Five Principles for Selecting SLA Metrics

At the heart of every successful outsourcing engagement is a well-written service level agreement (SLA) that codifies the requirements and expectations of all parties and is supported by a set of objective metrics. These metrics provide a fair means of assessing the ongoing performance of the relationship, thereby serving as a motivational tool and a basis for continuous process improvement efforts.

Common sense must prevail when selecting metrics. Remember that the goal is to ensure a successful and positive working relationship between the service provider and the client. To meet these goals, organizations should consider the following five principles.

1. Choose measurements that motivate the right behavior.

The first goal of any metric is to motivate the appropriate behavior on behalf of the client and the service provider. Each side of the relationship will attempt to optimize their actions to meet the performance objectives defined by the metrics. First focus on the behavior that you want to motivate. Then test your metrics by putting yourself in the place of the other side. How would you optimize your performance? Does that optimization support the originally desired results? For example, paying programmers by the number of lines of code they produce will certainly lead to an increase in production, but may play havoc with quality and the quantity of real work accomplished.

2. Ensure metrics reflect factors within the service provider's control.

To motivate the right behavior, SLA metrics have to reflect factors within the outsourcer's control. A typical mistake is to penalize the service provider for delays caused by the client's lack of performance. For example, if the client provides change specifications several weeks late, it is unfair and demotivating to hold the service provider to a prespecified delivery date. Making the SLA two-sided by measuring the client's performance on mutually dependent actions is a good way to focus on the intended results.

3. Choose measurements that are easily collected.

Balance the power of a desired metric against its ease of collection. Ideally, the SLA metrics will be captured automatically, in the background, with minimal overhead -- but this objective may not be possible for all desired metrics. When in doubt, compromise in favor of easy collection; no one is going to invest the effort to collect metrics manually.

4. Less is more.

Despite the temptation to control as many factors as possible, avoid choosing an excessive number of metrics or metrics that produce a voluminous amount of data. No one will have time to analyze the information.

5. Set a proper baseline.

Defining the right metrics is only half of the battle. To be useful, the metrics must be set to reasonable, attainable performance levels. Unless strong historical measurement data is available, be prepared to revisit and readjust the settings at a future date through a predefined process specified in the SLA.