Service Level Agreement Definition

A service level agreement (SLA) is a negotiated agreement between two parties where one is the customer and the other is the service provider. This can be a legally binding formal or informal type of contract. Contracts between the service provider and other third parties are often (incorrectly) called SLAs — as the level of service has been set by the (principal) customer, there can be no "agreement" between third parties (these agreements are simply a "contract"). Operating Level Agreements or OLA(s), however, may be used by internal groups to support SLA(s).

The SLA records a common understanding about services, priorities, responsibilities, guarantees, and warranties. Each area of service scope should have the "level of service" defined. The SLA may specify the levels of availability, serviceability, performance, operation, or other attributes of the service, such as billing. The "level of service" can also be specified as "target" and "minimum," which allows customers to be informed what to expect (the minimum), whilst providing a measurable (average) target value that shows the level of organization performance. In some contracts, penalties may be agreed upon in the case of non-compliance of the SLA (but see "internal" customers below). It is important to note that the "agreement" relates to the services the customer receives, and not how the service provider delivers that service.

SLAs have been used since late 1980s by fixed line telecom operators as part of their contracts with their corporate customers. This practice has spread such that now it is common for a customer to engage a service provider by including a service-level agreement in a wide range of service contracts in practically all industries and markets. Internal departments (such as IT, HR, and Real Estate) in larger organization have adopted the idea of using service-level agreements with their "internal" customers — users in other departments within the same organization. One benefit of this can be to enable the quality of service to be benchmarked with that agreed to across multiple locations or between different business units. This internal benchmarking can also be used to market test and provide a value comparison between an in-house department and an external service provider.

Service-level agreements are, by their nature, "output" based — the result of the service as received by the customer is the subject of the "agreement." The (expert) service provider can demonstrate their value by organizing themselves with ingenuity, capability, and knowledge to deliver the service required, perhaps in an innovative way. Organizations can also specify the way the service is to be delivered, through a specification (a service-level specification) and using subordinate "objectives" other than those related to the level of service. This type of agreement is known as an "input" SLA. This latter type of requirement is becoming obsolete as organizations become more demanding and shift the delivery methodology risk on to the service provider..

SLAs are also defined at different levels such as:

• Customer Based SLA: An Agreement with an individual customer group, covering all the services they use. e.g. An SLA between a supplier (IT Service Provider) and Finance Dept. of a large organization for the services such as finance system, payroll system, billing system, procurement/ purchase system etc.

• Service Based SLA: An agreement for all the customer using the services being delivered by the service provider e.g.:
  • (Non IT Example) A car service station offers a routine service to all the customers and offers certain maintenance as a part of offer with the universal charging.
  • (IT Example) an email system for the entire organization. There are chances of difficulties arising in this type of SLA as level of the services being offered may vary for different customers (e.g. Head office staff may use highspeed LAN connections while local offices may have to use a lower speed leased line)

• Multilevel SLA: The SLA is split into the different levels, each addressing different set of customers for the same services, in the same SLA.

• Corporate Level SLA: Covering all the generic service level management (Often abbreviated as SLM) issues appropriate to every customer throughout the organization. These issues are likely to be less volatile and so updates (SLA reviews) are less frequently required.

• Customer Level SLA: covering all SLM issues relevant to the particular customer group, regardless of the services being used.

• Service Level SLA: covering all SLM issue relevant to the specific services, in relation to this specific Customer group.

What Should The Service Level Agreement Cover?

• Introduction and Purpose of the Service
• Services to be Delivered
• Performance evaluation and reporting
• Problem Management
• Fees and Expenses
• Customer Duties and Responsibilities