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What is an SLA? Best practices for service-level agreements

A service-level agreement (SLA) defines the level of service you expect from a vendor, laying out the metrics by which service is measured, as well as remedies or penalties should agreed-on service levels not be achieved. It is a critical component of any technology vendor contract.

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In these cases, the outcome is a business result rather than a specific activity, task, or resource. But even in an outcome-based deal, SLAs serve as important indicators of performance against those business outcomes. SLAs for these deals will not outline technical or operational requirements for given tasks; rather, they outline end-client goals. For this approach to work well, those outcomes must be unambiguous, there must be ways to measure achievement of the outcomes, roles and responsibilities must be clearly defined, and the supplier must have control over the end-to-end service required to deliver results.

Can we create SLAs for shadow IT?

IT can harness the power of shadow IT services and solutions and mitigate associated risks by taking the same types of SLA IT uses to manage the performance of IT service providers and apply them to shadow IT. The IT organizations can take several steps to build an SLA framework for technology services delivered outside the IT organization and measure and report on their performance.

What happens if a provider doesn’t meet agreed-on service levels?

SLAs include agreed upon penalties, called service credits, which can be enforced when

vendors miss minimum performance standards. Provider and customer agree to put a certain percentage of monthly fees (typically equal to the vendor’s profit margin) “at risk” from which these credits are drawn when SLAs are missed. This approach is intended to incentivize provider performance without being overly punitive.

Best-in-class IT organizations avoid using SLA provisions as punishment for their IT partners and use SLA metrics as an opening for productive conversations around performance, priorities, and the future direction of the engagement or relationship.

What are “earn backs”?

Some vendors may ask for the right to “earn back” paid service credits. Such a provision allows providers to earn back the service credits they’ve given up for SLA defaults by performing at or above the standards service level for a certain amount of time. While providers may argue that an earn back provision is only fair, it can undermine the service credit approach altogether.

How often should we revise our SLAs?

As businesses change, so do its service requirements. An SLA should not be viewed as a static document. In fact, SLAs should include a clearly defined framework for modification during the term of the contract. The SLA should be reviewed periodically, specifically if:

• The client's business needs have changed (for example, establishing an e-commerce site increases availability requirements).

• The technical environment has changed (for example, more reliable equipment makes a higher availability guarantee possible).

• Workloads have changed.

• Metrics, measurement tools and processes have improved.

The SLA is a critical part of any supplier agreement, and it will pay off in the long-term if the SLA is properly thought-out and codified at the beginning of a relationship. It protects both parties, and, should disputes arise, will specify remedies and avoid misunderstandings. That can save considerable time and money for both customer and supplier.

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