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What is a Service Level Agreement (SLA)?

Service Level Agreement (SLA) is the expected amount of time taken by an agent to respond and resolve a customer's query. It is usually based on the priority level of the issue raised.

A lot of companies tend to let their customers know in advance on how long they should be taking in responding to a query. It's like a promise they make to their customers in terms of solving their issue and SLA's ensures that the agents keep these promises.

Why are SLA's important & why do you need them?

SLA’s play a very crucial part in an IT vendor’s contract. It helps in getting all the necessary information on the contracted services and their reliabilities into one single document. They help in showcasing the metrics and responsibilities so that, in the event of issues with the service, both the parties are accountable for their actions. And neither party can plead ignorance, ensuring both parties have a mutual understanding of the requirements.

A contract without an SLA is open to misinterpretation by both parties and hence having an SLA protects both parties via the agreement. 

SLA’s are usually aligned to the business or technological objectives of the engagement. Misalignment can lead to a negative impact on the:

  • Pricing
  • Quality of service delivery
  • Customer Experience, etc.

How is SLA calculated?

SLA is calculated as for a specific filter, of a specific report, within a predefined time period, as the percentage of tickets raised where first-level responses were sent within the given SLA upon the total number of tickets raised.  

Give an example of SLA?

Let’s say you are an account holder in a large bank and you expect a certain level of service from your bank. The bank will state the services and the level in the service level agreement made between you and the bank. For example, the bank will allow you to withdraw a certain amount of money each day from the ATM and will try to ensure that the transaction will be a maximum of 15 seconds. This is an example of an SLA that is at the service level.

What is SLA time?

An SLA response time is considered as the time a live chat agent will take to respond to a particular query that is raised via the multiple channels provided by the service provider. Vendors and customers have to clearly define the number of working hours and ensure that only the predefined working hours are included when calculating the response time.

What is an SLA violation?

Some businesses prefer to or are obliged to have a Service Level Agreement in place for the proper working of their business. These SLAs also set a timeframe within which tickets on the chats and calls have to be resolved. If an agent fails to resolve an issue within the specified timeframe, an SLA violation occurs.

If a company faces too many SLA violations, they need to reconsider their SLA setups and preferences. They should also add in more agents to their existing workforce or provide them with some good tools to fix this problem.

What are the 3 types of SLA?

A. Corporate level:

A corporate-level SLA is a Service level agreement that consists of all issues that are relevant and of the same level throughout the organization.

For example, an SLA that deals with the security of the organization would state that all employees should have a password of at least 9 characters which needs to be changed every 45 days, or that every employee should have a photo Id access card on them at all times.  

B. Customer level:

Customer level SLA’s are those service level agreements that deal with issues which are specific to a particular customer's needs.

Within the organization, certain requirements like the level of security, vary from department to department. For e.g., Due to the handling of financial resources, the finance department will need higher security measures in place.  

C. Service Level:

Service-level SLA’s are those service level agreements that are covered for all issues revolving around a specific customer service.  

It has the same level of SLA for all customers who apply for the same service. For example, everyone who uses a specific IP telephony provider can avail of the same IT support services  

What are the key components of an SLA?

SLA includes components in 2 areas:

  • Service Element
  • Management Element

Service Element:

Service elements include:

  1. Specifications of services provided.
  2. Conditions of service availability.
  3. Time taken for each level of service to be completed.
  4. Responsibilities of each party.
  5. Escalation procedures.
  6. Cost/service trade-offs.


Management Element:

Management elements include:

  1. Measurement standards & methods.
  2. Reporting processes.
  3. Contents & frequency.
  4. Dispute resolution process.
  5. Indemnification clause (protecting customer from third-party litigations & service level breaches)
  6. The mechanism for updating the agreement, if required.

The last item is very crucial because service and vendor requirements are prone to change, so there needs to be a way to make sure that the SLA is up-to-date.

What kind of SLA metrics should be monitored?

A lot of items can be monitored as a part of an SLA but it needs to be as simple as possible to avoid confusion. You need to examine and choose the right metrics to save excessive costs. If the monitoring scheme is complex, it won't be much effective since it would take a lot of time in analyzing that data. Try to prefer automated systems as they are more reliable over manual metrics.


The type of SLA metrics that are used to monitor them include:


Service Availability:

Service availability, as the name suggests, is the duration of time for which the service is available. It is measured by time slots. A site generating millions of dollars must have an uptime of 99.99 percent of SLA at all times.


Defect Rates:

Defect rates are the percentage of error faced while delivering a service. It includes production failures like:

a. Incomplete backups & restores

b. Coding errors/rework

c. Missed deadlines, etc.


Technical Quality:

It is an outsourced application development tool used for measuring technical quality. Commercial analysis tools examine the factors of program size and coding defects.



Application and network security breaches can turn out to be super expensive to the company. Measuring the controllable security factors like anti-virus updates and patching is very important. This can help in the prevention of such events in the foreseeable future.


Business results:

IT customers are more likely to incorporate the business process metrics into their SLA’s. By using KPIs (key performance indicators) a vendor's contribution can be calculated.


What should you consider when selecting metrics for your SLA?

The goal must be selecting the best practices and requirements to maintain service performance while avoiding additional costs.

Things to consider while selecting the right metrics for your SLA are:

  • Choosing the right measurements to motivate the right behavior.
  • To ensure that the metrics reflect factors within the service provider's control.
  • Selecting measurement channels that are easy to collect.
  • Choosing the right metrics, instead of all metrics. (Less is more).
  • Setting up metrics that are reasonable and attainable.
  • Define with care. Define SLA’s clearly so they can represent the intention of the agreement transparently.

In addition to these factors, some other factors to be considered are:

  • The contract should document how the services would be monitored.
  • The contract should document how the data would be captured and reported.
  • It should also mention how often it will be reviewed, and who would be involved in doing the same.


What happens when a service provider cannot meet the agreed-on service levels?

SLA’s include penalties called service credits. It is enforced when the vendor is incapable of reaching the minimum performance standard.

The provider and the customer agree upon a certain percentage of fees (included in the vendor's profit margin) from which these credits are drawn when SLA’s are missed. This approach is used to maintain a good and constant performance from the provider.

How often should you revise your SLA’s?

SLA’s change when businesses change and so do its service requirements. SLA is not a static document, it is a clearly defined framework that can be modified during the term of the contract.

The SLA should be reviewed when:

  • The business’s needs have changed.
  • The technical environment of the business has been through changes.
  • The workloads have changed.
  • The metrics and measurement tools have undergone an improvement.

The SLA is a very integral part of any supplier's agreement policy. It protects both parties in times of disputes and also helps in avoiding any future misunderstandings. This helps in saving time and money for both the customer and the supplier.

How to make an SLA for multiple service providers?

Customers will produce joint metrics for multiple service suppliers that think about cross-supplier impacts and account for impacts that the seller will bear on processes that don't seem to be thought of in-scope to their contract.

IT organizations managing multiple service suppliers might want to have an operational level agreement (OLA), that defines all parties concerned within the method of delivering IT services that can act with one another in an efficient manner so that the desired performance can be taken care of.

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