The Heart of the Matter: Service Level Agreements

To really manage the quality of service received from an in-house IT organization or from an external service provider, service level agreements are a must. According to Sturm, Morris and Jander in Foundations of Service Level Management, a good service level agreement:

• "Provides permanence
• Provides clarity
• Serves as [a] communications vehicle
• Guards against 'expectations creep'
• Sets mutual standards for service
• Defines how [a] level of service will be measured" (p. 56)

Types of SLAs

In-house SLA
There are three basic types of SLAs, and the most common of these is the in-house SLA. This is an agreement negotiated between the service provider, such as an IT department, and an in-house user department.

Don't assume that because the SLA is negotiated between two departments in the same company, that the agreement is without teeth. Because the nature of some companies' business requires significant levels of availability, they have in-house SLAs in place with their IT departments that require 100% availability. And this level of service can actually be used as a selling point to external customers.

External SLAs
External SLAs are agreements that any company that's purchasing services such as IT from an external provider like an ASP or MSP can't be without. If a company gets less-than-acceptable service from its ASP, for example, and does not have an SLA in place, that company may not have many options to either force the ASP to address the problem or terminate their contract without penalties. Conversely, if a company does negotiate an SLA with a service provider, the agreement should be reviewed by an attorney before signing, since it is a legally binding contract.

Internal SLAs
These types of SLAs are usually informal agreements within a department for achieving certain performance goals, and for measuring progress in achieving those goals. They may not even be written as separate documents, but may be part of other plans such as individual achievement goals for the purpose of receiving bonuses.

Creating an SLA

Creating an SLA should begin with serious commitments from top-level managers from both the service-provider and the user groups to negotiate an agreement. The agreement should be negotiated on as level a playing field as possible: the group actually given the task of negotiating the agreement should comprise equal numbers of individuals from both stakeholder groups, and the leaders representing each stakeholder should have nearly the same rank within the organizational hierarchy. A good rule of thumb to follow regarding the size of a negotiating group is, for a medium-to-large company, there should be four to 10 individuals.)

Each member of the negotiating team should have some unique expertise to bring to the process, like in-depth business knowledge about how the service affects the user department's productivity or bottom line or knowledge about the technology that the service provider needs to provide the requested service level. At the onset of negotiations, the group leaders should write a charter for the group defining aspects like group responsibilities, membership, functions and so on.

Negotiating the SLA

Negotiating the SLA should not become the life's work of the group given this task: it should be wrapped up in six to eight weeks.

To expedite the process, all constituents should know certain specifics about the agreement ahead of time, such as about how much it will cost to deliver the service level being requested and the benefits of the service level being requested. Also, the group should have information available about the current service levels and how the services are measured.

Components of an SLA

Beyond defining who are the parties in the SLA (i.e., the service provider and the customer), a number of components make up an SLA, including the following:

Term - defines the period of time that the SLA will cover. This is usually no more than two years, since technology will advance too fast for a longer-term agreement to be meaningful.

Scope - defines the services covered in the agreement. This might include what specific business process will be covered, which users of this process will be covered, at what times during the day/week will the service-level requirements be effective, and so on. This section does not cover the service levels to be provided.

Limitations - defines what must happen in order for the requested service levels to be provided. This includes items like what volume of transactions the service provider might be required to handle, the cost of hiring the staff necessary to provide the levels of service,and so on. The bottom line is, service providers have to believe they can really provide the required levels of service before they agree on them. To keep the SLA realistic, they must build into the agreement limitations that take into consideration future variables like growth in demand, opening or closing user facilities and integrating disparate computing systems into the current one.

Service-level objectives - are the levels of service that both the users and the service providers agree on, and usually includes availability, performance and accuracy. Each aspect of the service level, such as availability, will have a target level to achieve. (But the agreement might include two measures for each aspect: a minimum-acceptable level of service to achieve, and a stretch level of service that the provider should aim to achieve and can be rewarded for achieving.)

Availability can be measured in units of time (e.g., hours or days) or in percentages. Performance can be measured by volume of work accomplished (e.g., transactions) or speed. Accuracy can be measured in terms of whether or not the service is doing what it should be doing. Note: In an SLA, there is no right number of service-level objectives - aim for between five and ten.

Service-level indicators - the means by which these levels can be measured. The best way to measure service levels is from the user's perspective - how much time were the services that users need to do their jobs or to do business available and how responsive were the services? However these user perceptions are measured, the SLA will need to document each service-level indicator used to measure the objectives, and to specify the data source for each.

Nonperformance - spells out what happens if the service provider does not meet the objectives in the SLA. If the agreement is with an external service provider, the option of terminating the contract in light of unacceptable service levels should be built in. Nonperformance penalties can range from a rebate of a percentage of what an external service provider is charging annually in maintenance fees to a mandatory meeting between the service provider's and the user's top executives to discuss the service lapse. But whether the SLA is in-house or external, penalties can be important for the SLA to have real meaning for everyone concerned.

Optional services - provides for any services that are not normally required by the user, but might be required as an exception. An example of this would be extra hours of IT service for an e-business during the busy Christmas shopping season.

Exclusions - specifies what is not covered in the SLA. Reporting - is a key component of SLM. These provide the means to determine whether or not the service provider is living up to its commitments in the SLA. So, the reports must be relevant to these objectives, must reflect the means of measuring the objectives stated in the SLA, and they must be communicated so that the audience they are intended for can understand them. When discussing reporting requirements, an SLA should include information such as the name of each required report, the frequency that each report will be generated, and the content of each report.

Administration - describes the processes created in the SLA to meet and measure its objectives and defines organizational responsibility for overseeing each of those processes.

Reviews - establishes regularly scheduled reviews between the user and service-provider constituents of an SLA.

Revisions - provides for any revisions necessary to keep the SLA extant for all parties.

Approvals - Signatures on the dotted line: the SLA is signed, sealed and delivered.

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