Tip

Ensuring ROI: Can SLAs help?

Tom Pisello, SearchCIO.com site expert

The rules for IT spending have changed significantly in the past 18 months and financial accountability is the new name of the game. Many vendors see ROI analysis as the way to arm prospects with a dollar-driven business case needed to win C-suite approval. Unfortunately, many IT professionals are finding that even the most robust vendor ROI tools aren't enough to stand up under the increased levels of financial scrutiny.

Clearly a dangerous gap exists between the demands of CIOs and CFOs, and the ability of most IT solution providers to address their purchase decision requirements. One approach to closing the distance may be found in service level agreements - valued as a tool for guaranteeing availability and responsiveness.

What if a vendor could be engaged enough in a personal ROI analysis to stand behind the results? This may be radical thinking for many, but this type of partnership could benefit IT departments, business groups and solution providers alike.

Under the service level agreement of the future, IT vendors would sign up for the delivery of key benefits promised by ROI analysis. If the benefits were not realized at some minimum level, the vendor would have an opportunity to help remedy the situation. If they still failed to deliver, penalties would apply. On the flip side, if the results deliver higher value than expected the IT vendor would be rewarded with additional compensation or substantial intangible benefits. This approach would:

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    • Give companies more confidence that IT projects will actually deliver tangible gains
    • Create a vested positive interest in the customer's success for IT solution providers
    • Require that all parties involved understand the proposed costs, benefits and ROI and commit to the accuracy of measurement
    • Facilitate collaboration on tracking costs and benefits
    • Share the success - and the rewards of effective solutions

    IT managers can appreciate a vendor with a substantial stake in the project's success, and who is involved in the planning, implementation and management phases to ensure that the investment is delivering as promised. Undoubtedly, few business unit managers would want to pay vendor more if the project exceeds expectations. The good news is that there are many forms of compensation beyond direct payment, including public testimonials, reference credentials or future contract extensions. Companies that see opportunity in a partnership of this intensity must be willing to step up to the plate with rewards that match the value.

    For the IT vendor, implementing service level agreements is a difficult proposition. SLAs introduce an unknown impact on planned revenues, require that the customer successfully implement and adopt the solution as expected, and can greatly increase expenses if more investment is needed to meet the promised service levels. The upside lies in eliminating any doubt a customer may have and shrinking the sales cycles, not to mention significant revenue opportunity if the customer agrees to share in the benefits if the project exceeds expectations.

    Moving to an ROI service level agreement would be a revolution for IT managers and vendors alike, however, the return to financial scrutiny requires a fundamental change in the relationship between customer and vendor. In the new economy, accountability for returns from IT investments is the solution provider's responsibility as much as the corporations'. Now, more than ever, making the move to shared risk and reward makes fiscal sense and SLAs may be the vehicle to drive the evolution.

    Tom Pisello is the president and CEO of Orlando-based Alinean, helping CIOs, consultants and vendors assess and articulate the value of IT investments. He can be reached at tpisello@alinean.com.

    This was first published in January 2003

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