Top 5 SLA & KPI mistakes and How to Avoid Them

Establishing SLAs and KPIs is critical to outsourcing success. However, many organizations fall into common traps that can weaken vendor accountability and drive unexpected costs. Below, we explore the top 5 mistakes and how to avoid them

​​Poorly Defined Metrics:  Companies often write SLAs with vague or incomplete definitions. If the metric isn’t measurable, observable, and objective, it will be hard to enforce — leading to disputes.

To prevent poorly defined SLAs, document each measure with a clear definition, including formula and the data source which will be used to perform the calculation. Perform due diligence on the ability to extract the required data from the source systems, confirm accuracy and finalize reporting requirements and oversight approach. 

​​Overlapping Accountabilities:  A vendor can only be held accountable for delivery for those services that they have responsibility for. 

To ensure viability of the SLAs being proposed, evaluate the level of ownership the vendor has in delivering the service being measured, if other parties have significant influence on the success of the outcome you may need to decompose the measure into a calculation that aligns to the vendors level of responsibility to avoid finger pointing.

Not Aligning SLAs to Business Impact:  A missed SLA on a key financial system is not the same as a missed SLA on a low-priority internal tool.

To align SLAs to business impact, consider using a structure that recognizes a Tiered ranking for applications, such as: Gold, Silver and Bronze application categorization. Then set the performance targets for each category to a level that matches the importance of the application. As an example, Severity 1 resolution time for a Gold application may be 2 hours, where for a Bronze it may be 8 hours. This also allows you to place a higher penalty on missing the Gold applications that Bronze, shifting the vendor risk to align to the business value.  

Forcing a Vendor to Perform Low Value Work:  Inclusion of a measure as an SLA requires a vendor to spend resources to complete the effort within required timelines, thereby costing you money. As an example, many clients include Severity 4 incidents in the SLAs.  Severity 4 incidents by definition are low priority items, many of which should not be done.

To drive maximum value from your SLAs, evaluate the service and determine how critical the work is and if you are giving the vendor pre-approval to complete all activities within the scope of the measure. An alternative approach to assigning an SLA is to place the service into a category that gets prioritized and assign a KPI to the activity. If necessary, the KPI can be promoted to an SLA.  

Not Changing Your SLAs:  Performance measures are not intended to be static. The term of most managed services is 3-5 years. During that time the things that are important to the client will change and the performance of the service provider will improve. 

Evolution of your managed service outsourcing engagement is supported by changing the active SLAs. On a semi-annual basis, leadership should review the health of the engagement and adjust the SLAs in use to address areas of concern or to re-enforce new areas of opportunity.  SLAs no longer in use can be moved to the active KPI list, thereby keeping them in play in the event that vendor performance slips. 

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