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A new approach to Service Level Agreements

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21st Apr 2005
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Finance professionals are increasingly involved with Service Level Agreements (SLAs), which can play an important role in managing the relationship between departments within the same organisation. Insight MSC director Peter Morley offers finance professionals some tips on how to draw up and manage effective SLAs for their systems and processes.

In the quest to increase efficiency and effectiveness, most organisations ' both in the public and private sectors ' are taking up new initiatives such as shared corporate service functions or outsourcing key activities.

These schemes are inevitably complex to manage as they break away from traditional structures and boundaries to include new players and relationships. For example, a finance department which previously provided day-to-day accounting services to a regional office of a large multinational, might have to adhere to centralised processes and systems even relocate to a new office.

The finance team might also be required to provide new services not traditionally within its realm, such as participating in a project to implement a new finance system. In the public sector, Sir Peter Gershon's efficiency review encourages a move towards more sharing of corporate services ' including finance and IT.

In such a scenario, finance professionals are increasingly coming across the need to draw up service level agreements (SLAs) to manage the services they offer to the rest of the organisation. SLAs are contract-like documents between two or more parties that set out their respective roles and responsibilities in relation to the services provided. They can apply just as easily to day-to-day accounting services as to the development and management of the organisation's finance system, or the relationship with an outsourcing partner.

SLAs can be the critical factor in securing the success or otherwise of these arrangements, but are pointless if they are not properly set up. Worse still, unclear and badly managed agreements can do more harm than good to the organisation.

If set up and managed appropriately, however, SLAs offer enormous benefits to the organisation. They are solid contract-like structures on which effective processes and systems can be built. SLAs spell out what services are to be delivered; establish roles and responsibilities and provide benchmarks and measurements on which to rate the level of service provided.

Any support service, whether in-house or outsourced, can be vulnerable to accusations of being insensitive to the requirements of its customers (or users). Equally, customers of a service may have unrealistic expectations of what can be reasonably provided to them. SLAs can overcome these gaps.

SLAs ensure that:

  • Everyone in the organisation is aware of who does what, in a way that everyone can understand and that can be easily referred to
  • Each service provided can be measured against specific targets
  • Regular objective reviews of the level of service quality and on the scope of the service are carried out.

    On the other hand, SLAs can be totally pointless if they are not managed properly. For example if they are:

  • Unclear - the roles and responsibilities are not clearly defined or communicated; for example, users of a new finance systems are not sure who to contact in case they need support or training, or are uncertain as to their involvement in the ongoing development of the system
  • Unrealistic ' for example, if they are not reviewed and changed and assume the world is standing still. SLAs are live documents that need to adapt to changing business needs
  • Inaccurate 'dysfunctional behaviour can result if the SLA measures the wrong imperatives or ignore the real issues which obstruct the delivery of the service
  • Unachievable ' as in the case of unrealistic targets being used to measure the system performance
    Further, creating SLAs can result in a futile exercise if they are not finalised, signed, reviewed periodically and all the parties involved are not committed to them.

    Redressing the balance
    From Insight MSC's experience the most common problem associated with unsuccessful SLAs is the loss of strategic focus - i.e. parties involved in drawing up these contracts lose sight of the reasons for creating them and get bogged down by unnecessary detail and bureaucracy.
    To create an effective SLA it is important to:

  • Be clear about why it is being created
  • Consider what really matters ' ie measure only critical business performance indicators; for example, rather than going into too much detail about specific points, an SLA applied to a finance system should specify conditions such as: 'To input invoices within 10 working days of receipt' or 'the accounting system to be available from 08:00 to 18:00 five days a week, 98% of the time'.

    Drafting SLAs
    For those of us directly involved in drafting SLAs, the essential points to be completely clear about are:

  • Recognising the true services ' which services are we offering? Each service should have a 'service description'
  • Identifying the meaningful measures of what the customer needs
  • Acknowledging the capacity and capability needed to deliver the service, such as resources, skills and availability.

    Different organisations may need different types of agreements, and a decision has to be made over the most suitable type for the department in question. For example, contractual or quasi-contractual, or just a clear table of roles, responsibilities and services. We must also think about how the SLA is to be communicated to those who will need to know ' providers and customers alike; for example if it is published on the Intranet and with an email based feedback system.

    Strategic intent
    When drafting SLAs, it is important to look beyond the actual agreement and allow flexibility of scope. This might sound like a contradiction but it's actually a determining factor in the success or otherwise of SLAs in the long run.

    As strategic tools SLAs should take a long-term approach and be able to expand the services provided or take advantage of new technology opportunities as they arise. For example, the finance department broaden its services to include payroll processing (previously provided by the HR department). These new services will have to be added in the agreement without the need to make fundamental changes to the contract.

    Running an SLA
    Once finalised and approved, SLAs need to be continuously reviewed and managed to ensure they are kept current and optimised.

  • All parties need to appoint client and supplier side representatives ' they will be the key point of contact for any SLA-related issue. In a finance department the supplier side representative could be the finance director for example.
  • Regular reviews need to be undertaken, the optimal timing being, weekly (operational reviews), monthly (service reviews), quarterly (strategic service reviews).

    A good SLA is one that is understood, monitored and subject to regular controlled changes to reflect the dynamic business environment.
    © 2005 Insight Management & Systems Consultants Limited

    About the author
    Peter Morley, is a director of Insight MSC, an independent provider of accounting and finance systems consultancy. He can be contacted on 020 7952 4690; or via email at [email protected]. More information about Insight MSC can be found on the company's website, www.insightmsc.co.uk

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    By AnonymousUser
    03rd May 2005 07:14

    shared services provider
    I work for a department that provides shared corporate services to the Northern Territory government in Australia. Our Head Office is in darwin with 4 branches within the Northern Territory with Alice Springs about 1500 kms away.
    In addition to the standard recuitment, payroll, accounts payable and accounts receivable functions we provide IT hardware via mainframe and servers. We support the government wide accounting software, maintain a government wide general ledger, Operate a fleet service and printing service.

    One of our major challenge is to meet the demands of a wide range of clients while seeking to standardise the processes and keep costs as low as possible. We have a staff of about 700 servicing a Public service of about 16,000. I have heard of other shared services providers in the private sector that operate across a number of time zones, in different countries dealing with different cultures.

    It is a challenging environment to work in.

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