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The Right Service Level Agreement Metrics for your BPO Partner

3/30/20 11:42 AM / by Eric Liebross

Eric Liebross

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sla in bpo industry

A well-written service level agreement (SLA) stands as a critical component of the relationship between a client and a BPO (Business Process Outsourcing) provider. At its simplest level, it ensures everyone is on the same page – protecting the client and provider with mutually agreed-upon terms, guidelines, and metrics that enable everyone to meet expectations and work productively. 

But confusion often swirls over the difference between contractual SLA metrics and the broader canvas of key performance indicators (KPIs) that BPO providers can also use to monitor operations – and why it’s important to have both.

SLAs in the BPO industry are ultimately determined by the unique needs of an organization and the metrics that matter most to its success.  There really is no “one size fits all” set of metrics.  But in this blog, we will provide insight into valuable service level agreement metrics that organizations can consider as part of their BPO contracts.

 

What are the SLAs in BPO?

 

The most effective SLAs in BPO measure an outsourcer’s performance through one or two carefully chosen metrics for every function in a contract. Holding the BPO provider contractually accountable to the most critical objectives ensures that items companies care about most remain the top priority.

It also keeps performance assessments from getting muddled because too many factors are at play.  SLAs are typically reviewed annually, so they remain aligned with company priorities.  

When done properly, SLAs in BPO ensure that both parties understand their responsibilities and focus on the right areas, while laying out the metrics that will be used to measure service.  They also create accountability and communication, establishing a dialog on key issues that occur within the operation and detailing remedies and actions if agreed-upon service levels aren’t achieved.

And perhaps most importantly, they set the stage for a strong working relationship between a business and its BPO provider by reducing the potential for conflict.  When objectives are clear to both sides, people spend less time debating and more time solving problems. SLAs also ensure clients understand their role in supporting SLA targets, such as issuing timely approvals on pending items.

Service level metrics help put issues into perspective as well.  While the root cause still may need to be addressed, five improperly processed invoices become less alarming when it’s clear that 20,000 others were handled correctly in the same period.  On the other hand, a sudden spike in mistakes requires deeper analysis.

SLAs also facilitate communication through monthly service level reviews (SLRs) that enable stakeholders to get to the bottom of issues so they can be easily corrected.  For instance, a marked increase in the length of customer service calls can help uncover product issues before they cause reputational harm to the business.

When clients provide certain levels of access to internal systems, exceptional BPO providers can even create dashboards that enable clients to view metric performance in real-time.  An Accounts Payable dashboard, for example, could reveal how many invoices are in process, where they are within that process, and why some are sitting waiting for processing.

 

The Most Common Service Level Agreement Metrics for Finance & Accounting Departments: Accuracy and Timeliness

 

Back office operations in Finance & Accounting Departments are essential to “keeping the lights on” in an organization - paying vendors, billing customers, and closing the books on a monthly basis.  But while these basic transactional tasks may seem to add little strategic value to the business, failing to perform them in a timely and accurate manner can cause irreparable harm

The efficiency of the Accounts Payable (AP) function, for example, is directly tied to an organization’s financial stability and reputation.  If a company takes too long to pay vendors or pays them incorrectly, the reputation of its brand will suffer. This erosion of goodwill can result in slower delivery times, slower responses to queries, less willingness to resolve issues, failure to capture supplier discounts, and tougher payment terms.

In the reverse, the ability of the Accounts Receivable (AR) function to issue invoices and collect payments in a timely and accurate manner is key to a company’s cash flow.

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There’s little surprise that the most common SLAs in BPO for Finance & Accounting Departments zero in on accuracy and timeliness.  How those broader categories are addressed is determined by business priorities. 

An AP SLA may require the BPO provider to achieve a 98% accuracy rate when processing invoices, drastically minimizing the amount of errors.  Another client may prioritize speed of processing so backlogs don’t accumulate. Fast responses to vendor inquiries are another common focus of AP service level agreement metrics, with an eye toward maintaining strong relationships.

For accounting functions, closing the books on time and accurately is critical to generating the financial statements and reports that lead to informed business decisions.  There are multiple steps a BPO provider needs to perform in order to hit its close metrics. Instead of picking one or two to emphasize, covering them all with an SLA mandate to successfully close the books within an established time frame ensures each step is performed in a timely and accurate manner along the way.

 

Customer Service SLAs in BPO Focus on Quality, AHT, and Abandonment Rate

 

There’s a painful story about Amazon CEO Jeff Bezos asking his global VP of Customer Service for the average telephone support hold time in the midst of an executive meeting.  When he was told it was less than a minute, Bezos dialed the number on the room’s speaker phone to check for himself.

After four-and-a-half excruciating minutes, a representative finally answered the call.

At the end of the day, the key to exceptional customer service boils down to customer satisfaction. But making customers happy while providing efficient service and controlling costs can seem like contradictory efforts.  The most common customer service-related SLAs in the BPO industry help balance and align those objectives.

Which SLA emerges as the priority comes down to what makes the most sense for the organization, its customers, and its specific business model.

  • Abandonment rate focuses on the number of callers who abandon a call before it’s answered – usually, as Jeff Bezos uncovered, because the wait time is too long.  Customer service-related SLAs often prioritize minimizing the number of people who become angry or impatient enough to leave before receiving assistance.
  • Average handle time (AHT) is another critical SLA metric that measures the average duration of a transaction. It typically starts with the customer's initiation of a call and includes hold time, talk time and related tasks that follow.  AHT is a prime factor in determining an outsourcer’s staffing levels; when calls take too long, wait times – and by extension abandonment rates - tend to rise.  The lower the AHT, the more efficient the customer care center is operating, enabling representatives to handle more calls, serve more customers, and perform faster resolutions.
  • Quality metrics ensure a baseline of service that enable high levels of customer satisfaction.  They allow BPO partners to provide clear guidance to employees about what needs to be done consistently and how their performance will be measured. This guidance can help them select the right approaches, processes, and support tools to solve customer issues efficiently and effectively.

 

What is the difference between KPIs and SLAs?

 

In order to achieve SLAs, BPO providers will also regularly track a broader scope of key performance indicators (KPIs) tied to the SLA that assure the quality of work being delivered.  KPIs are quantifiable measurements, agreed to beforehand, that reflect critical success factors for a company, department, or project.  Critical success factors are the elements needed for a positive outcome to occur.

Here’s the key difference between KPIs and SLAs:

Failing to meet a KPI is not a breach of contract.  Rather, KPIs serve as navigational tools that keep BPO providers on track to meet defined SLA objectives. They provide insight into operations, highlighting areas that might be veering off course so outsourcing teams can quickly make necessary corrections. 

sla meaning in bpo

The best BPO providers evaluate their team’s performance using agreed-upon KPIs that are monitored and reported on a weekly basis to assure the quality of work during the month.  These metrics are monitored and reported on, in addition to the agreed upon service level agreement measures.  The numbers are reported to the business via a real-time dashboard and/or monthly review. 

As collecting information about a patient’s vital stats enables doctors to make the best decisions about their care and treatment, KPIs are critical pieces of information that enable better business decisions.  They help BPO providers analyze trends and areas of opportunity. They flag outliers and show where coaching, refresher training, and even potential process revisions are needed if recurring errors are tracked.

Like SLAs, KPIs are customized to meet business priorities. But let’s consider some examples:

KPIs stemming from SLAs in Accounts Payable might track measures related to:

  • Resolution of issues with vendors
  • Invoice processing, including average processing time
  • Accuracy of the payment process
  • Accuracy of invoice processing
  • Accurate and timely handling of invoice exceptions
  • Necessary steps to prepare a payment run with all payments to be made in the day
  • Clearing wire payments in an SAP
  • Preparing an electronic payment data file and upload in a bank website
  • Processing urgent payments

KPIs in Accounts Receivable might measure activities related to:

  • Documenting and issuing commercial invoices accurately and in conformance with customer business rules and terms
  • Accuracy and timeliness of cash application processing against open balances
  • Submitting invoices through customer portals when required
  • Reconciling deposits received in the bank for cash application purposes
  • The timely resolution of unapplied cash

For SLAs Governing Accounting Operations, KPIs might track:

  • Activities related to requesting/validating manual journal entries, approvals, and posting
  • Validating the accuracy of various transactions during specific accounting periods
  • reconciling account balances
  • Identifying mistakes or anomalies in payments
  • Conducting accounting activities on a regular basis, rather than waiting until month-end, so issues can be quickly resolved, ensuring the month closes smoothly

And in a customer service-related SLA, KPIs might measure:

  • The total amount of customer contacts received and answered
  • The number of customer contacts received compared to forecasted volume
  • Average handle time (AHT), average of speed answer (ASA), hold, and talk time per call type
  • The weekly and monthly AHT per agent, team, and account
  • Employee attendance
  • Employee utilization (the time spent actually working on customer related tasks)
  • Agent quality scores
  • Customer satisfaction ratings

 

Service Level Agreements in BPO form the Foundation of Success

 

SLAs kept on track by thoughtfully selected KPIs draw the blueprint to a successful relationship between a business and its BPO provider.  They establish a clear set of rules that keep everyone on the same page, while analyzing where improvements can be made. With a well-structured SLA, clients and BPO providers can move forward with peace of mind that both parties know exactly what’s agreed upon and the service level that needs to be delivered.  And the SLA and ongoing Service Level Reviews (SLR) provides a great forum for both organizations to effectively communicate on operational performance and address any issues that arise.

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Eric Liebross

Written by

Eric Liebross

Eric Liebross leads Auxis’ Back Office Optimization practice, helping organizations design and implement innovative operating models, processes and technologies to achieve optimal performance within Finance, Customer Service and HR Operations. Eric’s areas of expertise include Shared Services Strategy, Nearshore Outsourcing and RPA.