Service Level Agreement SLA Boot Camp

Service Level Agreements, or "SLAs" are tricky but useful mechanisms for managing the risk of an on-going relationship with IT service providers. Unfortunately, most SLAs that show up in service contracts as worthless, cosmetic paper additions. SLAs can be extremely powerful tools to help you and your service provider get the most out of a relationship.

What is an SLA

A service level agreement SLA, in its most basic form, is a contractual commitment to meet specific goals. If, for example, you sign up for a hosting contract with a provider, you may desire an SLA that measures the up-time of your website. If you outsource your help desk, you may want an SLA that measures the time it takes to answer the phone. Usually, an SLA includes a penalty and/or reward framework. For example, many web hosting companies offer a refund based on the number of hours your website is unavailable. On the flip-side, an SLA may include an extra bonus to your help desk provider if all calls are answered within 30 seconds. The following are typical examples of SLAs:

"All help desk call will be answered within 90 seconds"
"95% of all bills will be printed and delivered on time"
"The website will be available 99.99%"
"Project X will be delivered within 2 weeks of the planned schedule"

What isnt an SLA

An SLA is not a way to cut your costs. Rather, SLAs are mechanisms for managing risks, sharing pain, and benefiting from success. Many SLAs are setup as "outs" to contracts that allow customers to penalize technology providers for non-performance. Although penalties do reduce costs and they do send a strong signal to service providers to improve their service, neither you nor the service provider "win" if an SLA is missed. Think of an SLA as a shared goal.

SLA Philosophy

The best SLAs are setup to allow both you and your service provider to share in the success and failure of an agreement. If you intend to turn over the operation of your billing system to a service provider, getting the bills out on time is critical. Whether you do it yourself or partner with someone, if you fail to produce invoices, you delay incoming revenue. In this example, your SLA should inspire your vendor to deliver on performance levels that have an actual impact to your business. Lets say your current billing accuracy is 90%. If you increase this accuracy to 95%, you have directly improved your companys bottom line. If you intend to outsource this function, your SLA should include a shared billing accuracy reward to the service provider if they help you improve revenues.

Make It Count

Some web hosting plans offer an up-time measure that, if not met, will result in a refund to you. Unfortunately, this "refund" may be calculated as a credit based on the time that your site was down and your monthly hosting fee. For example, if you pay $100 per month for hosting services, and your site is down for 1 hour, your credit may only be 14 cents! $100/720 number of hours in a month = $0.14. If, on average, you sell $50 worth of goods through your website each hour, 14 cents isnt much of a blow to your hosting company. I recognize that my example is slightly exaggerated. Many hosting companies offer a more materia