Create comprehensive service level agreements for software outsourcing

In any software outsourcing agreement, it is important to protect both the company and the service provider – i.e. 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 agreement.

Even when you've carefully researched and evaluated your dedicated development team, an SLA is important. In a nutshell, this agreement sets out the terms of expected services and standards. 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 company.

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 essentials 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 entering into an agreement with your service provider.

Components of an SLA

An SLA typically includes the following elements, varying from project to project and company to company:

• Description of software development services: An overview of the services the outsourcing provider will provide to the hiring company

• Scope: The limits and requirements of the project

• Goals: The specific objectives and goals you are trying to achieve

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

• Roles and Responsibilities: The responsibilities of both parties in executing the project with attention to compliance, laws and regulations, along with the different roles of the key members of each team

• Available service: The parameters or limits of unavailability of the service provided

Depending on the project and the nature of each organization involved, you may include additional components in 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 success of your partnership and project.

Types of SLA

There are several different types of service level agreements in outsourcing and more in the technology world. Here, we'll look at some of the most common arrangements you'll 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 customized or tailored to meet the specific needs, requirements, demands, responsibilities, constraints and objectives of the specific customer and project in question. This differs from the more standard type of SLAs, which cater to the general customer base.

The main advantages of a customer-based SLA include:

• Personalized/customized service for the customer
• 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 customer and supplier

There are also some disadvantages to consider, such as:

• Higher costs due to customization
• Complexity in relation to the partnership and the SLA itself
• Greater need for maintenance and updates
• Less flexibility for the supplier

Service-based SLA

A service-based SLA is specific to the product or service that the outsourcing partner is providing, describing only the components and metrics of the specific service that the software development team will provide. Its main focus is the service itself, not other elements of the partnership.

The advantages of a service-based SLA include:

• Standardization of processes and partnerships
• Clarity around goals and objectives
• Scalability in terms of user groups and customers
• Flexibility in terms of what a service provider offers

Some disadvantages of service-based SLA are:

• No customization or customization available
• Lack of differentiation in customer relationships
• Less suitable for complex projects
• Fewer metrics available for specific customers or consumers

Multi-level SLA

A multi-level SLA involves different definitions of services and products provided to different levels of customers, each with their own performance metrics and terms of service. Also known as hierarchical SLA, this type of agreement contains several different levels, as the name suggests, each specific to a different clause of the interested party or customer.

The main benefits of multi-level SLAs are:

• Service levels adapted 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 disadvantages of multi-level SLAs include:

• Complex management structures for the outsourced company
• Greater demand for strong communication
• Difficulty in differentiating and segmenting customers and consumers
• More effort to communicate and manage expectations

Operational SLA

The operational SLA focuses exclusively on the daily operations of the supplier delivering the expected service. The SLA looks at the daily metrics and objectives of the agreement, not just the general goals and objectives. This type of SLA can apply not only to a partnership between two different organizations, but also to multiple departments within a single organization.

The main advantages of the operational SLA include:

• Clearly defined metrics and standards to evaluate performance
• Greater accountability and transparency
• More immediate troubleshooting
• Immediately available operational metrics

The disadvantages of this type of SLA are:

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

Key considerations for drafting an SLA

What do you need to think about when creating these service appointments ? These are the main considerations to keep in mind.

Aligning with business goals

Above all, it is essential to ensure that the SLA objectives are aligned with your business needs and overall goals. That's because the goal of an outsourcing relationship is to add value to your company and help it achieve better business results.

When setting objectives within your SLA, you should always keep your overall business goals in mind. In fact, it's best to start with your mission statement, values, and goals and consider why you are entering into this partnership.

Think about what the relationship is bringing to your business and meeting your goals, then explore how each goal you set helps you advance your mission as an organization.

Establishing Performance Metrics

Each SLA agreement should establish important performance metrics and standards. This is important both for directing the project and for evaluating service performance and business results. Without these SLA metrics in place, you run the risk of not being able to declare your project complete or knowing what success will look like.

The first step is to outline key performance indicators (KPIs), which are metrics that you will define in advance 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 on-time delivery, cost savings, response time and satisfaction.

You should also establish other metrics to evaluate 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 results, not progress towards the end result.

Work with your supplier to establish relevant metrics and set clear goals, 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, describe how often you will evaluate 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 service provider team members and company staff. 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 the relationship between the software development team and the business. Examples include:

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

Penalties and incentives

Unfortunately, but unsurprisingly, not all outsourcing partnerships work out. This is why the SLA must define penalties for contract violations as well as incentives for both parties involved.

By defining in advance the appropriate behavior and the penalties and incentives that teams will incur, you will be better equipped to motivate each party to perform optimally and meet the SLA. Both parties must work together to create an effective sanctions and incentives framework, incorporating specific elements, including:

• The definition of service level violations
• Rewards for successful on-time delivery
• The dispute resolution process

By creating an effective penalty and incentive clause in your SLA, you will be able to handle disputes professionally and avoid larger-scale issues.

SLA monitoring and management

Even after completing your SLA, you still haven't completely completed the contract. As with any business agreement, it is important to continue monitoring and managing your SLA to navigate the relationship and make it successful.

Regular reviews and updates

First, it is essential to carry out regular reviews of procedures and processes. At every stage of the project, the company must know where it stands. There should be a regular schedule to monitor progress which will be outlined in the SLA. Furthermore, the agreement must provide that in emergency situations, the service provider will immediately notify the contracting entity, outside the limits of the defined schedule.

Additionally, the contracting organization must have multiple opportunities to conduct reviews of the project and its design. They must be able to monitor results in real time at every stage. The SLA should describe how the company can identify areas for improvement. To avoid scope creep, this contract must establish how and when the company 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 an update process in advance. Within the contract, you must outline the process of adjustments, as well as how and when they may occur.

Communication and Collaboration

Communication and collaboration are critical elements of any working relationship. When you partner with a dedicated development team in another area of ​​the world, it's especially important to enhance a system to connect seamlessly. This will help you avoid problems in the future.

Most service providers will have established communication channels to navigate different time zones, work schedules, and differences in collaboration styles with other cultures. In any case, it's essential to outline your preferred methods of communication and collaboration in your SLA. You should look at several aspects of this process, including the frequency of your interactions, your preferred modes of communication, and the tools you will use.

It's important to be very specific about these different modes and practices when it comes to collaboration. There are several different elements to include, such as:

• The preferred tools for communication and collaboration, including video conferencing platforms, chat apps, and project management software
• Preferred communication times and availability times
• The circumstances, if any, under which one party may contact the other outside of standard business hours
• Each party’s main points of contact 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 agreement and will play a critical role in the success of partnerships and projects. By creating an SLA that sets out the terms and conditions of your outsourcing relationship, you can create a stronger working partnership and prevent problems from arising or escalating in the future.

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

• Benefits of Software Outsourcing: Maximize Your Market Visibility
• 5 signs that it’s the right time to outsource your software development
• The ultimate guide to outsourcing IT projects
• Ensuring disaster recovery and business continuity in software outsourcing

Common questions

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

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

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