This document discusses how service level agreements (SLAs) need to evolve with the adoption of outcome-based pricing models for business process as a service (BPaaS). It notes that outcome-based pricing is still rare and that SLAs will need to be expressed in business terms and measured by business outcomes rather than technical metrics. It also introduces CAST software as a tool that can help measure SLAs in a BPaaS environment by identifying key performance indicators (KPIs) linked to business outcomes and benchmarking them over time to establish baselines and monitor performance.

1. © 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

2. © 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?

3. © 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?

4. © 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!

5. © 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

6. © 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

7. © 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

8. © 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)

9. © 2015 Information Services Group, Inc. All Rights Reserved 9
Introduction to CAST and its role in measuring
Service Levels in a BPaaS Environment

10. CAST Confidential
Software is Eating the Business Process
10
Map the Processes Identify the
Dependencies
Identify Failure
Points
DefineSMART
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)
 Bad software cripples
Good processes, yet companies
measure everything but the software.
PRODUCT
MEASURES
PROCESS
MEASURES
Time &
Duration
Effort &
Budget
Function
& Scope
Quality
Risk
SECURITY RISK
PERFORMANCE RISKS
ROBUSTNESS – RISK OF OUTAGES
MAINTAINABILITY
INCIDENTS
DEFECTRATES
SYSTEMAVAILABILITY
PROJECTTRACKING
SCHEDULING
TIME TRACKING
BUDGET
REPORTING
EARNED VALUE
FUNCTIONALTESTING
USER ACCEPTANCE TESTS
USABILITY

11. 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

12. 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

13. 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

14. 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%
TechnicalQualityIndex(TQI)
2.2
2.4
2.6
2.8
3
3.2
3.4
3.6
0 50 100 150 200
Ticket Volume

15. CAST Confidential
Contact Information
Pete Pizzutillo
p.pizzutillo@castsoftware.com
www.castsoftware.com
blog.castsoftware.com
@OnQuality
slideshare.net/castsoftware