According to Grand View Research, the global business process outsourcing industry is booming, with revenues projected to surge from $280.64 billion in 2023 to $525.23 billion by 2030. So while many business processes rely on outsourcing, maintaining trust is among the top priorities for many companies. Ensuring secure and efficient outsourcing requires clear service expectations and accountability, which is why service level agreement (SLAs) becomes indispensable. In this article, we will discover what is an SLA, what essential components should it contain and what type of the agreement matches your business specifics best.
A service level agreement for software development is a written contract that outlines the expected level of service between a client and their IT service provider. It is typically required when outsourcing development projects, hiring a dedicated development team and/or distributed development team, or setting up an offshore development center.
SLA describes service commitments and measures used to evaluate that the service is delivered up to expectations. This contract also usually includes the description of the reimbursement of costs as well as corrective actions in case the provider makes an SLA violation.
SLA’s critical components commonly include:
Delivery Director at SPD Technology
“Executing a project without an SLA for software development can make the process disoriented. Without defined expectations and performance metrics, project timelines can easily extend, and quality may deteriorate, leading to dissatisfaction for both the client and the development team.”
McKinsey states that regardless of project size, 59% of IT projects are finished under budget, 47% are finished on schedule, and 44% get the desired results. This shows that around half of the projects are not delivered up to customer satisfaction. However, if the parties involved in the project sign a software development service level agreement, they maximize the chances of a successful completion. Below are more specific reasons for signing an SLA.
It is usually believed that it is the client who should pay exceptional attention to an SLA to protect their project. However, an SLA in software development helps both the client and the service provider. Both parties can precisely outline what the end results should be, when they should be delivered, and in what state they must be presented. For the provider, it helps to manage customer expectations.
Defining the demands and responsibilities minimizes potential disputes by providing a concrete reference point. Furthermore, when there are well-defined expectations, project management runs more smoothly. Wellingtone reported that around 60% of projects mostly or always have a scoping document before the initiation. This leads to more productive and cooperative teamwork.
If you want to correctly evaluate the provider’s productivity and effectiveness, a software development SLA needs to include several metrics. Typically, SLA metrics are throughput, error rate, accuracy, and completion rate. Other metrics also can be added if needed.
The importance of setting performance metrics is supported by the study of the Project Management Institute. The research revealed that 56% of IT projects meet their original goals, primarily due to thorough performance monitoring and management. Indeed, checking routine SLA metrics allows the client to evaluate if the software development company they are working with is fulfilling the established requirements. This methodical assessment guarantees the preservation of high-quality service and serves as a foundation for ongoing development.
Defining the responsibilities and obligations of a software development vendor in an SLA guarantees a transparent and enforceable standard for performance. Thus, the software product development process is secured against the vendor’s non-compliance, ensuring the vendor is held accountable for delivering the agreed-upon services.
As a result of this accountability, the service provider is more likely to commit as they understand the possible consequences of not fulfilling their duties. It also gives the client a way to deal with problems and find effective solutions.
SLAs for software development aid in anticipating possible service-related problems and outlining precise procedures for their resolution. An SLA minimizes the effect of these risks on the client’s operations by defining protocols for managing failures, interruptions in service, and other events.
Such a risk management entails defining incident response timelines, escalation routes for problems that remain unfixed, and backup plans for important malfunctions. As a result, SLAs help to handle risks, ensuring that each party is ready to face and resolve unforeseen difficulties and boosting the service’s general resilience.
If you clearly outline the necessary services expected in service level agreements, it will help to allocate resources in a more rational manner. You will be able to specify the personnel, technology, and time commitments needed to complete the project.
Both parties can prevent overcommitting or underutilizing their resources by having a clear resource plan. This guarantees that the client may efficiently arrange their internal resources while a software product development company can offer high-quality services without overstretching their capabilities.
According to the 2022 Global Outsourcing Survey conducted by Deloitte, 57% of executives state that the primary driver of traditional outsourcing is cutting costs. At the same time, an SLA for software development helps control costs by providing a definition of the scope of services and associated pricing.
Clients are able to precisely budget and prevent unforeseen costs because of the transparency brought to them by clear contract requirements. SLAs also guarantee value for money by establishing performance KPIs and accountability measures for the service provider. This is especially true for large projects, like developing enterprise-level applications, since these projects often involve complex requirements and high stakes.
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