Service Level Agreements (SLAs) - Banks and Financial Institutions

Service Level Agreements (SLAs) - Preparation Guidelines for Effective SLAs

Service Level Agreements (SLAs) are contractually binding conditions that document the performance standard and service quality agreed to between the bank and service provider. SLA is an important element in building a strong outsourcing contract. The SLA ensures that the institution receives the needed services at the required performance price and standard. The SLA is a principal element in managing the financial and operational risk associated with outsourcing contracts. It also can be one of the ways to assist in mitigating risk. By defining the measurement unit and service range for the chosen level, the risk of poor service may be reduced because it becomes an area of focus and is assigned as the service provider's responsibility.

SLA's principal goal is to define and explain performance expectations and to establish accountability. Hence, balancing the need for accurate measurement standards with adequate adaptability is crucial. A typical pitfall is an undue oversight or "micro-management" of the provider responsible for the service, which can make it difficult for the bank employees entrusted with overseeing the service provider relationship and monitoring the SLAs.

A well-designed SLA will identify and reward, or at the minimum, recognize good service. It will also present the measurement structure -- or metric for performance -- to recognize poor service and initiate revision or revocation provisions as approved. In the current outsourcing environment, incentives or penalties in the SLA can be an effective tool for managing service. If services received do not meet the requirement, direct outcomes, such as decreased levels of compensation or a credit on future services, would follow.

What should be included in SLAs?

The Shared Service and Outsourcing Network (SSON) recommends that the following items are included in the SLA process.
  • The processes to be included and the products and services of those processes
  • A list of the processes which are out of scope at this point - to manage customer expectations
  • Conditions of service availability - hours of opening, days of operation
  • Service standards - times for delivery of services should be recorded in number of working days (rather than say 24 or 48 hours) to manage expectations and be clear about closures of operations for bank-holidays or weekends
  • A R-A-C-I matrix - to show who is Responsible, Accountable, needs to be Consulted and Informed, regarding process steps. This ensures role clarity in completion of tasks
  • Cost versus service trade-offs, to manage expectations about "work arounds" or "just as a favor" requests
  • Clear escalation procedures and timelines so that when something goes wrong it can be resolved by the right person, in the right role, at the right time