Essential Components of Service Level Agreement in Outsourcing

Essential Components of Service Level Agreement in Outsourcing

A service level agreement is very important in outsourcing as it defines and determines the functions and services that the service provider will deliver to its clients along with the amount and quality of such deliverables. A well drafted Service Level Agreement (SLA) takes into account the expectations of the service recipient and the service provider.

What are the essential components of a service level agreement (SLA) that needs to be taken care of in outsourcing? Read further to know about it.

1. Volume of work

In the outsourcing arrangement, the service recipient expects the service provider to deliver a specific volume of work within the given time limit. The service level agreement should specify the exact work output in terms of number of deliverable per unit of time that is supposed to be provided by the service provider.
This provision is beneficial for service provider as well as it can separately charge or re- negotiate the terms of the contract if the work output to be provided is outside the work limit specified in the service level agreement.

2. Quality of Work

Quality of work is an essential part of the service level agreement. Specifying the quality of work ensures that the quality is not compromised upon while delivering the quantity prescribed in the service level agreement.

Measurement of quality in the outsourcing arrangement involves various individual metrics. Some of the important individual metrics that should find mention in service level agreement are as follow:

Standard Compliance: There can be either Industry specific standard compliance requirement or compliance requirement and standards can be formulated in the service level agreement by the parties.

Technical quality: Measurement of the technical quality of work depends on the industry specific technical quality standard. For instance, in IT Outsourcing, measurement of technical quality involves application code, program size, degree of structure etc. The service level agreement should specify the technical quality of deliverables that is expected in the outsourcing arrangement

Service satisfaction: Measurement of the client’s level of satisfaction with the service level provided by the service provider is important. In the outsourcing arrangement such satisfaction can be measured with the help of surveys which can be conducted by a neutral third party. The service level agreement between the outsourcing parties should have a proviso regarding the service satisfaction and the metrics used to measure it.

3. Efficiency and responsivenes

The metrics of efficiency measures the service provider’s capability to provide the service at a reasonable cost. The efficiency measure is supposed to tabulate the cost per unit of work produced by the service provider in the outsourcing arrangement.

The responsiveness metrics on the other hand calculates the time taken by the service provider to handle the client’s request.

4. Improvements and Service Level Agreement Review

The service level agreement should be adaptable to improvements with the emergence of new technology and industry standards.

The service level agreement (SLA) between the outsourcing parties can thus include an option to review the SLA after a specified period of time to accommodate changes and to introduce improvements.

The service level agreement acts as an integral part of the outsourcing arrangement. It is important to adhere by the service standards prescribed in the SLA to ensure smooth relationship between service provider and service recipient. Monitoring service level agreement can ensure that the parties are adhering by the agreed service level.

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