Chapter 2.2 Flashcards
Appraise examples of key performance indicators (KPIs) in contractual agreements
What is the purpose of KPIs
To measure how well the contract is performing in delivering the 5 rights
Name 3 examples of contract specific KPIs
- Number of payments made within terms
- Timeliness of orders
- Accuracy and completeness of orders
What 3 things should each KPI do?
- Be important
- Relate to a potential improvement or a potential problem
- Fall within the authority or ability of the parties to influence the results
Should it be necessary to have more than 5 or 6 KPIs?
No
Whats a rule regarding KPIs
The costs of capturing and analysing the KPI information must never exceed the potential benefits from improvement or likely costs of the potential problems occuring
Name the 3 main types of data used in KPIs
- Binary measures
- Numerical measures
- Qualitative or subjective assessments
What are binary measures
Where only one of the two options is possible
What are numerical measures
Where a range of solutions is possible
What are qualitative or subjective assessments
Pure opinions about how well or otherwise the goods are performing or the service is being delivered
What are KPIs dependent on?
The availability of the relevant data
Name 3 considerations when defining KPI data
- What data do you need?
- Where is the data held?
- Are there costs associated with collecting the data?
Name 2 things KPI data must be
- Easily accessible
- Capable of being trusted by both parties
What is a common method of converting KPI measures into performance scores?
To use a 0 to 4 scale
When are setting KPI targets essential?
If incentive payments are to be used
What must any target used be?
- Specific
- Measurable
- Achievable
- Realistic
- Timebound
name 3 other considerations (not SMART) to bear in mind when setting targets
- What value will an improvement of a particular KPI deliver to the business?
- What will it cost to deliver the improvement and who will bear the cost
- Are there likely to be any unintended consequences
Name the 5 steps to defining KPIs
- Decide what matters: what are you going to measure
- How are you going to measure it
- Who is going to measure it
- How often or over what time period will it be measured?
- How does the measure convert to a score
What are KPIs
Measures of the outputs of activity
Why are targets set for KPIs
To drive performance levels to improve above the baseline required by the specification
What can be used to compensate the purchaser if targets are not met
Penalty clauses or service credits
Where might detail of how KPIs will be monitored and the actions or consequences resulting from scores achieved be documented and agreed?
Service level agreement
Service level agreement (SLA)
Document outlining the expected minimum level of service between a service provider and a client. It clarifies the scope of the service, responsibilities of each party and how to escalate among other factors. A service level agreement is legally enforceable if it is referred to in a contract
Do service level agreements mean different things to different people?
Yes
Name 4 different things service level agreements can mean
- It can refer to a non-contractual agreement between different divisions or departments within a single organisation
- It can also refer to a single document within a suite of documents that make up a contract
- It is often incorrectly used to mean the entire contract
- In some circumstances it may be a side-agreement which is not part of the contract itself but which is still intended to be legally binding
What is always the nature of an SLA
An agreement between the provider of a service and the recipient of that service, setting out the quality standards of various aspects of the service, actions to be taken if those standards are not achieved, the consequences if such actions do not resolve the problem, and (where applicable) the consequences of such standards being exceeded
Can suppliers have standard SLAs in respect of their product?
Yes
Should purchasers seek to avoid accepting supplier-drafted SLAs?
Yes
What does an SLA closely resemble?
A specification
Name the 7 core elements of SLAs
- Service definition
- Quality definition
- KPI details
- KPI management response
- Operational performance
- Operational performance management response
- Constraints or mitigating factors
What 5 things should the quality definition cover?
- Mandatory minimum standards, failure to reach which is a breach of contract
2.Unacceptable standards, which may not be immediately considered a breach of contract, but could become a breach if not rectified within stated timescales - Poor standards, which ,ay not ever be serious enough to become a breach of contract, but which warrant compensation by way of penalty payments or service credits
- Acceptable/ required standards as per the specification
- Good (and, if thought necessary, excellent) standards which exceed the specification
What 6 key things should be covered when setting out the full details of the KPIs
- What is measured
- How it is measured
- Who measures it
- How often it is measured
- How measures convert into scores
- Targets
What 2 things should KPI management response cover?
- Actions and consequences if the targets are not reached
- Consequences (if any) if targets are exceeded
Name 3 things the operational performance management response should cover
- A ‘first response’ action and a timescale for resolution
- An escalation procedure to be implemented if the first response is not carried out or is unsuccessful
- A threshold at which non-KPI operational failures become potential breach of contract issues and how these will be managed - whether by referral to mediation, arbitration or through the courts
Are internal SLAs usually intended to be legally binding?
No
What 10 things should the agreement clearly state if the SLA is the only document setting out the requirements (it is in effect the contract)
- KPIs: how they are to be measured, who measures them and how often
- How the measures convert into scores
- Any other service level standards, which may be of lesser importance than the KPIs
- Minimum acceptable standards or scores in each case
- Range of scores both above and below the minimum acceptable
- Any mitigating factors which might apply in the event of poor performance
- Any time period permitted in which to remedy a situation of poor performance
- Remedies available to the injured party if the situation is not remedied
- Process to be followed in order to access the remedies
- How any inconsistencies or conflicts between the KPIs and any standards referred to are to be dealt with
Alternative dispute resolution (ADR)
Any method of resolving a dispute between two parties which does not involve court action, including escalation to higher levels of authority, mediation, adjudication and arbitration. ADR may include negotiation, mediation, reconciliation, arbitration and then litigation
Deed
A deed is usually an agreement for the transfer of an asset, for example land. It differs from a contract in that there may not be a requirement for any consideration
What should happen if the SLA is the only form of agreement there is and does not include reference to consideration
The agreement must be executed as a deed in order to be legally binding
What 3 things may an SLA also be called?
- Performance management framework
- Schedule to the contract
- Appendix to the contract
What 2 situations may stand-alone agreements in respect of a separate contract occur?
- Where, for reasons of urgency, a contract has been put in place prior to full KPIs being established and agreed
- Where there are a number of separate contracts and a single SLA is needed to ensure consistency of approach
What will need to happen if the SLA is created after the main contract in order to be legally enforceable?
It will require additional consideration or execution as a deed
Should KPIs and SLAs be reviewed regularly?
Yes
Where should the KPI/SLA review programme be set out?
In the original quotation/tender request and firmly embedded within the contract documents
Name 5 activities that can be carried out to measure delivery compliance KPIs
- Delivery on time in full (OTIF)
- Delivery on time
- Average lead time
- Average time to fill emergency orders
- Consignment stock availability
Name 6 activities that can be carried out to measure product/service quality
- Product/service compliance
- Reliability/durability
- Usability/user satisfaction
- Technical support
- Supplier response time
- Repair lead time
Name 6 activities that can be carried out to measure health and safety
- Endangering health and safety
- Number of credit notes per month
- Invoice preparation
- Provision of quotations
- Documentation
- Management information
Name 8 activities that can be carried out to measure best practise and continuous improvement
- Supplier innovation
- List of targeted value-added activties
- Value-added activities
- Proactivity
- Responsiveness
- Responsive to change/flexibility
- Openness and cooperation
- Understanding of accountabilities and responsibilities
Name 4 activities that can be carried out to measure contact centre/call centre service measures
- Abandonment rate
- Average speed to answer
- Time service factor
- First time resolution
Name 3 activities that can be carried out to measure cost management
- Savings
- Cost avoidance
- Transaction cost reduction
