360° Vendor Management

Outsourcing Service Level Agreements: The Monthly Close

I was recently asked to escalate a back office program’s dismal performance with a vendor’s executive staff. In preparation for the executive conversation, I asked the client to provide me an overview of the program’s Service Level Performance. Two weeks later, an analyst sent me a MS Excel spreadsheet that contained data for the last three months.

“Where’s the prior 6 months data?” I asked.

“Oh, we didn’t start tracking the metrics until the middle of November,” I was told.

The management team, in fact, hadn’t been tracking any metrics until the problem hit critical levels and government regulators began to hear complaints.

It doesn’t take an expert to understand that this program lacked a disciplined management processes. However, the dirty truth is that many programs lack the discipline to track and review metrics – and you won’t know this until the program implodes. Finger pointing immediately begins and the vendor inevitably takes the fault because “it was their responsibility to deliver services.” The business unit’s lawyers reach for the contract as the business executives look for the opportunity to deflect blame and force the vendor to pay through their noses. This program, in particular, was billing a paltry $1,500 per month and the business wanted me to pass on the regulator’s $500,000 fine to the vendor. Holy indemnification, Batman!

The problem is that most vendor managers and vendor account managers just don’t have the discipline or skills to manage relationships. That’s why the Monthly Close is an essential management process. It’s the one time each month that effective executives review the program’s performance in sufficient detail to identify performance issues, negative trends, and opportunities for improvement. It’s essentially a monthly operational review.

The Monthly Close occurs monthly and is NEVER skipped or integrated into another meeting. It occurs typically one week after the end of the month and lasts two hours. The format is a working session, not a presentation. However, that doesn’t mean the team didn’t prepare in advance. In fact, the core of every meeting should be the analysis generated by the day-to-day vendor management team. The key operational executives should take part in this meeting (typically directors and vice presidents), as well as the vendor’s counterparts. In addition, IT, Quality, and Training representatives should take-part in the meeting.

The first topic of the Monthly should be to review the program’s performance against its contractual Service Level Agreements (SLAs). The last 12 months of data should be included, at minimum. Pat yourself on your back if you achieved every metric and every trend is positive.

However, if a SLA is not achieved or trends indicate future problems (trending is essential), supplemental metrics should be supplied to assist with root cause analysis. For example, if a program fails to achieve a turnaround time SLA, information on transaction volumes, transaction volume forecast accuracy, staffing accuracy, and IT system performance should be provided. Several action items should result and will be reviewed in future Monthly Closes until the root causes are rectified. Each action item should be categorized by Key Performance Indicator.

The next agenda item is to review the program’s non-contractual Key Performance Indicators (KPIs). KPIs are the lower level metrics that are typically leading indicators of a program’s ability to achieve the contractual SLAs. Transaction volumes, forecasting accuracy, and staffing accuracy are examples of metrics that typically drive turnaround time SLAs. Percent of agents trained, percent of agents who passed daily quizzes, frequent error types, and quality calibration variance are examples of metrics that typically determine a program’s ability to achieve Quality SLAs. Don’t forget to review the program’s IT stability, too.

As you review each KPI, open action items related to the KPI are to be discussed, in addition to any new failure to achieve goals or any recent negative trends. New action items should be tracked.

The last topic of discussion is the vendor invoice. Each line item should be reviewed. All charges, including transaction fees, telecommunication/IT fees, incentives and penalties should be substantiated by earlier conversations. The benefits of discussing the invoice now is that the vendor was required to provide invoices on time and that the conversations regarding service level failures, quality results, and measurements are completed.

Following the Monthly Close, executives should provide feedback to the vendor management team regarding the quality of the Monthly Close, and the executive should track both the timeliness of the meeting, as well as the team’s ability to accurately provide numbers. Late meetings and missing or incorrect data are early indications of issues in the metrics’ integrity – and you definitely don’t want to be surprised!

Do you have an effective monthly close? Share your comments with us!

This entry was posted on Thursday, March 15th, 2007 at 4:18 pm and is filed under Discipline, Outsourcing SLAs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.