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Vendor Risk Management: Service Level Agreements (SLA)

Feb 13, 2013 by C. Michael Bowers

Finally, a vendor risk management topic on which most vendor managers feel they do well. After all, you tell the vendor what you expect and they agree. How hard can that be? Not hard at all if everything goes well. It is when the unexpected happens that you end up dusting off those SLAs and trying to figure out what leverage you have to force a difference in behavior. Forget the legal stuff for a minute; you just want a change in their performance.


The Super Bowl Perception

So let’s take the Super Bowl. How would you like to be the vendor manager for the power supply to the Superdome? That manager certainly has appropriate SLAs in place that require electricity is adequately supplied to the building.

In fact, much like bank and credit union IT processor uptime requirements, there is probably a clause that says they (the provider) will maintain “uptime” equal to or greater than 99.99%.

Measuring Vendor Performance

Measurement is the key: You would think the agreement surely stipulated that the Super Bowl “event” would be provided with continuous power, not just for the game, but for the entire Super Bowl week (practices, rehearsals, media day etc). But wait, the Superdome has numerous events during the year (Saints games, Hornets games, the Sugar Bowl, tractor pulls — you get the picture.)

What people don’t realize is the Superdome is home to numerous Saints team offices and even a full-service health club. So the SLA was probably an annual contract stating that continuous power would be provided all year for all events. My suspicion is that the SLA was for a 12-month period.

Do the math with me: 365 days/ 24 hours a day/ 60 minutes an hour = Total minutes in a year of 525,600 X 99.99 percent uptime = 525,547 OR down time allowed of 53 minutes.

At the beginning of the year, (when you made your agreement) a 32-minute “partial” outage (which by the way had backup generators that worked) would be no big deal IF IT WERE NOT ON NATIONAL TELEVISION in the middle of the Super Bowl. A 32-minute outage during IT processing would be no big deal IF IT WERE NOT in the middle of a conversion, or 20 minutes before the examiners are due to arrive.

Proactively Minimizing Risk

The take away is this: We all get comfortable with our vendors. Hey, the group that runs the Superdome (SMG) is one of the largest facility management companies in the world! The fact is, SLAs are great, but like so many other vendor risk management issues, they are not intended to be agreed to, written, signed, done, and forgotten.

Each of us in the financial institution community has the responsibility to understand what really important business events are coming up within our organization. We then need to be sure we communicate with our various vendors the level of importance those upcoming events have.

During that business conversation we also need to understand what changes, if any, the vendor has made recently. (The electrical company in New Orleans put in place a NEW electrical relay device to protect the systems!) We need to understand the consequences of those changes; then we need to make whatever changes are necessary, and live to fight another day.

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C. Michael Bowers

Written by C. Michael Bowers

Starting his career as a commercial banker he developed a clear perception for the financial requirements that drive performance and an appreciation for the nuances of management teams.

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