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Service level agreements

by Derick Swart on 15 December 2002

SLA's should be seen as vehicles promoting effective communication between parties, thereby increasing the likelihood of achieving strategic objectives to the advantages of both the client and the service provider.

SLA's should be seen as vehicles promoting effective communication between parties, thereby increasing the likelihood of achieving strategic objectives to the advantages of both the client and the service provider. 

Service level management can be the key to customer satisfaction for any service provider. In the absence of a service level agreement ("SLA") as a means of benchmarking service levels, service levels are often nothing more than a collection of good intentions. SLA's therefore set the standard with which performance is measured.
Negotiating SLAs
When negotiating a SLA the parties involved should seek to achieve a fair and reasonable agreement. The client should make available enough information to the service provider in order for it to be able to assess that impact of the services to be rendered on the client's business. Information regarding the required level of service will in addition help the service provider assess the financial implications of the required level of service, for example the required redundancy to achieve particular level of uptime.
Documenting the SLA 
The documenting of an SLA is an important part of service level management. Generally a SLA must contain the following clauses:
The Parties
Generally the parties will consist of a user group or client on the one hand, and the service provider on the other. It is important to clearly define the parties to the SLA in a legally correct manner. Failure to do so may result in the SLA being unenforceable against the intended party.
The typical term for a SLA will be two to three years. The effort that goes into negotiating and documenting a SLA properly, means that a lesser term is not really cost effective, while the change in business conditions and technology may make a longer period impractical.
It is important to clearly define the scope of services involved in the SLA. A service provider may be engaged only for a part of a business process and as such it is important for both parties to clearly understand the extent of the services to be rendered.
This part of the SLA will usually contain limitations stated by the service provider to set boundaries and parameters within which the service will be delivered. While a service provider may for instance be contracted to render a certain quality of service, this level of service may be subject to volume (i.e. number of transactions per minute or number of concurrent users), topology (location where services are to be provided) etc.
Service Level Objectives
Service level objectives are the standard of service required by the SLA. This standard may be determined with reference to uptime, availability, performance or response time, to name but a few. 
In Foundations of Service Level Management by Sturm et al (2000), it is stated that in order for SLA's to be successful, the criteria they use to evaluate performance must be:
  • Attainable
  • Measurable
  • Understandable
  • Meaningful
  • Controllable
  • Affordable
  • Mutually acceptable
Service Level Indicators
It does not help to set service level objectives or targets, without the ability to measure the performance of the service provider in meeting the stated targets. Service level indicators are used to measure the performance of a service provider.
In determining service level indicators, it is important to have due regard to the information that will be available to measure the performance. In some instances performance may be measured with relative ease, perhaps with reference to levels of uptime or calls logged to a helpdesk. On the other hand, certain service levels may be difficult to measure, such as the response time of a system.
Penalties & Incentives
The SLA should deal with the consequences of non-performance. It may happen that a client is not satisfied by the level of service provided by the service provider, but at the same time the levels are not of such a nature to warrant cancellation of the agreement. The particular circumstance may also not lend itself to a situation where it is practical to cancel the agreement in such circumstances (even if legally entitled to do so), due to the negative impact the premature termination of an agreement may have on the processes of a business (for instance if a company enters into a licence and support agreement for the use of specific proprietary software).
Experience has shown that even the smallest penalty introduced into an SLA for a service provider's failure to meet a particular target can address this situation. This is especially the case when the penalty is not incurred by way of a service credit in the coming month or quarter, but the service provider suffers the immediate effect thereof. Such a penalty must be able to be calculated with reference to the service level objectives and indicators stated above. The mechanism agreed upon must be clearly stated in the SLA to avoid disputes. 
While less common, the service provider and the client may negotiate an incentive in the event that the service provider exceeds the service level objective. The increased benefit for the client may warrant such a scheme to be introduced, in which case the mechanism for calculation and payment of the incentive must also be clearly stated. 
Reporting enables the measurement of actual performance against the stated objectives and as such is a crucial part of service level management. The SLA must contain a list of the reports that must be produced during the term of the agreement and the party responsible for this function. Preferably the SLA must contain examples of such reports. Sturm (referred to above) states that following requirements for such templates:
  • Report name
  • Frequency
  • Service level indicator(s)
  • Required Content
  • Data sources
  • Responsibility
  • Distribution
Administration and reviews
SLA's must be reviewed continually to ensure that their stated service level objectives remain valid. It is generally advisable that the negotiating teams of the respective parties remain intact during the term of the agreement to monitor and oversee the execution of the agreement.
When the services rendered are of such a nature that technological or other advances in systems or processes may result in improved service delivery, it may be advantageous to reconvene the negotiating team of each party every 6 months to evaluate the SLA. 
An SLA should preferably deal extensively with change management procedures to facilitate any change that may be required to the SLA during the term thereof. 
SLA's are a key component of service level management, which is of vital importance in ensuring customer satisfaction. 
SLA's force clients to clearly state the level of service that they expect, while holding service providers accountable to delivering the contracted service. As such, SLA's and the process of negotiating them should be seen as a vehicle promoting effective communication between the parties concerned, thereby increasing the likelihood of achieving strategic objectives to the advantages of the client and the service provider. 

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