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Preventing the Top 3 Vendor SLA Mistakes

author Michael Berman
1 min read
Aug 25, 2016

Service-level agreements can be one of the most effective tools in a financial institution’s vendor management arsenal, but too many institutions make major mistakes when crafting SLAs.

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Here are the three biggest SLA mistakes a financial institution typically makes, and how to prevent them:

  1. Letting the vendor pick the measurements. Decide what’s important to your financial institution and set measurable, specific benchmarks. Don’t just say you expect reliable systems. Instead, specify up-time. For instance, you may expect bill payment to be available 99.9 percent of the time each month. If you aren’t specific, the vendor may disagree with you when you complain that bill payment isn’t reliable and then refuse to fix the problem.
  2. Letting the vendor do the measuring. Do you trust a vendor to tell you when systems are falling short of benchmarks, even if you don’t notice? Require vendors to give you monitoring tools and reports to help you gauge performance. You don’t want to wait for an IT security breach to find out that a vendor hasn’t been performing required penetration tests.
  3. No vendor accountability. What happens if your vendor breaches the SLA? In many cases nothing. The vendor just says it will redo whatever went wrong, and they may not be very motivated to fix the problem. A good SLA includes financial penalties for breaches. Financial penalties make vendors accountable because their mistakes cost their bottom line. Monetary penalties (and rewards for outstanding performance) can inspire your vendors to be proactive when problems emerge.

To learn more about SLA best practices for FIs, including the four steps to developing stellar SLAs, read the Ncontracts white paper How to Motivate Vendors and Get Results.

 

Related: Vendor Risk Countdown: Top 10 Risks Third-Party Vendors Pose to Your Financial Institution

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