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.
What Is a Service Level Agreement in Software Development?
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:
- Service definitions: List of measures that should be taken towards the successful delivery of the requirements.
- Performance metrics: Definition of the main criteria for the project completion considered successful (e.g., uptime, response time).
- Service availability: Definition of the expected availability of the service, including metrics such as 24/7 availability, 99.9% service uptime, etc.
- Service levels: Specification of the expected level of service.
- Exclusions/limitations: Clarification on the parts of the project where the service levels do not apply or are limited.
- Responsibilities: Overview of the main tasks of the service providers as well as the duties of a client.
- Communication protocols: Clarification on how to handle issues and changes during the project.
- Response/resolution times: Outline of the timeframe within which clarifications are provided for incidents and service requests.
- Penalties and incentives: Specification of consequences for service failures and rewards for exceeding service levels.
- Dispute resolution and escalation procedures: List of measures for resolving misunderstandings, with escalation steps like management involvement, mediation, or arbitration, including specific timelines for each stage.
Oleksandr Boiko
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.”
Why Do You Need an SLA?
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.
Define Clear Expectations
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.
Set Performance Metrics
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.
Establish Vendor’s Accountability
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.
Manage Risks
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.
Allocate Resources Wisely
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.
Manage Costs
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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What Type of SLA Should You Use?
When considering outsourcing web or mobile app development, choosing the right type of software development service level agreement becomes a critical decision. Below we describe each of the most common types along with the most appropriate cases to use each of them.
Customer-Based SLA
This type of an SLA for software development represents a contract between an outsourcing company and a specific customer. The key elements of this contract are the specific software development services provided, performance standards, as well as the terms and conditions applicable to that customer. This SLA encompasses all relevant service expectations and metrics that help meet the particular needs of the customer.
Use Case Example: A large enterprise hires an IT company to oversee every aspect of its IT setup. The client has clearly defined demands, such as specific response times for different departments and customized support levels.
Oleksandr Boiko
Delivery Director at SPD Technology
“The customer-based SLA’s ability to cater specifically to individual customer needs, foster direct communication, and offer flexibility makes it the most common type of SLA for software development.”
Service-Based SLA
In case of signing a service-based SLA, the service offered in the contract can be used by all the customers who enter into an agreement. This kind of SLA defines the universally applicable performance metrics and service requirements, and it is standardized across all clients.
Use Case Example: A cloud storage service provider offers storage options to a broad spectrum of customers, including big businesses and individuals. The cloud storage service’s availability, data recovery, and support response times are all specified in the SLA, which guarantees uniform service levels for all customers.
Multi-Level SLA
Multi-level service level agreements provide consumers with varying service levels according to their individual needs and payment capacity. This approach benefits both: customers can ask for a personalized service delivery, while vendors receive the flexibility to serve a greater number of customers.
There are several subtypes of multi-level SLAs:
- Corporate-Level SLA: Addresses general concerns that are relevant to every client across the company.
- Customer-Level SLA: Covers topics unique to a certain customer base, outlining their demands.
- Service-Based SLA: Deal with certain issues pertinent to a given service and offered to a particular consumer or group.
Use Case Example: A managed service provider is employed by a global organization with several divisions and service requirements. The multi-level SLA signed by the parties contains customer-level agreements to cater to each division’s particular needs and service-based contracts to cover particular services like network management and technical support.
Operational-Level Agreement (OLA)
When an organization needs to define the relationship between different internal teams and outline the responsibilities of each department, it opts for an OLA. This agreement is a type of SLAs that makes sure all internal units are on the same page in terms of their contributions for maintaining the quality of the service.
Use Case Example: An organization has an internal IT department that is divided into teams for network administration, software development services, and helpdesk support. In order to maintain agreed-upon service levels within the company and elevate overall IT service management, the helpdesk and network teams sign OLA to guarantee that network issues identified by the helpdesk are addressed within a specified timeframe.
Underpinning Contract (UC)
A UC is a service level agreement that facilitates the provision of services to clients between a vendor and an outside supplier. The UC makes sure the supplier fulfills the required service levels that it has promised its clients. Use Case Example: A small IT company relies on a third-party software vendor to provide critical fixes for web application development challenges that came up during the development process. A UC is created with the software vendor, detailing the software’s performance metrics.
What Should an SLA Include?
Each software development service level agreement must contain specific criteria to provide contract participants with a clear understanding of their rights and responsibilities. Let’s check each critical component that is an indispensable part of an SLA.
Introduction and Purpose
This section provides an agreement overview, stating the reasons why an SLA for software development was created and what objectives parties try to achieve by signing it. It also defines the relationship between the software development vendor and its client. Moreover, this section outlines the purpose of the contract, which helps decide on the service expectations, attainable performance levels, and the mutual responsibilities of both parties.
Service Description
This part of a software development SLA contains a detailed description of each necessary service in the custom software development process, as well as its scope, and some reasonable exclusions. In this section, parties also indicate the expected service levels. For that, they can define uptime guarantees, response times, and resolution times.
Service Performance
When it comes to the overview of service performance in an SLA for software development, the agreement specifies the metrics used to measure the performance of the services provided. Those may include but are not limited to uptime/downtime, response times, and resolution times. This agreement section also establishes the performance standards against which service performance will be measured.
Roles and Responsibilities
In order to ensure that every party of the agreement knows what is expected of them, key roles and responsibilities are indicated in a separate section. Here are outlined the provider’s responsibilities, which often include service delivery, maintenance, and support as well as customer responsibilities, such as providing necessary information, ensuring access to resources, and adhering to agreed-upon procedures.
Oleksandr Boiko
Delivery Director at SPD Technology
“Defining roles and responsibilities in an SLA for software development is crucial for ensuring clarity and accountability in our projects. It helps us know exactly who is responsible for what, ensures a quicker dispute resolution process, and guarantees we meet our performance targets.”
Monitoring and Reporting
It is always important to guarantee transparency during the development process, and, therefore, an SLA must include techniques and measurement tools used to monitor service performance. On top of that, both parties should take care of the reporting schedule since it will clear up the communication frequency. Thus, the vendor will know when to present reports, in what format, and what metrics to include. At the same time, the client will be sure that the transparency of the process is ensured on the highest level.
Issue Management
In outsourcing, SLA violations may happen. To protect from unfortunate incidents, it is crucial to outline the incident management process and describe the process for reporting and managing service troubles, including how incidents are logged, prioritized, and resolved. An SLA for software development should also include escalation procedures in this section. Thus, parties define the resolution path for pending issues, ensuring that serious problems receive appropriate attention and resources.
Penalties and Remedies
If issues are not resolved, the service provider and the client can refer to the SLA section that defines penalties. Here, the parties determine the consequences for failing to meet the agreed service levels. This could include financial penalties or service credits. Furthermore, contract participants can decide whether to apply any remedies to best possible project completion results. For example, this can include additional support or service extensions.
Maintenance and Upgrades
To ensure that the software receives the required attention after the development and performs as needed, an SLA for software development can provide the details of the schedule for regular maintenance activities, including when and how they will be performed. The same is with upgrades. The parties can outline the process for implementing service upgrades and any impact these might have on the levels of service.
Security and Confidentiality
A comprehensive SLA in software development outlines robust security measures, including encryption and access controls, to safeguard data and services. This contract also highlights that both parties commit to strict confidentiality of sensitive information, adhering to industry standards and regulations.
Disaster Recovery and Business Continuity
The next section in the SLA outlines actionable scenarios for an organization in case of disruptions. Backup procedures and recovery time objectives can be taken into account here as they usually are the main part of disaster recovery plans. This part of the contract also focuses on ensuring business continuity and aims at elaborating ways for maintaining critical functions in the event of a disruption. It covers procedures for protecting assets, personnel, and resources, enabling a quick recovery and minimal downtime.
Termination and Exit Strategy
The SLA for software development also specifies what to do in case of closing the project. Notice periods and any associated costs are indicated in case of the termination by either party. There is also a place in the contract for an exit strategy. It contains a plan outlining how an investor or business owner will divest their stake in a company.
SLA Agreement: Key Challenges
Having a well-defined SLA before initiating a project can secure your investment and guarantee successful results. However, some aspects of agreement development can be complex for detailed elaboration. Let’s see where we usually put particular efforts when crafting an SLA.
Defining Clear and Measurable Metrics
We often encounter the challenge of defining clear, measurable metrics that accurately reflect the progress. This happens due to misaligned vision of a “successful project” across the company. To make sure that both the client and the vendor are on the same page, we define relevant metrics and make them realistic, objective, and quantifiable.
Our team takes into account the following considerations for setting metrics:
- Uptime Percentage
- Response Time
- Issue Resolution Time
- Performance Metrics
- Deliverables.
Balancing Flexibility and Accountability
We often see that some unexpected technical complexities arise and require additional time and resources for resolving. Although an SLA must have well-defined obligations and deliverables, it still needs to have room for adjustments. In this way, it becomes possible to maintain accountability and preserve the project’s progress or timeline.
To balance flexibility and accountability, we focus on:
- Change Management Process
- Grace Periods
- Progress Checkpoints
- Escalation Procedures
- Buffer Times.
Handling Scope Creep
If additional requirements arise during the project, it may cause a delay in the deadline and entail other technical challenges. Some projects are not ready to face these complexities. Moreover, certain procedures, such as additional approval steps, time adjustments, or budget re-considerations, may be often overlooked. This is why we pay particular attention to defining those: ignoring them can lead to delays, increased costs, and disappointment in the project progress.
In order to manage scope creep, we consider:
- Clear Scope Definition
- Change Request Process
- Impact Analysis
- Stakeholder Agreement
- Cost Tracking.
Setting Realistic Expectations
One of the critical steps during crafting an SLA is to set achievable goals. This is why we emphasize the importance of being realistic about timelines, expected deliverables, and the overall end result. This implies not only avoiding over-burdening the vendor with excessive responsibilities but also ensuring that the vendor does not overpromise the team’s capacity, resources, and the project’s complexity.
Our experts set realistic expectations with:
- Consultation with Stakeholders
- Feasibility Assessments
- Clear Timelines
- Quality Standards
- Frequent Reviews.
Ensuring Collaboration Between Teams
With over 120 projects under our belt, we are convinced that successful software development relies on close collaboration between multiple teams. The opinions and expertise of developers, project managers, and client stakeholders matter and bring additional value to the project. This is where the need for a regular and effective collaboration arises.
For this reason, we include the following in an SLA:
- Communication Protocols
- Meeting Frequency
- Collaboration Tools
- Reporting Structure
- Conflict Resolution.
Managing Third-Party Dependencies
When it comes to dealing with third-party integrations, projects can experience delays because of issues of the third-party vendor side. For this reason, we elaborate ways for managing these issues, that include communication strategies, responsibilities clarifications, and technical approaches.
Our approach to third-party dependency management includes:
- Risk Assessment
- Contingency Planning
- Third-Party SLAs
- Responsibility Assignment
- Issue Escalation
Crafting SLA Agreement Tailored for Your Needs
When developing an SLA for software development, the details can often determine whether the project results in failure or success. To make sure that every element is taken care of completely, you can collaborate with seasoned professionals who have a track record of delivering results.
During 18 years of experience, we established a meticulous process of creating SLAs that reflects clients’ needs. This is how our professional approach ensures that your project will be successful:
- Tailored SLAs for Every Project: Our team works closely with you to create SLAs that include the specific requirements, scope, and challenges unique for your project.
- Transparency and Accountability: Our SLAs define each party’s responsibilities, deliverables, and timelines, leaving no room for ambiguity.
- Proactive Risk Management: We incorporate proactive risk management strategies designed to identify and address potential issues early.
- Long-Term Partnership Focus: We design SLAs with a collaborative relationship in mind, focusing on continuous improvement and future growth.
Why Choose Us for Your Next Software Project?
When partnering with industry-leading companies to address their software development needs, we bring expertise, commitment to quality, and a focus on long-term collaboration to the table. Here’s how you can benefit from working with us:
- Proven Track Record and Extensive Portfolio: With over 120 projects delivered across various industries, we have gained experience that allows us to anticipate challenges and provide solutions tailored to specific requirements.
- Reliability and Stability for 18 Years: For almost two decades, we executed our technical expertise to consistently deliver results on time and within budget and established our tailored approach to help clients gain competitive advantage.
- Clear Communication: We prioritize open, clear communication, ensuring that you’re always in the loop. Our team meets with you and prepares detailed reports on a regular basis to make sure you are informed of every step of the way.
- IP Protection: SPD Technology makes protecting your intellectual property our priority. We incorporate clear IP protection clauses into every SLA, ensuring your data, ideas, and technology remain confidential.
- Skilled Talent: Our developers and project managers possess expertise across a wide range of technologies and industries. We thrive to ensure the best minds are working on your solution and accurately match talent to your project.
Conclusion
The SLA for software development plays a critical role in the partnership of the technical vendor and the client when outsourcing a project. The contract highlights the service levels for every party to be informed about the expected end results. There are several types of this agreement: customer-based, service-based, multi-level, operational level, and an underpinning contract. Each of these are tailored to specifics of the cooperation between the parties.
A typical SLA for software development often has an introduction, purpose, service description and performance, roles and responsibilities of the vendor and its clients. The contract also defines the ways for monitoring the progress, reporting and managing issues, and possible penalties. Last but not least, SLAs also outlines how to implement upgrades, security, disaster recovery, and explains exit strategies in case of the termination of the contract.
It is highly recommended to use SLAs when outsourcing the project not only to make sure that the project will be delivered as expected but also as part of the planning. So, if you need a trusted outsourcing partner for a development venture, do not hesitate to contact us. Together, we will craft a thoughtful service level agreement so that you can be sure that the development services delivered meet the highest standards of quality and are strategically aligned with your business objectives.
FAQ
- What Challenges and Risks Can Arise from the Absence of Service Level Agreements?
Without a SLA for software development, expectations are unclear, leading to potential conflicts and dissatisfaction. Service quality may be inconsistent, with no accountability for failures. Also, financial losses and reputational damage can occur because of unmanaged service performance and lack of formal dispute resolution mechanisms.
- How Frequently Should SLA Performance Be Reviewed to Achieve Optimal Results?
SLA performance should be reviewed monthly to ensure consistent service quality and address issues promptly. Regular reviews facilitate continuous improvement, foster better communication between parties, and ensure alignment with evolving business needs and objectives.
- Is It Possible to Establish Joint SLAs that Are Shared Among Multiple Vendors or Service Providers?
Yes, joint service level agreements can be established among multiple vendors to manage interdependencies and ensure cohesive service delivery. These SLAs align performance standards across providers, fostering collaboration and clear accountability for each vendor’s contribution to the overall service.