What is SLA? 5 Best Practices to Create Effective Service Level Agreements
Vendor relationships are built on clearly laid out service-level agreements. What is SLA? A service level agreement defines the level of service expected from a vendor. A service level agreement is a critical component of any technology vendor contract. As per Gartner, the service level agreement definition goes this way – the single point of contact for end-user problems. Service level agreements set the expectations between service provider and customer, and describe the products and services to be delivered. Scroll down to learn more about what is an SLA, the need for service level agreements, and service level agreement best practices.
Table of Contents
What is an SLA?
The service level agreement definition by Gartner goes like this – service level agreements set the expectations between the service provider and the customer, and also describe the products or services to be delivered. A service level agreement acts as a single point of contact for end-user problems, and defines metrics by which the effectiveness of the product is monitored and approved.
What is an SLA in business? An SLA functions as a documented understanding between the entity providing the service and the one receiving the benefits of the service. What are SLAs for? Traditional service level agreements define service expectations between vendors and customers, it could also be used between departments within the same organization as well. For example, IT service level agreement for example may also be employed between departments within the same organization.
Some SLAs may consist of a few sentences, while others may be lengthy documents worth of provisions and stipulations. Moreover, SLAs must be flexible, they must change and grow as the business evolves. SLAs should serve to incorporate a clear framework for introducing revisions or modifications during the course of the contract. What is SLA contract? An SLA contract is the formal agreement that is created and provided by the service vendor. SLA for project management allows organizations to customize their SLAs to meet specific service and customer requirements.
In some cases, a single service may require several SLAs, each one reflecting different levels of service at different price points. In most cases, SLAs are prepared by the vendor which makes them favor the service provider over the customer. A service level agreement for IT services lays out the metrics by which IT services are measured. What is also included is the penalties or remedies that are levied when agreed service levels are not achieved. Service level agreements are critical components of any outsourcing and technology vendor contract. SLAs not only provide details on listing expectations on service type or quality, but also remedies when requirements are not met.
Let us consider the example of a telecom company that promises 99.99% network availability and allows customers to reduce their payments by a specific percentage when the network availability does not reach 99.99%. The service level agreement metrics could be a sliding scale based on the magnitude of the breach. Here, the SLA specifies the expectations and the penalty for not following the same.
The answer to the question what does SLA mean has been adequately explained in this section. Now, let us move onto understanding the need for SLAs and the types of SLAs.
Types of Service Level Agreements
Originally, SLAs defined the levels of support that software, hardware, and networking companies would provide to customers running technologies in on-premise data centers and offices. When IT outsourcing emerged as a trend in the late 1980s, SLAs emerged as a mechanism to govern such relationships.
Most outsourcing projects were customized for the service provided to a particular customer, and outsourcing SLAs were drafted to govern a specific project. As managed services and cloud computing services continue to gain prominence, SLAs have evolved to address the new approaches. SLA contracts are now characterized by shared services rather than customized resources keeping up with new approaches in IT outsourcing.
Who needs an SLA? Service level agreements were originally used by network service providers, but they are now widely used for a range of IT related services. Some examples of industries that use SLAs include – IT service providers, Managed service providers, internet service providers, telecom companies, and cloud computing companies. Corporate IT organizations that have embraced IT service management enter into SLAs with their in-house customers and users in other departments within the enterprise. The IT department creates an SLA to measure, justify, and compare its services with the service provided by outsourcing vendors.
There are mainly 3 types of SLAs – Customer SLA, Internal SLA, and Multi-level SLA.
Customer SLA
As the name suggests, this type of SLA is a contract agreement that covers all of the services used by the customer. The customer SLA covers all the details of services, provisions of service availability, escalation procedures, an outline of roles and responsibilities, and terms and conditions for cancellation.
Service level SLA
A service level SLA is an agreement that provides details on identical services offered to multiple customers. An example of service-level SLA is virtual desk services provided to multiple clients, where the same service-based SLA is issued to all clients.
Multi-level SLA
This type of SLA is split into multiple levels that integrate several conditions into the same system. Multi-level SLAs are suitable for providers that have many customers that use their product at different price ranges or service levels. All the differing service levels can be built into a multi-level SLA.
Why do you Need an SLA?
Success in a business relies heavily on an organization’s ability to understand and meet customer expectations. When these expectations are not understood and managed well it results in loss of customers and business reputation. SLAs are commonly used in the technology industry, but they can be used in any industry. What does SLA mean to businesses? A service level agreement is an important component of business procedures, bringing several benefits for organizations, teams, and vendors.
SLAs are foundational agreements between the IT team and customers that are instrumental in building trust. They manage customer expectations and allow teams to know which issues you are responsible for resolving. With service level agreements in place, there is a mutual understanding of service expectations. Implementation of service level agreements for IT services is useful in several ways –
Strengthens IT relationship with customers – SLAs ease the concern over risk, which improves trust between parties. A well-drafted SLA clearly defines what happens next in the event of a breach, which in turn reduces the uncertainty associated with unexpected events. Customers can also benefit from SLAs because the contract describes the performance characteristics of the service, which can be compared with SLAs of other vendors.
Formalizes communication – Conversations between stakeholders and the IT team regarding technical issues can be difficult. None in the IT team wants to be hearing from a customer 10 times in a day, or allow a customer to quietly stew over their unspoken expectations for service performance. An SLA enables stakeholders to hold structured conversations based on terms that were already agreed upon.
Improves productivity and morale – SLAs define the urgency of requests that are incoming. An SLA helps IT teams prioritize incoming issues that matter the most. SLAs add greater specificity regarding the services provided and the metrics for measuring their performance. Service level agreements also define the levels of support that software, hardware, and networking companies would provide to customers who run technologies in on-premise data centers and offices.
Establishes peace of mind – A service level agreement establishes trust and peace of mind among all the stakeholders. With the terms and conditions laid out clearly in the SLA, all the parties involved are sure about how the work will be carried out and also about what to do when exceptions occur.
Aligns expectations – SLAs aligns the expectations of all stakeholders by specifying the services provided, terms and conditions of service, and the standard of performance measurement. When all these expectations are managed well and set right at the beginning, carrying out the work becomes easier and more streamlined. Service providers of all kinds, from network service providers to cloud service providers to managed service providers – all need SLAs to manage customer expectations.
Brings consistency and collaboration – SLAs bring consistency and collaboration into business operations, which helps capture newer business opportunities. When all parties contribute to an SLA draft, vendors can offer clients transparency, address concerns, and describe a high level of service. SLAs clearly define circumstances under which they are or aren’t liable for outages or performance issues.
Offers recourse for unmet obligations – SLAs are not only useful in defining standards, set expectations, and offer insights, but they also provide a roadmap of the next steps and consequences if obligations are not met. Should one of the parties fail to meet the standards outlined in the contract, the SLA clearly defines the consequences.
What is in an SLA?
What is a service level agreement made up of? The components of SLAs vary in every company based on the product and specific business needs. However, there are components that are part of all types of SLAs.
Agreement overview
The overview section of the SLA contract introduces the agreement and its basic features to the reader. Features like parties involved, broad outline of services provided, start date, and duration of the agreement.
Description of the services
This section outlines the specific services provided and all related details. It includes complete details on service delivery, turnaround times for deliverables, maintenance schedules, work dependencies, and other relevant information. The service description section also provides a thorough account of all the factors and circumstances.
Stakeholder description
The stakeholder section lists all the parties involved in the agreement. The roles and responsibilities of every stakeholder and their contact details are outlined in this section. The primary contact should also be designated as the go-to person for reporting end-user issues.
Performance metrics and reporting
This section provides details on the service availability and service performance standards that need to be maintained, and what key performance indicators will be used to evaluate and measure performance. Service level agreement metrics are usually defined within the service level objective (SLO). An SLO is an agreement within the SLA that establishes a previously agreed-upon target for a particular service over a period of time. The SLO includes a workflow that outlines how the information will be collected and shared with stakeholders.
Exclusions
This section of the SLA lists the services or aspects of service delivery that are excluded from the agreement. The exclusions do not include downtime due to issues with the customer’s equipment or factors of reasonable control. This section might also include exceptions for scheduled maintenance, dictating that such windows do work against guaranteed uptime agreements.
Security Protocols
The security section lists all the security protocols and standards that the provider maintains and provides information on how the customer data will be protected. Security protocols also list non-disclosure agreements and measures that involve the protection of sensitive information or intellectual property.
Redressal
This section describes the penalties that will be incurred by either side in case they do not fulfill the terms of the agreement. The redressal section provides details on escalation procedures, service level agreement time, time frames for resolutions and the compensation to be provided if the service provider does not fulfill the terms of the SLA. The redressal could be financial, service credits, or any other way. Even redemption terms like earnbacks are included in the redressal methods.
Risk management and disaster recovery
The service level agreement must outline the risk management and a disaster recovery plan. The plan must be established clearly and communicated between the parties.
Review and adjustment
Factors like vendor capabilities, workloads, and customer requirements evolve over time. The SLAs must establish a standard process to review and revise the agreed-upon terms and the KPIs being used to measure the performance. The regular review allows the SLA to include the most recent features of the provider’s product or service and also cater to customer requirements.
Termination procedure
The service level agreement must include a section that outlines the circumstances that allow for termination or cancellation of the service agreement before the expiration date. This section must also outline the notice period required by each party when termination is pursued.
Signatures
The service level agreement should be signed by authorized stakeholders on each side of the agreement. This binds all parties to the terms of agreement while it is in effect. By signing the agreement, all the parties involved show their approval on every detail of the process.
SLA Terminology and Metrics
Understanding various SLA terminology and metrics is important to set a performance threshold for a specific aspect of service. Service level objectives (SLOs) are part of SLAs that set performance metrics for evaluating the quality of service provided and determine if the SLA is being met. Monitoring appropriate metrics is a critical part of an SLAs success. Without the right data, it will be difficult to know how the SLA is serving the organization.
Common SLA metrics include Availability and uptime
Service uptime is the amount of time that services are working properly and available for use. Understanding SLA timing meaning for the business is important as it is directly tied to performance of the SLA. Service time uptime is usually given as a percentage over a period of time, say 99.5% per 30 days. Uptime requirements vary in different types of businesses, and the SLA reflects these differences. For example, 3.6 hours of downtime per month may be way too high for an e-commerce platform with global operations. Such businesses may require more availability and would require an SLA that reflects that.
Error rates
This metric is a measurement that tracks production or service failure, and the percentage of time that an IT service provider’s service level falls below expected performance targets. The service level agreement might include SLOs for things like missed deadlines, negative help desk interactions, delays in feature or update releases, coding error rates, defect rates, and other measures of technical quality.
Response time
Service level agreement response time establishes the acceptable amount of time the service provider takes to log and respond to a client issue or request. Faster response times are ideal working conditions for any business.
Resolution time
The service resolution time establishes the acceptable amount of time for an issue to be resolved starting from when the provider logs the issue.
Mean time to recovery
This metric is the average time it takes to recover a product/service or system after a failure or outage occurs.
Turnaround time
The time is taken by the provider to resolve a specific issue once it is logged.
First call resolution rate
This metric is applicable for IT services or customer service type of roles. This is a measure of the percentage of customers who have their issue resolved by the provider during their first interaction with the chatbot or service desk.
Abandonment rate
This is an important metric for customer service providers or organizations whose services include a customer service component. This is the rate at which customers abandon their customer support inquiry before they receive a response from the help desk.
Security
SLAs provide several mechanisms to measure the effectiveness of security measures like undisclosed vulnerabilities, antivirus updates, or software patches, that establish the provider’s commitment to IT security.
Business results
Using the appropriate KPIs helps organizations determine how a provider’s services or products are contributing to broader business goals. For instance, a company undergoing a digital transformation might have questions like – are the provider’s cloud resourcing tools helping us bring our cloud computing spending back under control? Tracking the right KPIs will help answer the question.
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How to Write an SLA?
A service level agreement is an important document that sets the tone for vendor and customer relationships. We have listed out 5 steps to write a service-level agreement.
1- Define the service
The SLA will have to define and outline the service clearly. While defining the service, bear in mind the following points-
- List of stakeholders and points of contact, along with their roles
- Customer obligations, which include the amount they will pay and the frequency of payment
- Scope of service, including specific service provided and services excluded
- Vendor obligations, including specific actions the vendor needs to take
- Specific conditions for canceling the agreement, such as when goals remain unmet over a specific time period
2- Verify service levels
Service levels quantify the performance or output of the service. For example, a call center might define a service level as the number of calls answered every hour, while a restaurant may define a service level as the number of food plates delivered to a client per day. Service levels look different for every SLA. You need to work with stakeholders to verify the deliverables and deadlines.
3- Determine performance metrics
Having clearly defined performance metrics means that stakeholders can determine whether a service has been rendered successfully. Some of the useful SLA metrics that can give a clear picture of performance are output quality, defect rates, cost of meeting goals, and security. It is advisable to include a statement that describes how metrics will be monitored in the SLA.
4- Prepare the document
The first 4 steps will provide all the information required to create an SLA. While preparing the SLA be sure to include an indemnification clause, in which the service provider agrees to compensate the customer for any breaches of service warranties. Indemnification means the service provider must pay the customer for any litigation costs that occur as a result of this breach.
5- Review the SLA with stakeholders
Before the SLA is finalized, all the details should be run by the stakeholders to ensure that they are aligned with the SLA and also to gather feedback on the SLA. Once all the stakeholders agree to every item on the SLA, you can gather their signatures and distribute the final version along with the signatures of all stakeholders.
Service Level Agreement Penalties
What are service level agreements penalties? SLA penalties are disciplinary measures that make sure that the terms of contract are maintained. These penalties vary from contract to contract. Commonly imposed penalties are –
Service availability
This includes factors like network uptime, data center resources and database availability. Penalties should be added as deterrents against service downtime, which affects the business negatively.
Service quality
This involves performance guarantees, the number of errors allowed in the product/service, or processing gaps and other issues that pertain to quality.
Finance penalties
These require the vendor to reimburse the customer the amount for damages agreed upon in the contract.
Extension of license or support
This requires the vendor to extend the term of license or offer the customer additional support without any charges. This could include development and maintenance as well.
SLA penalties must be specified in the language of the SLA, or they cannot be enforced. Additionally, some customers might not think the service credit or license extension penalties are adequate compensation. It might be worthwhile to consider a combination of penalties as well as include an incentive, such as monetary bonus, for work that is more than satisfactory.
Benefits of having SLAs
We have traversed from what is a SLA to how to write an effective SLA. Now is the time to discuss the benefits of an SLA. SLAs yield benefits to both the service provider and the customer. Here are ways in which an SLA benefits the stakeholders –
Improves the quality of service
By creating SLAs organizations gain an opportunity to closely examine their products, services, and processes. The customer experiences related to the products, services, and business processes can also be effectively examined via SLAs. Service level agreements help determine what is working well and can be improved upon. Clear performance goals can be established and benchmarks for measuring performance and customer experiences can be marked.
Facilitates communication
The roles and responsibilities of all the stakeholders are clearly laid out in the SLA. The processes and channels for troubleshooting issues and handling disputes are also clearly mentioned in the SLA. This clarity keeps confusion at bay and promotes clear communication both internally and externally.
Promotes service continuity
SLAs clearly define expectations around the availability of services, set policies for downtime, and layout procedures for failure and disaster recovery. The measures laid out in the SLA are effective in minimizing disruptions and unexpected downtime, and in quickly resolving technical issues and service outages. Once satisfactory processes are in place, organizations can leverage automation to enhance the consistency of services.
Minimizes risk
The SLA process offers an opportunity to be proactive with managing risk. The process identifies potential risks and threats way ahead of time and helps develop plans to avoid or mitigate such risks. Organizations can significantly improve service delivery and response times, create stronger consistency plans, and bolster the overall risk management strategy.
Improves customer experience
Customers that invest in a service provider are essentially taking a risk, they are acting in good faith with the expectation that the provider will be able to meet their needs. Service level agreements provide customers with a safety net, where they know that in case the service provider fails to deliver on agreed terms then the customer will have legally binding documentation to assist them in seeking restitution. SLAs help businesses manage expectations and give customers much needed insurance/assurance.
Improves employee experience
When obligations are clearly defined and metrics are quantifiable and transparent, it benefits all those involved. This includes employees who have a clearer understanding of what is expected of them and how their performance will be measured.
Establishes a trusted source of information
In several ways, the SLA acts as a mediator. This ensures that everyone’s best interests are looked after. SLAs are trusted by both parties, acting as a source of reliable information. Service level agreements are a source of legally vetted information that is relevant to service standards and other guidelines.
Improves productivity and performance
The metrics established within SLAs offer internal advantages. Guided by the clear expectations set by SLAs, employees can focus on improving productivity and performance.
Best Practices for Effective SLAs
Once you have brokered the best SLAs for your current business and customer needs, you would be ready to implement them. Service level agreement best practices take SLAs to a whole new level of ease and effectiveness.
1- Create SLAs that stop tracking time to resolution when waiting for a customer’s reply.
IT departments need to be able to measure their own response times effectively in order to provide the best possible service. You need to ensure that your measurement and reporting systems can accommodate exceptions like these, so the service team tracks based on how they are actually performing.
2- Remember agent experience – Use simple, clear naming conventions that will enable agents to read the name of the SLA and quickly understand what they are being measured on. It is a good idea to not create too many goals, which may blur the understanding of agents about what their goals are.
3- Break up large SLAs – In place of large, complex SLAs, it is better to use a series of smaller ones that can be easy to measure and report.
4- Set different performance goals – IT teams need to prioritize tickets in a ton of different ways, so the SLA should be flexible so you can create goals based on just about any combination of parameters you define.
5- Maintain some SLAs running 24/7 and restrict others to normal work hours.
Service teams that work on weekdays cannot provide 24/7 support for every service that is offered. The support team needs to prioritize SLAs and choose the ones that need to be running 24/7 and reserve others for normal work hours.
Conclusion
In this blog, we have explored what service level agreements are, their importance, and best practices in creating SLAs. A Gartner research emphasizes the importance of SLAs in SaaS companies. From sourcing to vendor management, leaders need to negotiate broad robust SaaS SLAs for more options in dealing with underperforming services. A workflow automation software like Cflow helps businesses deploy service-level agreements easily and effectively. You can easily create rules in Cflow so you never fall out of compliance. Supercharge your process workflows with Cflow. See how Cflow can boost your business outcomes, sign up for the free trial now.
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