© 2015 Information Services Group, Inc. All Rights Reserved. Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means,
including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc.
Bob Krohn, Partner, ISG
Outcome-Based Pricing, Business Process as a Service, and
their effect on Service Level Methodology
Managing Service Providers for Today’s Digital Business
© 2015 Information Services Group, Inc. All Rights Reserved 2
Challenges that we are seeing in the market
Where are you in your contract lifecycle? And what are your questions?
Contract Year 1 Contract Year 2 Contract Year 3 Contract Year 4 Contract Year 5
Transition, relationship, change management
Services and service levels
Pricing
Service integration, governance and asset management
Renewal/Termination
Service levels were OK
before but we need better
now . . .
How do I obtain flexibility in scale that matches my
business requirements?
How do we effectively migrate to
outcome-based pricing ?
How do SLAs change with
outcome-based pricing?
© 2015 Information Services Group, Inc. All Rights Reserved 3
Poll question
Which one of these question relates to you?
Feel free to choose more than one response!
1. How do I obtain flexibility in scale that matches my business requirements?
2. Service levels were OK before but we need better now . . .
3. How do SLAs change with outcome-based pricing?
4. How do we effectively migrate to outcome-based pricing?
© 2015 Information Services Group, Inc. All Rights Reserved 4
The Evolution of Outcome-Based Pricing
S
F
C
Requires end-to-end control
Output-based pricing
Outcome- based pricing
Seldom in Application Management
Only in projects
AND . . .
The model is still rare!
© 2015 Information Services Group, Inc. All Rights Reserved 5
Pricing Constructs
Prevalence of Outcome-Based Pricing Models
Service line Current pricing model
Prevalence of outcome-based pricing
Other emerging pricing models
Application Development
Fixed Fees and Time and Material
Negligible for ADM only contracts
Insignificant, overwhelmingly fixed fees and Time & Material
Application Maintenance
Fixed Fees A small percentage of contracts have a gain-sharing component
Ticket-based (rare); application based maintenance is rising but prevalence is still in low single digits
ADM + BPO Combination of Conventional Models – Fixed fees, Time & Material and FTE-based
A very small percentage of contracts have gain-sharing component linked to business outcomes
Transaction-based pricing with the service provider managing most of the underlying apps and business processes
© 2015 Information Services Group, Inc. All Rights Reserved 6
BPaaS Service Level Methodology
With the introduction of BPaaS pricing constructs, the associated Service Level Methodology will evolve, too.
BPaaS Service Level Agreements:
Service Level Agreement used to define the business’s performance and reliability expectations for the end-to-end processes used to operate and manage core business functions. These SLAs are expressed in business terms and measured in business outcomes.
Example:
Percentage of health care claims processed without error in predefined time period
© 2015 Information Services Group, Inc. All Rights Reserved 7
Key Success & Inhibiting Factors for BPaaS Service Levels
Factors Supporting
BPaaS Service Levels
Strong service integration function
Obligations shared among providers
Clear measurements
Achievable
Financially reasonable
Factors Inhibiting
BPaaS Service Levels
Ineffective service integration function
Disproportional obligations among providers
Unclear/subjective measurements
Not achievable
Unreasonable financial credits
© 2015 Information Services Group, Inc. All Rights Reserved 8
BPaaS Service Levels – Key Points of Measure
Map the Processes Identify the Dependencies
Identify Failure Points
Define SMART SLAs / KPIs / OLMs
Link SLAs / KPIs / OLMs to E2E SLAs
Business Outcome Billing Timeliness
Process #1 Process #1
Application
Database & Middleware
Operating System
Compute
Storage Network
OUTCOMES
► Success and accuracy
PROCESSES & APPLICATIONS
► Straight Through Processing – Number of re-keying steps, queue pauses processes
► Availability (incl. Change Mgmt.)
LOGICAL INFRASTRUCTURE
► Query and procedure call level response
► Service session response
PHYSICAL INFRASTRUCTURE
► Availability (incl. Change Mgmt.)
► Utilization & Capacity
► Throughput (Input/Output)
© 2015 Information Services Group, Inc. All Rights Reserved 9
Introduction to CAST and its role in measuring
Service Levels in a BPaaS Environment
CAST Confidential
Software is Eating the Business Process
10
Map the Processes Identify the Dependencies
Identify Failure Points
Define SMART SLAs / KPIs / OLMs
Link SLAs / KPIs / OLMs to E2E SLAs
Business OutcomeBilling Timeliness
Process #1 Process #1
Application
Database & Middleware
Operating System
Compute
Storage Network
OUTCOMES
► Success and accuracy
PROCESSES & APPLICATIONS
► Straight Through Processing – Number of re-keying steps, queue pauses processes
► Availability (incl. Change Mgmt.)
LOGICAL INFRASTRUCTURE
► Query and procedure call level response
► Service session response
PHYSICAL INFRASTRUCTURE
► Availability (incl. Change Mgmt.)
► Utilization & Capacity
► Throughput (Input/Output)
Bad software cripples
Good processes, yet companies
measure everything but the software.
PRODUCTMEASURES
PROCESS MEASURES
Time & Durat ion
Effort & Budget
Funct ion & Scope
Quality
Risk
SECURITY RISK
PERFORMANCE RISKS
ROBUSTNESS –RISK OF OUTAGES
MAINTAINABILITY
INCIDENTS
DEFECT RATES
SYSTEM AVAILABILITY
PROJECT TRACKING
SCHEDULING
TIME TRACKING
BUDGET
REPORTING
EARNED VALUE
FUNCTIONAL TESTING
USER ACCEPTANCE TESTS
USABILITY
CAST Confidential
Industry standard measures of good software
11
Description Prevent
Transferability Determines how easily a new team or
team member can be productive when
assigned to work on the application
SME Dependency, ramp up delays
Delivery inefficiency, reduced output
Time-to-market delays
Changeability Determines how easily and quickly an
application can be modified
Correction and evolution delays
Late delivery of new features
Inability to resume services
Robustness Determines the risk of failures or
defects that could occur in production
Operational downtime
Application outage
Inability to test source code updates
Performance
Efficiency
Determines the risk of performance
issues of an application
Application Degradation
Response time degradation
Denial of Service, Logic issues
Security Determines the risk of security
breaches for an application
Damaging Business & Operations
Security failures
Maintainability
(SEI)
Determines the cost and
difficulty/ease to maintain
an application
Drifts on maintenance costs
CAST Confidential
1. Identify outcomes that are critical to the business / business process
2. Map to KPIs / Risk Indices
3. Measure to establish baseline / benchmark against industry
4. Monitor overtime – before software is released into production
End User productivity
Customers satisfaction
Brand equity
Uptime / Availability
Cycle Time
Time-to-market
Business agility
SECURITY
Risk of
Failures in
Production
Risk of
Performance
Issues
Risk of
Security
Breaches
Ease of
Modifying and
Learning
RELIABILITY PERFORMANCE MAINTAINABILITY
Constructing Outcome-Based Measures
CAST Confidential 13
Standard, objective measurement creates visibility
Scorecard Service Providers
Outsourcer TQI Robustness Performance Security Transferability Changeability
TCS 2.59 3.16 2.34 3.01 1.99 2.44
CTS 2.81 2.78 2.78 3.12 2.34 3.03
Wipro 2.59 1.67 3.54 2.98 1.76 2.99
IBM 3.06 3.12 3.11 2.79 3.11 3.15
Amdocs 2.83 2.56 2.88 3.03 2.56 3.11
Infosys 2.90 3.76 2.89 2.97 2.55 2.33
VENDOR VENDOR VENDOR
Monitor Performance Overtime
VENDOR
CAST Confidential
Product Measures Lead to Cost Reduction and Improved Agility
14
Study of maintenance effort across 20 customers shows tight
correlation between maintenance fix tickets and CAST TQI
Increase of CAST TQI by 0.24 = decrease in maintenance activity by 50%
Technic
al Q
ualit
y Index (T
QI)
2.2
2.4
2.6
2.8
3
3.2
3.4
3.6
0 50 100 150 200
Ticket Volume
CAST Confidential
Contact Information
Pete Pizzutillo
www.castsoftware.com
blog.castsoftware.com
@OnQuality
slideshare.net/castsoftware