The term service level agreement (SLA) is among industry jargons you’ll encounter when planning to outsource to a service provider. Understanding how it works will help you set clear expectations for the level of service you expect to receive from your outsourcing vendor. In this blog article, we listed down some of the frequently asked questions about SLAs, and how it plays a crucial role in getting your outsourcing journey off to a smooth start.
What is a service level agreement in BPO?
A service level agreement (SLA) is a contract between a service provider and a customer that defines the level of service the customer can expect from the service provider. In the context of business process outsourcing (BPO), an SLA is a document that outlines the terms and conditions under which a BPO provider will deliver services to a client.
The SLA typically includes details such as the types of services that will be provided, the performance standards that the BPO provider will be expected to meet, and the terms and conditions under which the customer can terminate the agreement.
How do service level agreements work?
A service level agreement (SLA) is typically used to establish clear expectations and accountability for both the service provider and the customer, and to ensure that the customer receives the level of service they need to achieve their business objectives. Here's an example of how an SLA might work:
- The customer and service provider negotiate the terms of the SLA, including the types of services to be provided, the performance standards that the service provider will be expected to meet, and any other relevant terms and conditions.
- The service provider agrees to deliver the services in accordance with the terms of the SLA.
- The customer agrees to pay the service provider for the services provided in accordance with the terms of the SLA.
- The service provider delivers the services to the customer in accordance with the terms of the SLA.
- The customer evaluates the quality of the services received and determines whether the service provider has met the performance standards outlined in the SLA.
- If the service provider has not met the performance standards outlined in the SLA, the customer may be entitled to receive compensation or other remedies, as defined in the SLA.
- If the service provider has met the performance standards outlined in the SLA, the customer may continue to use the services provided by the service provider, or may choose to terminate the agreement if they are no longer satisfied with the level of service being provided.
Why are service level agreements important?
A highly customized service level agreement is the most critical factor for a successful outsourcing contract. Without a well-defined SLA, there is no guarantee that the client will receive the service levels they expect or that the BPO provider will be able to meet the client’s expectations. If an SLA is not detailed enough, or if it is too rigid, it may not be applicable to a BPO contract, in which case the parties may need to negotiate a new SLA. If an SLA is too vague, it could lead to misunderstandings or disputes between the parties.
Where are service level agreements used?
Service level agreements are often used in outsourcing contracts. The service level is perhaps the most critical factor in determining whether an outsourcing deal will succeed. An outsourcing deal involves more than just plugging servers and computers into a network. The outsourcing partner must understand the client’s business, know their customers and know how the company’s internal systems operate.
Because of these complexities, clients often demand very high service levels from their outsourcing partners. This is especially true for companies that have large IT departments, since these companies have a high bar for internal service levels.
Who prepares service level agreements?
Typically, the client and the BPO provider will negotiate an SLA and sign it as part of the outsourcing contract. The client may want to hire an outside consultant to help them develop the terms and conditions of the SLA, or they may choose to use the services of their existing business partners. If the outsourcing contract is large enough, or if the agreement is between two major companies, the parties may enter into a co-operation partnership or strategic alliance. In these situations, the parties may have an independent third-party organization draft the contract between them.
Summary
An SLA is an important part of any outsourcing deal as it defines the quality of service the client can expect from the BPO provider. The client usually monitors the BPO provider’s performance against the agreed SLA, and if the BPO provider fails to meet the service level specified in the SLA, the client can terminate the contract. If an SLA is not detailed enough, or if it is too rigid, it may not be applicable to a BPO contract, in which case the parties may need to negotiate a new SLA. If an SLA is too vague, it could lead to misunderstandings or disputes between the parties.
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