Service Level Agreement (SLA)

The service level agreement (SLA) pertains to the responsibilities, quality, and availability of the services provided to a client by a service provider. This type of agreement is common in outsourcing, technology, professional services, and telecommunications contracts, but service management is not limited to any one industry or type of company. Read on to learn more about how service level agreements work and best practices for using them in business.

What Is a Service Level Agreement (SLA)?

A service level agreement provides the customer with protection from service outages and inconsistencies. There is no standard scope of an SLA, which means it doesn’t necessarily have to be a contract between a business and a customer; it could be an internal SLA, a contract between one department that delivers a service to another department within the same company. 

Ultimately, the objective of the service level agreement is to clearly define project or service deliverables in the form of a contract.

In some cases, the SLA also defines the penalties if contract stipulations are not met. For example, a telecommunications company can sign an SLA with a customer that states the network will have an availability of 99.999%. If network outages or downtime contradict this statement, the vendor or service provider might be penalized. 

Penalties are typically set using a sliding scale that is based on the magnitude of the network outage or breach of the agreement.

Access a customizable SLA policy guide to create an SLA document for your business.

What Are SLAs Used For?

Service level agreements are part of most IT contracts, but they can be used by any type of company from any industry. SLAs are implemented for a variety of purposes, ranging from defining services to the termination of services. Some service providers use an SLA to ensure they maintain a uniform standard of quality for multiple customers.

Typically, a service level agreement is written with plain language terms and clearly defined metrics for the services, so neither party can claim that they did not understand the agreed-upon expectations of the contract. 

There are different types of important SLA metrics and key performance indicators, including metrics for defect rates, service availability, monthly uptime percentage, technical quality, scheduled maintenance, business results, and cybersecurity. For example, an SLA for an IT service desk typically includes metrics such as mean time to repair (MTTR), turnaround time (TAT), and total resolution time (TRT). More qualitative metrics related to customer support, customer service, and overall customer satisfaction may also be measured.

With a service level agreement, there is less room for either party to inadvertently or deliberately misinterpret the agreement or plead ignorance. Most service level agreements leave some room for an annual or periodic revisitation of the contract in case there is a need to make any changes or additions to the contract.

Key Features of an SLA

Overall objectives

An SLA should clearly state the overall objectives for services provided. If the service provider is offering services to save costs or improve performance for the client, the SLA must clearly define this objective. This helps both parties to clearly understand what is required in their agreement and why.

Description of services

Once overall objectives have been defined in the SLA, the service provider should add a detailed description of the services, including what each service is, when it is required, how it will be delivered, and to whom it will be delivered. These details of the service commitment help to prevent any misunderstanding or misinterpretation of agreed-upon service delivery expectations between the service provider and customer. 

Service standards

Each service that is part of the SLA must include defined standards, which typically require the use of metrics. The client will always want service standards to be as high as possible, but in reality, the highest standards might be impossible to achieve, overly expensive or time-consuming, or unnecessary to the bigger SLA goals of the project. 

The SLA helps both parties to agree upon a service performance standard that makes sense for budgets, timelines, and project requirements. This part of the SLA can also include any expected change in service workloads during the contract.

Service compensation

Most SLAs contain a section for service credit and compensation to define financial consequences for the service provider. This can include fines or penalties that the service provider will pay or credit the customer if agreed-upon service standards are not met.  

Critical failure

This section of the SLA is used to define the consequences of critical failure of the services, which can lead to the termination of the service agreement. A defined critical service level must be agreed upon so that if the service falls below that level, the customer has the right to terminate the agreement.

Signatures

Stakeholders from both parties must sign the service level agreement to show their approval of all stipulations of the contract. In many cases, e-signature software is used to simplify this process.

Also read: Top 10 Main Causes of Project Failure

Best Practices for Creating a Service Level Agreement

A service level agreement is useful for helping each party understand its responsibilities and the consequences of not meeting predetermined service provider and customer expectations. An SLA should be drafted with the mindset that it is a partnership between the client and service provider and not just a legally binding agreement. 

A well-drafted SLA should have clearly defined goals with measurable metrics, both for the service provider and the customer. One-sided agreements and work schedules are much more likely to fail and should be avoided at all costs.

One of the most useful best practices in service level management is for both parties to review the SLA periodically to make any changes that can boost the quality, response time, and availability of service while minimizing service inconsistencies or costs. Periodic reviews of the project can help both teams avoid unnecessary costs and tasks as project goals evolve.

Finally, there should be enough room in the service level agreement for exceptions and outside variables, such as natural disasters, that can cause network issues. The SLA should detail how the client and service provider would react in such exceptional circumstances. A plan for how to respond in worst-case scenarios, known as a contingency plan, is frequently added to mitigate any major disasters during project timelines.

Read next: Best Managed Service Provider (MSP) Tools

Ali Azhar
Ali Azhar
Ali is a professional writer with diverse experience in content writing, technical writing, social media posts, SEO/SEM website optimization, and other types of projects. Ali has a background in engineering, allowing him to use his analytical skills and attention to detail for his writing projects.

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