What is a Service Level Agreement (SLA)?
A service level agreement defines services; their attributes and scope; and the timeframe for the provision of services between a service provider and a customer.
Why is a service level agreement important?
The service level agreement helps the service provider and the customer have a common understanding of what’s expected as services are provided, which is important in a number of ways.
- It improves the relationship with the customer because service expectations are set early on.
- It helps the provider’s employees be more satisfied, because they have a framework to know what is important, when, This makes it easier for employees to understand and focus on work that is most critical.
- Both parties also benefit because they can organize resources based on the clear understanding of what to expect.
The service level agreement is a binding agreement that lays out the services to be provided and the key performance indicators that must be meet. For both parties, the SLA is the basis for measuring the quality of services and their provisioning.
In addition, an SLA defines the financial and legal consequences of non-compliance with the agreement. It is, therefore, indispensable for enforcing claims in court.
Key terminology: What’s the difference between SLA, SLO and SLI?
The service level is the central element of a service level agreement and defines the level of performance that is guaranteed to the customer.
The service level ensures a percentage of guaranteed performance as compared to the overall performance. It is a defined value that enables the services provided to be measured.
Service level calculation
The calculation of the service level provides the basis for the definition of the service level.
For the calculation, the guaranteed performance of a service is compared with the total required performance..
Example calculation to determine the service level
For example, if a server is guaranteed to be available 99.9% of the year, the following calculation must be applied:
365 days x 0.999 = 364.635 days of guaranteed uptime in the year.
Service Level Objectives (SLO)
The service level objectives define the metrics included in the SLA that will measure the services to be provided.
- Percent of availability of a service within a defined period
- Response time to a service request
- Recovery time of an operational system
Service Level Indicators (SLI)
Service level objectives also contain one or more parameters for measuring the quality of the agreed service level. These parameters, called SLIs, are the basis for quantifying the quality of an agreed service.
SLI examples may include:
- error rates,
- security readiness metrics, or even
- business results if the provider is able to influence or contribute to these.
Service and support hours
Service times define the time during which a service is made available. This can, for example, be limited to business hours or be available 24 hours a day, 365 days a year.
Response times define the time in which an action must be taken by the service provider when there is a customer need.
If, for example, a service request response time of one hour has been agreed, the service provider is committing to the customer that they will react or respond within this period.
It should be noted that the response time is often linked to the service time. For example, if the service time is limited to the period from 8 a.m. to 5 p.m. Monday through Friday, the response time may refer to the defined time window.
Prioritization based on urgency
Both the defined response and service times should be defined according to the urgency of a request. This lets the service provider prioritize its efforts in support of the customer. With sufficient efficiency and operational reliability, this can save effort and costs on both sides.
Frequently used prioritization categories:
- Critical: Action must be taken as soon as possible. Typically, this is used when the customer’s business is not operational due to service issues.
- High: This is still a major problem and should be addressed immediately as it means that, while the customer’s business can continue to operate, a major component of its workflow or operations are being impacted.
- Medium: A longer response time is granted. The core operations of the customer’s business can continue, but the issue impacts more than one customer and could limit operational efficiency.
- Low: The response time is not critical for the problem, and therefore it has a large time window. This is used when there is something that is simply annoying or when there is a workaround in place.
Three types of SLAs
Service providers, and to some extent customers, should consider which type of SLA is the best fit for their business model. There are three different types of service level agreements: customer-based, service-based, and multi-level.
In the customer-based service level agreement, all of the services which a single customer has purchased are defined and addressed in one agreement. For instance, if a customer purchased services from a consulting company, the SLA might cover the project services, training services and documentation services all within one agreement.
With the service-based service level agreement, the definition of services and related details are done for each individual service. This can make it easier for the service provider to facilitate because service agreements are the same across all customers. For instance, a video production company might have one service level agreement that is used during all video creation projects and another that is used anytime they are editing someone else’s video.
- Corporate level – a generalized agreement about what is offered and the expected quality that applies to everyone in the customer’s organization
- Customer level – specific agreements that are based on the needs of a select group or team within the customer’s organization
- Service-level – defines specific details and agreements related to an individual service that is covered by the overall agreement
What must a Service Level Agreement Contain?
In order for a service level agreement to have real benefits and binding power for customers and service providers, the terms and conditions must be defined as precisely as possible.
The following points should be defined in an SLA:
- Definition of the performance reports
- Requirement targets
- Service levels and service times (response times)
- Performance description of the services to be provided
- Roles and responsibilities of the service provider
- Roles and responsibilities of the customer
- Standards required by both parties
- Planning and maintenance procedures; processes for resolving poor performance
- KPIs for the service level
- Procedures for determining measurement and time period
- Contracts with third parties
- Escalation management/problem handling process
- Disaster recovery details
- Documentation of changes
- Cost structure for determining total cost
- Consequences/contractual penalties for non-compliance
- Definition of intellectual property
- Definition of contract duration, termination procedures and procedures for changes to the SLA
SLA and the contents simply explained
Gabe Christiansen explains what a service level agreement is in a clear way on his YouTube channel.
The key steps in creating an SLA
- Determine the project start date and confirm contact people and stakeholders.
- Develop an exact description of the services to be provided.
- Define the service levels, giving consideration to which type of SLA will be used.
- Determine costs and prices.
- Draft the SLA.
- Coordinate approval of the draft between the customer and service provider.
- Conclusion SLA
Implementation and revision of the SLA
Service Level Management (SLM)
Service level management is a central component for successful SLA implementation. It defines all the important points of an SLA, and it is also lays out concrete steps for implementation, adaptation to changing conditions, and monitoring. This includes the service catalog, service level, KPIs, and service operation level agreement.
Operational Level Agreement (OLA)
For the successful implementation of an SLA, an agreement within the departments – on the side of the service provider and on the side of the customer – is also advisable.
The OLA takes up the terms of the service level agreement or uses technical framework conditions as the basis for defining requirements for the respective organizational units.
An operational level agreement (OLA) is, therefore, a frequently used framework for implementing the service level agreement.
Compared to an SLA, an OLA does not represent a contractual agreement, but it is intended to create a binding guideline within the organization so that an SLA can be fulfilled vis-à-vis third parties.
Revising an SLA
Service level agreements should be updated regularly. Sometimes, this frequency is included in the contract itself; other times, this is left open to renegotiation as needed.
Since the SLA Is about the delivery of services, it should be revised anytime there is a need to change services. This may include situations such as:
- Changes in technology that make services easier or harder to deliver,
- Changes in business need that drives higher performance requirements,
- New processes that require different or changed services or
- Workloads or resources changing
Where does an SLA come into play?
Initially SLAs were used mostly in IT service management, however, the use of an SLA has now become established wherever fixed framework conditions for services to be provided between service providers and customers are necessary.
Examples of areas where SLAs are used:
In fact, nearly any area of the business can benefit from crafting service level agreements with their customers – be those internal or external customers. For example:
- IT Service Management
- Call Center / Customer Service
- Field Service Management
- Facility Management
- Fleet Management
- Internet Services (e.g. hosting, cloud services)
- Telecommunications Services
- Personnel Services
- Marketing Services
- Other Services
Service provided to customers and between departments in one's own company should weigh highly in every corporate strategy
SLA compliance with Service Level Management Software
As a service level management software, OTRS helps to successfully implement service level management for companies and customers with its numerous features.
With OTRS, you benefit from, among other things:
- Structured communication based on tickets
- Service catalog
- Due dates and escalation times
- Categorization by priority
- Defined customers, responsible person and owner wtihin a ticket
- Business process automation for structured action
- Time recording
From IT service management to customer service, OTRS can be flexibly adapted to your needs.
Contact our experts to learn how OTRS can help you achieve your service goals.