Vendor Management – Best Practices #2

This paper was developed to provide general background to assist industry clients in decisions related to implementing vendor management best practices.

This paper covers:

  • Service Levels, Performance Analysis, and Improvement
  • Customer Satisfaction Performance Metrics and Reporting

Service Levels, Performance Analysis and Improvement

Performance analysis and improvement procedures ensure that performance standards are being met through effective measurement and reporting. In addition, outsourcing clients should expect to receive continuously improving services from their vendor, and therefore, there needs to be a basis for measuring the improvement. Third party administrator (TPA’s) arrangements, claims adjudication and payment contracts, as well as IT outsourcing, need to have service levels to enable effective vendor management.

Service definitions are the basis of vendor success or failure and establish expectations for vendor delivery. Service levels are the basis for quantitative management and establish performance standards. Contracts are the starting point and set the stage for performance measurement and reporting.

An approach to defining service levels for a vendor contract might include the following:

  • Establish current, documentable service levels
  • Identify current informal service levels
  • Identify industry and/or professional standards
  • Identify best practices
  • Combine to determine target SLA’s
  • Service provider objectives
  • Client requirements
  • Define processes to achieve targets.

Service levels need to be clearly defined so the client and the vendor will agree in the contract on what is to be measured, what the desired standards are, where the data will come from, what the performance calculation is and how often the measurement will happen. Performance metrics are often made available on an intranet web site on a continuous basis.

Key reasons for tracking performance are to identify:

  • Problem areas that need improvement and improvement tracking
  • Service delivery risks and risk mitigation strategies
  • True program costs
  • Vendor strengths and weaknesses that may indicate their appropriateness for other projects or programs being planned
  • General improvement or deterioration trends
  • Fulfillment of Service Level Agreements.

A Service Level Agreement, which clearly outlines the levels of service that the vendor is expected to maintain throughout the contract term, is a key component of effective vendor management. A small subset of the Service Levels may be mission-critical to the business and should have service level credits (penalties) associated with not meeting them. Service level credits are usually weighted for importance and normally do not total the (presumed) vendor profit margin on a monthly basis.

Customer Satisfaction Performance Metrics and Reporting

Customer Satisfaction data can be gathered on an event basis, a periodic basis, or both. Event basis data would be gathered after a specific event such as a call to the help desk. An end user would be surveyed to gather information on his/her specific experience during the help desk call. Periodic data would be gathered over a period of time, capturing trend information over that period.

Customer satisfaction is a very important service level for measuring the vendor’s true performance even though it has subjective aspects. It is important not only for-the obvious reason that the “customer should be satisfied”, but because it is not uncommon for there to be a situation where performance metrics are being met but the client personnel are unhappy with the vendor’s services. In that case the performance metrics may be measuring the wrong things and need to revised and renegotiated. The reverse is also not uncommon, especially with a help desk. Customer personnel may be happier with a vendor if it appears that they (vendor personnel) are always trying to help, even if they are not as efficient in solving the problem as the service level agreement calls for (a customer service attitude helps).

The timing content, scope and method of surveys should be predetermined and spelled out in the Service Level Agreement part of the contract. Email is the simplest and most direct method for deploying Customer Satisfaction surveys, though some companies have had success with web page surveys that are linked to an email message

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