Expert Article:
Service Level Agreements and Key Performance Indicators

The British Institute of Facilities Management (BIFM) Procurement Special Interest Group (SIG) are a committed group of facilities management professionals, wishing to share knowledge and best practice amongst their industry colleagues.

In August 2014 and 2015 the BIFM Procurement SIG created and published draft Guidance Notes on the subjects of Service Level Agreements (SLAs) and Key Performance Indicators (KPIs), providing reference documents for members of BIFM.

The SIG felt that SLAs and KPIs were useful tools for ensuring contracted services meet the expected delivery standards of buyers whilst introducing clear metrics for measuring performance of suppliers.   In this way buyer and supplier understand the parameters of the service contract and the value that must be delivered within it.

The SLA is not a legally binding document on its own; however it can be incorporated into the Terms and Conditions of Contract.  It should be written in a simple format, clearly defining the service and performance standards required. The value of the document is often seen when both buyer and supplier work together to agree the content.  Both parties need to benefit from the arrangement and the discussion should bring out areas such as concerns or risks, with an opportunity to minimise these aspects.

The key criteria for developing successful SLAs are:

  • The scope of the service is agreed and understood by both parties
  • There is sign off between key stakeholders
  • The document needs to be owned by the buyer contract manager and supplier delivery manager
  • There should be no more than 6 to 10 service objectives, which must use SMART criteria.
  • KPIs must be established to support the SLAs.
  • Once the SLAs have been agreed then KPIs can be developed in order to measure how well the service is being delivered.

 

A typical KPI will have the following characteristics:

  • Be aligned to service delivery goals
  • Provide context
  • Create meaning at all organisational levels
  • Be based on legitimate and relevant data
  • Be easy to understand
  • Lead to action

The KPIs should directly relate to the Critical Success factors (CSF), which may have been identified prior to procuring the service or during the development of the SLAs.  CSFs and KPIs should not be confused as they have a different purpose: CSFs determine where the value of the service will be, whereas KPIs are the measurement mechanism.

There has been much debate about the value of SLAs and KPIs with many believing they are ineffective and a waste of time.  One the pitfalls seen with relying on their use relates to managers spending too much time focusing on the KPIs, and failing to see the service in its entirety.  Tunnelled vision occurs, causing the service to contract and suffocate rather than flourish through innovation and creativity.  This can certainly occur if SLAs and KPIs are not reviewed at regular intervals during the contract term, keeping pace with organisational changes and priorities.

There is also concern around the use of financial rewards and penalties as part of the KPIs.  If a true partnership style of relationship management is desired then the use of financial incentives or sanctions potentially undermines these principles.

The success or otherwise of SLAs and KPIs is largely due to how well they are constructed and understood.   There are too many examples of generic formats being used, which then lead to a tick box exercise.  They must be specific to the organisation and relevant in order for them to work.

Prepared by:

Wendy Sutherland
BIFM Chair of the Procurement Sig

Director
Ramsay Todd Ltd