What Are SLAs And Why Are They Important?

If your organization is considering forming a business relationship with an IT vendor and intends to outsource some of its technical tasks, it’s important to ensure your contract addresses your needs and includes clear expectations for what you want to achieve. A service level agreement (SLA) is a contract between you and the service provider that can be used to set measurable standards for such things as service quality, uptime, service delivery, response time, service availability, and other outcomes to enhance the experience of end-users and customer satisfaction. Service level agreements are important for all stakeholders involved and can help ensure you receive services that meet or exceed your expectations. This article will explore in detail what SLAs are and why they are important.


May 29, 2023

What Is a Service Level Agreement?

A service level agreement (SLA) is a provision within an IT service contract that establishes the expectations of both you and the service provider, describes the services that the provider will deliver, sets the baseline expectations for the level of service, and details the metrics by how you will monitor, measure, and approve the processes.

An SLA should also include how issues will be addressed if the service levels that have been agreed upon are not reached. This might include legal remedies, penalties, and provisions for alternative dispute resolution such as mediation or arbitration if you want potential issues addressed outside of court. A service level agreement should be viewed as an integral component of any contract you sign with an IT service provider when outsourcing your organization’s IT and cybersecurity tasks.

Who Provides SLAs?

Service-level agreements are common within the IT industry. When outsourcing some of your technology needs, you should anticipate that most service providers will present standard service-level agreements with different prices and prospective service levels. A provider’s standard agreement can serve as a starting point for negotiations, but you shouldn’t accept a standard agreement without tailoring it to meet your organization’s specific requirements.

You should include your expected levels and types of service in any request you might send to various providers. This can help a provider determine whether they can meet your requirements, the price they might quote you, and whether it might be able to offer a robust alternative that can provide the solution you need.

Why SLAs Are Common in Managed IT Relationships

The birth of IT outsourcing is typically recognized as beginning in earnest in 1989 when Eastman Kodak outsourced its data-processing services to IBM. IBM was tasked with building Kodak’s data center. At the time, most corporations had never considered outsourcing services to this extent, but Kodak’s agreement with IBM served as a springboard for other corporations to consider outsourcing as a viable option for achieving their business goals.

With outsourcing, the need for establishing metrics and measurable key performance indicators (KPIs) to measure deliverables arose. Companies turned to service-level agreements as a tool to govern the relationships between their organizations and contracted third-party companies. These agreements are typically included as a part of a provider’s master service agreement and outline the expected performance standards and penalties or service credits that will be assessed if targets are not met. Some agreements also offer bonuses when providers exceed performance standards and customer expectations.

Initially, service-level agreements were created on a per-project basis. However, as managed IT services and cloud computing evolved, these agreements also changed to address new criteria. Service-level agreements are typically used within the industry to address the needs of all of a provider’s clients and are typically broad, standard documents that can be customized.

Why You Need a Service Level Agreement

A service level agreement is a critical component of a contract with a managed IT service provider. It includes details about all of the services the service provider will deliver, their agreed-on degree of reliability, the performance standards and the metrics by which they will be measured, and the available remedies if the provider fails to deliver the services or provide the agreed-on level of service.

If a prospective provider presents a contract without an SLA, the contract terms could be open to interpretation and difficult to enforce. Including a well-drafted SLA in your IT service contract can help to protect both your interests and those of the provider.

Verifying Service Levels

The provider you choose should provide a portal for accessing statistics. You should be able to check the portal to see whether the provider is achieving the goals set under the service-level agreement. If not, you can then request service credits and any other penalties that you have included in your service agreement.

When you are negotiating the agreement with the provider, you should ensure the methodologies and processes that will support the targets are included and ensure that your clear expectations are addressed. You should eliminate any potential misunderstandings that could arise by using plenty of detail and clear language. You can also use tools to automatically capture KPIs and other performance information to objectively measure the provider’s performance.

Metrics to Consider

The SLA metrics you include will vary based on the services you are outsourcing. You should try to streamline your agreement to minimize costs and prevent misunderstanding for both parties. Examine your business operations, the workload, and your workflow, and identify the most important performance metrics to include. Overly complex monitoring processes and penalties are less effective because of the time needed for analysis by your IT department. Automatic data collection is the easiest approach and helps to ensure the reliability of your metrics.

A few of the types of metrics you might want to monitor include the following:

Security – Data breaches can be costly in terms of downtime, repairs, and potential regulatory penalties. Established security measures can help to prevent potential security breaches and show that you took the necessary steps if an incident occurs.

Service availability – You should include timeframes when the service should be available for end-users. For example, you might include a metric of 99% availability during business hours and a reduced availability during off-hours. If you operate an e-commerce site, your service availability and uptime requirements should be high at all times to ensure the best customer experience and customer satisfaction.

Customer service – If your provider will deliver customer support services, you should include metrics for measuring its performance and effectiveness. For example, including such things as expected response times, service quality, and the effectiveness of interventions are all important.

Error rates – It’s important to measure error rates, including missed deadlines, coding mistakes, restore failures, incomplete backups, and others.

Results – To ensure your business needs are efficiently met, you might include key performance indicators for your business processes as they relate to the contributions made by your IT vendor.

What Should You Do if the Provider Doesn’t Meet the Agreed Service Levels?

Your service agreement should include service credits, which are penalties that you can enforce if your provider fails to meet your expected performance standards. Service credits are agreed-upon fee percentages that place the provider’s profits at risk when it fails to achieve as contracted under your service agreement. You can use the SLA metrics to engage in conversations about your priorities, the provider’s performance, and your future business relationship with your IT provider.

Meriplex Can Help

A service level agreement gives you peace of mind by ensuring its goals are achieved. If you would like to learn more about SLAs or what Meriplex can do for your IT operations, contact us today.