The fundamental question for output based pricing is the definition of a unit. A unit will be the central entity to which performance SLAs and improvement targets should be translated.
The foundations behind defining a unit of work are repeatability and availability of historical data. The intent is to make the details transparent to the customer by shifting focus to SLAs.
The parameters used in defining the units result in a basis for defining the SLAs. By ensuring that a unit is defined along with its SLAs takes down governance overhead and makes the conversation between the stakeholders simpler. The SLA framework specifies the allowable tolerances in unit definition.
Finally, defining a unit in such a way, along with SLAs and allowable tolerances, allows for a simpler pricing model and elevates independent testing to a higher maturity level. The pricing can be done either top down or bottoms up based on the amount of data available for analysis.
Following an output based model is not for everyone because it requires significant data collection and benchmarking to align clients and service providers. However, in order to begin the journey, units can informally be agreed upon, tracked and measured so that over time, it’s possible to move to this model.