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Service Level Agreement (SLA)

What is a Service Level Agreement (SLA)?

Service Level Agreements (SLAs) are essentially contracts between service providers and their customers. These contracts detail the services that will be provided and sets standards for the service that the service provider is under obligation to meet. These agreements define the level of service that the customer can expect. They also lay out the metrics by which the customer and provider can measure the service.

You could even have an internal service level agreement. This could be used within your organization when one department provides a service to another department on a recurring basis.

An SLA would also include remedies and/or penalties for situations where the agreed standard of service is not delivered.


Why are Service Level Agreements important?

As a service provider, an SLA helps you manage the expectations that your customers have from you. It helps you define the extent to which you are liable for performance issues, outages, and shortfalls in services. But that’s not all. Your SLAs also clear the air about the circumstances in which you cannot be held liable.

SLAs also assure your customers that they will not be left hanging if anything goes wrong. It also helps them compare the level of service offered by other vendors, empowering them to make an informed decision.

Essentially, SLAs are critical because they make clear the cost of not adhering to the standards of service, granting peace of mind to the service provider and the customer.

What are the components of SLAs?

The SLA would include the services and the level at which they are provided, along with the metrics by which they would be measured. Along with this, your SLA should define the compensation or penalty if the standards cannot be met.

It would need to clearly state which services are included, and which ones are excluded. It should also mention the security procedures that are taken by the service provider.

You should also include an indemnification clause to protect your customers from third-party litigation that result from service level breaches

Your SLA should also include a protocol for updating or changing it. This is vital because vendor capabilities and service requirements evolve over time. In addition to this, the circumstances in which the agreement would expire or be terminated should be detailed.


Which SLA metrics should you monitor?

The SLA metrics may vary depending on the types of services that you are providing. While you could include many metrics in your SLA, it would be beneficial to simplify it and only add the ones that are most important. Doing so would reduce confusion for the service provider as well as the customer. 

Monitoring too many metrics might reduce the effectiveness of the exercise because the likelihood of the data being properly analyzed reduces.

Some of the metrics that you should consider monitoring are: service availability, defect rates, security, technical quality, defect rates, and business results.

Can SLAs be negotiated?

While a lot of service providers are not willing to negotiate on their SLAs, sometimes it will be possible. 

Many service providers offer less uptime than they are capable of providing so that they have a bit of a buffer in case there is an issue. Often, it will be possible to negotiate for more uptime.

Sometimes, service providers will be willing to offer greater uptime if the customers increase the subscription term.

Most common SLA mistakes

1. No clarity about calculations

Both the customer and the service provider should be able to calculate the SLA metrics. If the contract says that only the service provider’s calculations are valid, it would be a cause of concern for the customer.


2. Considering it one-and-done

You need to have a mechanism to update your SLAs and the customer’s requirements and the vendor’s capabilities change over time.


3. Having more SLAs than needed

If you have too many SLAs in place, it might reduce the impact of each of them. It would also make it tougher to understand which SLAs to pay more attention to. This could end up in a breach of service.



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Service Level Agreement (SLA)

October 14, 2020

Table of contents

Key takeawaysCollaboration platforms are essential to the new way of workingEmployees prefer engati over emailEmployees play a growing part in software purchasing decisionsThe future of work is collaborativeMethodology

What is a Service Level Agreement (SLA)?

Service Level Agreements (SLAs) are essentially contracts between service providers and their customers. These contracts detail the services that will be provided and sets standards for the service that the service provider is under obligation to meet. These agreements define the level of service that the customer can expect. They also lay out the metrics by which the customer and provider can measure the service.

You could even have an internal service level agreement. This could be used within your organization when one department provides a service to another department on a recurring basis.

An SLA would also include remedies and/or penalties for situations where the agreed standard of service is not delivered.


Why are Service Level Agreements important?

As a service provider, an SLA helps you manage the expectations that your customers have from you. It helps you define the extent to which you are liable for performance issues, outages, and shortfalls in services. But that’s not all. Your SLAs also clear the air about the circumstances in which you cannot be held liable.

SLAs also assure your customers that they will not be left hanging if anything goes wrong. It also helps them compare the level of service offered by other vendors, empowering them to make an informed decision.

Essentially, SLAs are critical because they make clear the cost of not adhering to the standards of service, granting peace of mind to the service provider and the customer.

What are the components of SLAs?

The SLA would include the services and the level at which they are provided, along with the metrics by which they would be measured. Along with this, your SLA should define the compensation or penalty if the standards cannot be met.

It would need to clearly state which services are included, and which ones are excluded. It should also mention the security procedures that are taken by the service provider.

You should also include an indemnification clause to protect your customers from third-party litigation that result from service level breaches

Your SLA should also include a protocol for updating or changing it. This is vital because vendor capabilities and service requirements evolve over time. In addition to this, the circumstances in which the agreement would expire or be terminated should be detailed.


Which SLA metrics should you monitor?

The SLA metrics may vary depending on the types of services that you are providing. While you could include many metrics in your SLA, it would be beneficial to simplify it and only add the ones that are most important. Doing so would reduce confusion for the service provider as well as the customer. 

Monitoring too many metrics might reduce the effectiveness of the exercise because the likelihood of the data being properly analyzed reduces.

Some of the metrics that you should consider monitoring are: service availability, defect rates, security, technical quality, defect rates, and business results.

Can SLAs be negotiated?

While a lot of service providers are not willing to negotiate on their SLAs, sometimes it will be possible. 

Many service providers offer less uptime than they are capable of providing so that they have a bit of a buffer in case there is an issue. Often, it will be possible to negotiate for more uptime.

Sometimes, service providers will be willing to offer greater uptime if the customers increase the subscription term.

Most common SLA mistakes

1. No clarity about calculations

Both the customer and the service provider should be able to calculate the SLA metrics. If the contract says that only the service provider’s calculations are valid, it would be a cause of concern for the customer.


2. Considering it one-and-done

You need to have a mechanism to update your SLAs and the customer’s requirements and the vendor’s capabilities change over time.


3. Having more SLAs than needed

If you have too many SLAs in place, it might reduce the impact of each of them. It would also make it tougher to understand which SLAs to pay more attention to. This could end up in a breach of service.



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