How healthy are your IT Service Contracts?

Some years ago, I attended a security seminar at which it was revealed that more than 90% of those companies who did not record security breaches reported that they had no problems. Of course it is easy to assume that you have no problems if you never monitor, measure and report on them.

The same fallacy is true for IT Service Contracts. If you never perform a health-check it is easy to assume that all is well or to believe all the problems are caused by the other party. And it may be possible to continue in blissful ignorance – right up to the point where a major issue bursts on the scene because the root cause was not identified and dealt with early enough. Fundamentally, the contract was not healthy – but that was not readily visible to those who could make a difference.

In previous articles, we have looked at the value of reviews and health-checks for IT Service Contracts; major contract pitfalls to avoid; and essential tools for IT contract management. This article provides further insight into the annual IT contract health-check and how it helps to identify what is going well or otherwise.

The starting point for any assessment must be to understand the goals that the IT Service Contract was intended to achieve. [If no measurable objectives were documented before the contract was signed, then now would be a very good time to get some set out in black & white!] Some of the most common goals include:

•     Cost reduction
•     Head count reduction
•     Improved service levels
•     Increased customer satisfaction
•     Greater management focus on core business activities
•     Transfer of knowledge to internal resources
•     Strategy implementation

Of course, not all of the goals will be of equal importance. For each health-check it is necessary to weight the assessment criteria appropriately so that scores in minor areas do not skew the results and make the contract appear healthier (or sicker) than it actually is.

The end result of a health-check should be a clear balanced scorecard with “traffic light” indicators which clearly illustrate which aspects of the contract are performing well and which require attention by the contracting parties.

One popular misconception is that one of the parties should undertake IT contract health checks in secrecy and use the results as a large stick to beat up the other party. That is probably the least effective mechanism for improving the success of the contract and it certainly won’t enhance the relationship between the contracting parties. It is much more effective to co-operate in reviewing the results of the health-check; celebrating the successes; and creating an action plan with clear responsibilities for remedying any identified issues.

With so much diversity and uniqueness, how is it possible to get a general indication of the status of an IT Service Contract? Here are 5 key indicators that should always be measured and can give the “helicopter view” of a healthy contract:

#1 Financials: the contract should be costing no more than a) the budget, b) the previous costs of providing the service. Any extra costs should be managed, justified and beneficial.

#2 Service Levels: All the major service levels/milestones should be met or bettered and it should not have been necessary for service penalties to have been applied.

#3 Issues/Escalations: The number of issues/escalations should be low, minor in nature, and should have been quickly and satisfactorily resolved.

#4 Customer Satisfaction: Users of the service should be scoring it highly as being effective and meeting their needs.

#5 Changes: The number of contract changes should be small and minor in nature.

If all the above indicators are showing green on the traffic light scorecard then the contract is in a very good state of health. Even one amber light may not be a cause for concern. But a red traffic light in any of the above is a danger signal that should generate urgent management attention. Any of the key indicators you cannot measure would be a red light at this stage.

There is one specific sub-indicator that is often overlooked – Scope Creep. The definition of scope creep is that the assigned work of one of the parties has to be performed by the other party with no financial recompense. That should always be taken into account as, if included and measured correctly, it can have a significant adverse impact on all the key indicators.

Having read this article, is your answer to the opening question still the same – How healthy are your IT Service Contracts?

Camlas Consulting’s proven methodologies offer a range of IT Contract Assessment options to both customer and supplier organisations.

IT Services covers a wide range of activities including outsourcing, housing and hosting, hardware and software maintenance, consultancy, “body shopping”, application development, migration, operations, etc., etc.