and the point people or points of contact on each team. This will help promote a culture of collaboration.