What is a service level agreement (SLA)?

When obligations are clearly defined and metrics are transparent and quantifiable, it benefits everyone involved. This includes employees, who have a clearer understanding of what is expected of them and how their performance will be measured.

In many ways, the SLA acts as a mediator, ensuring that everyone’s best interests are being looked after. It is something that can be trusted by both parties, acting as a source of reliable, legally vetted information relevant to service standards and other guidelines.

The metrics established within SLAs offer their own internal advantages. With clear expectations, employees have a ‘north star’ by which to guide their performance. This leads to improved productivity and increases personal accomplishment.

As previously stated, most SLAs cater to the provider/customer relationship. However, there are three different types of SLAs, categorized by their specific use cases:

The most common (or at least the most well-known) type of service level agreement, the customer SLA is a contract between a service provider and an external customer. This is sometimes also called an external service agreement.

Internal SLAs are designed to establish and adhere to service standards within a specific company or organization. These may function between teams or departments and help ensure that different groups that depend on each other within the business are meeting vital goals.

For occasions when there is more than one service provider or more than one end user, a multilevel SLA can divide the contract into multiple levels. These can be applied to internal or external customers and may also cater to different price ranges for varying levels of service within a single product.

There is no set standard outlining everything that should be included in every SLA; details will differ between industries, businesses, customers, service types, and even individual situations. That said, there are several SLA elements that have become commonplace in many service agreements. These include the following:

Possibly the most-important part of the SLA is the summary of the agreement itself. This should clearly outline and summarize the service, the stakeholders involved, and the metrics that will be used to measure success.

In some cases, the SLA will focus heavily on the customers’ goals, and fail to connect those goals with organizational objectives and important KPIs. When this is the case, it’s important for service providers to establish their own measurable goals that may be applied to help promote client success. For internal SLAs, every involved department will need to outline their own goals and objectives.

SLAs may also need to establish a review schedule. These reviews will allow parties to periodically reassess the SLA and make changes when necessary.

The SLA must make fully clear who is responsible for what aspects of the service. This section should detail who is involved, who should be contacted regarding which issues, etc.

The SLA is a legally binding contract, and if the promised service levels are not delivered, then there will need to be consequences. This section outlines what those consequences are, and what compensation the service recipient can expect in remediation. For internal SLAs, this may involve plans detailing how the defaulting party can ensure that their dependent parties are still able to meet their objectives.

SLAs aren’t forever—they’re usually designed to apply for a limited amount of time, and there may even be occasions when one or both parties may wish to terminate the SLA and replace it with something better during the contract. Whether because the SLA isn’t working, circumstances have changed, or the agreed-upon end date has been reached, this section formally established the conditions in which the SLA may be revoked.

As stated above, metrics are important components within SLAs. But just because something is measurable, it does not necessarily mean that it should be included as a metric. SLA metrics should be easy to follow, with data that can be accurately collected with little effort. Likewise, because the service provider will be held accountable to these metrics, they absolutely must be within the providers control to directly influence.
It’s also important to choose the correct number of metrics. Too many different metrics will likely produce more data than can easily be analyzed, while too few metrics will not provide enough information to prove that the contract is being fulfilled. Finally, every metric will need a reliable and reasonable baseline to be measured against. These baselines may be revised during periodic SLA reviews.
Possible metrics to include in an SLA are as follows:

This metric measures the amount of time that the service is available for use. Service availability may be very demanding within certain types of SLAs, meaning that service providers will have to work hard to ensure near-constant uptime, with very little room for error. This may be especially true for ecommerce sites, where even a brief drop-in service may result in large amounts of lost revenue.

Metrics exist that may be used to measure the technical quality of certain services. For example, if the service includes the creation and delivery of digital applications, the SLA may need to establish quality standards, possibly measured by program size or number of coding defects.

This metric may encompass several other metrics and is best described as a measurement of how many times there have been defects or errors in major deliverables. These may include coding errors, missed deadlines, production failures, etc.

For many IT services, one of the most-important metrics to keep track of to ensure user success is security. Should an incident arise, security metrics such as the number of unclosed vulnerabilities, anti-virus updates, and the application of other relevant security measures are essential to proving SLA compliance.

To better connect SLAs with established business results, customers may wish to include some of their own key performance indicators as metrics, provided that the vendors are able to positively influence the results.