Definition
A service level agreement (SLA) is a contract between a service provider and a customer that specifies the nature of the service(s) to be provided and the level(s) of services that the provider agrees to provide to the customer.
Overview
The SLA ensures that the organization receives the services it wants at the expected performance standard and price. As such, the SLA is a key component in managing the financial and operational risk involved with outsourcing contracts. It also can be one way to help mitigate risk. By specifying the measurement unit and service range for the selected category, the risk of poor service may be diminished because it becomes an area of focus and is designated as the service provider’s responsibility.
The SLA’s primary purpose is to specify and clarify performance expectations, as well as establish accountability. Therefore, balancing the need for precise measurement standards with sufficient flexibility is important. A common pitfall is excessive oversight or "micro-management" of the provider responsible for the service, which can also burden the employees charged with supervising the service provider relationship and monitoring the SLAs.
A well-designed SLA will recognize and reward, or at least acknowledge, good service. It will also provide the measurement structure — or performance metric — to identify substandard service and trigger correction or cancellation provisions as warranted. Incentives or penalties in the SLA can be an effective tool for managing service. If services received do not measure up to expectations, direct consequences, such as reduced levels of compensation or a credit on future services, would result.
Structuring and developing SLAs
A typical SLA includes the following components and is tailored to fit the nature of the outsourced service or application:
• Service category (e.g., system availability or response time). • Acceptable range of service quality. • Definition of what is being measured. • Formula for calculating the measurement. • Relevant credits/penalties for achieving/failing performance targets. • Frequency and interval of measurement.
Before an SLA is signed, the service provider and the customer should clarify and establish expectations. Unless these expectations are clearly measurable, the service category will be difficult to manage due to the customer's and the vendor's differing goals and perspectives.
Issues
Issues that are typically addressed in an SLA include
- licensing of services
- criteria for acceptable use
- service suspension and termination
- limitations on liability
- privacy policy
- modifications to the terms of service
- uptime
- security
- throughput
- penalties, and
- back-up procedures.