Service Level Agreements (SLA) have been on the rise ever since the advent of Information and technology services thanks to the increased risk of global collaboration between various parties in a borderless, inter-connected, regulated, and legally complex world economy.

If a company in Germany wants a vendor in the United States to provide them with servers, for instance, it’s not exactly straight forward. The emergence of SLA helps blaze a new trial by penalizing underperforming vendors and business partners.

When it comes to outsourcing, SLAs are even more powerful and they keep security practices at the fore, put rigid expectations in place, and drive this already competitive sector into a much more organized and accountable.

But with both SLA-based contracts and the more common Time and Material model, which one is better? How do you choose?

Let’s dig in:

Time and Material Contracts

Time and Material focuses on inputs(resources) and the expectations are loosely defined (or maybe not defined at all) and as demands for vendor resources grow, the cost is likely to go up over time. Even more importantly, it’s hard to arrive at benchmarks, expectations, and to get to any incentive-penalty clause. In short, the pay is basically contractual without any standards for expectations without focusing on pay for the effort.

SLA-based Contracts

SLA-based contracts, on the other hand, focus on pure output or performance. The KPIs, expectations, exact deliveries, and responsibilities of the vendors and businesses are all charted out at the very beginning. The performance is measured against mutually-agreed expectations.

Since the contracts themselves are performance-based, costs are more predictable with vendors “earning” their way through the relationship instead of just getting paid by default. Typically, multi-year contracts also give room for both vendors and clients to grow together with a fair pricing model.

Further, with the SLA-based Contracts, there are in-built mechanisms in place for improvement and penalties for failure.

Here’s why SLA Contracts for CRM Make Sense

For medium and large businesses, CRM data, CRM maintenance, and CRM implementation is at the core of operations. Downtimes, missing data, stolen data, and any issues with CRM setup can all cause havoc, to say the least.

SLA-contracts begin with firm expectations, Key Performance Indicators (KPIs), rewards for performance, and penalties for non-performance. Most SLA-contracts are also collaborative in nature calling in active involvement for both vendors and clients.

Almost always, critical to Quality (CTQ) parameters are defined in advance. A few examples of MS CRM CTQs could be:

• Response time for critical issues | First level < 15 minutes
• Resolution time for critical issues | Critical < 2 hours | Medium Priority < 4 hours | Low priority < 8 hours.
• Escalation Rate | Less than 5%
• Application Uptime | 99% weekdays and 95% weekends
• Schedule Variance | < 10% for 95% cases and <15% for 100% cases
• Field-Error Return Rate | No rework in 30 days

Depending on the businesses getting into SLA-based contracts, the nature of the industry, the temperance of work involved, and many other factors, SLA contracts easily lend themselves as fair, accountable, and purely performance-based.

Payments for performing vendors is the order of the day, and SLA-based contracts easy dwarf the Time and Material Model.

At Kalpavruksh, we default to SLA contracts because we want to make sure we stay competitive and also since our clients demand the best from us. Our shared support solutions, services, CRM management, and pretty much everything else we do stems from our SLA driven DNA.

Do you believe that SLA contracts are better positioned for both vendors and business? We’d like to know your inputs.