Who Needs a Service Level Agreement (SLA)?

In circumstances where you are paying for a service which is being delivered by a third party you should have a legally enforceable Service Level Agreement (SLA) in place. Without a clear Service Level Agreement it is difficult to get clear visibility of what you are paying for - or take action when you are not getting the service you requested. We describe the process of using SLAs to ensure you get the service you want as Service Assurance.

Some industries have additional requirements for Service Level Agreements - particularly where they are highly regulated - and the Regulators demand evidence that all Service Providers are managed consistently and effectively. In these cases not only do the people in these industries need SLAs but they need to show that they are managing them. This would include the Financial Services, Pharmaceutical, Energy and Telecoms Industry.

Control over Service Delivery - Service Assurance

Organisations increasingly rely on external third parties to deliver core services to their organisations. These services can include facilities management, recruitment, information technology services, document storage, business continuity services etc. It is essential for these organisations to maintain acceptable levels of service in these areas. Traditionally when these services were provided by employees normal management control could have been exerted over their performance. Where services are sourced from external parties it is necessary to implement a formal legal basis to ensure satisfactory service delivery. This legal basis is a service contract with a Service Level Agreement. By clearly identifying specific metrics for each service to be provided client organisations can ensure that they get the service they expect. Please read our article on creating SLAs for more information.

In recent times we have seen organisation baseline service performance expectations at reasonably low levels - where providers exceed the performance targets and provide an even higher level of service they receive bonus payments. This replaces the older approach of 'penalising' service providers where performance was in breach of the Service Level Agreement. This newer approach offers many advantages- including a much simpler enforcement mechanism.

In all cases service assurance means more than simply putting an SLA in place. Where a firm implements a best practice Service Management Process they will be regularly monitoring the SLAs they have in place - this means that they will consistently receive updates from their service providers on how they are performing against service levels. In some cases Clients receive performance reports in excel or hard copy format from Service Providers. More recently organisations are starting to use online Service Management Solutions like ServiceFrame(TM) to manage Service Level Agreements. These solutions offer significant advantages over more traditional approaches to managing SLAs, including:

o option to access all SLAs through an easy to use web-based tool

o options to view all SLA performance using an intuitive 'traffic light' colour coded dashboard

o be alerted when service providers are underperforming

o run reports on SLA performance

SLA management is covered in more detail in our article Managing SLAs

Service Level Agreements in Regulated Environments

If you work in an environment which is regulated then it is worth investigating whether there are specific requirements in relation to the way in which you can outsource services. There are many examples of these types of Regulations. It is important to conduct an analysis of your particular situation to understand which regulations are appropriate.

The Sarbanes Oxley Act of 2002 stipulated that where third party services directly impact financial reporting or internal control management activities, a company's management is responsible for evaluating the design and effectiveness of the control structure in place, both within the third-party provider and between the two organisations. In these circumstances management must evaluate outsourcing provider's internal controls within resource and time constraints. Outsourcing organisation must provide assurance about the controls they have in place for customers.

The Committee of European Banking Supervisors published guidelines in relation to outsourcing in December 2006. The guidelines are consistent with the Market in Financial Instruments Directive (MiFID). The purpose of these guidelines is to ensure that Financial Institutions are adequately managing the risks associated with Outsourcing. The guidelines note that 'In managing its relationship with an outsourcing service provider an outsourcing institution should ensure that a written agreement on the responsibilities of both parties and a quality description is put in place'.

Most regulatory environments share a concern to ensure that the responsibilities between client and service provider are clearly documented - this means that a Service Level Agreement needs to be put in place. In addition most requirements call for active management of service contracts. Management of SLAs requires a proportionate activity - it is necessary to put a process in place to ensure that risk is covered. We believe that manual processes of managing SLAs can prove to be time consuming and costly. Traditional IT intensive systems for SLA monitoring have been very expensive but also relatively ineffective. New Service Management and Service Assurance tools such as ServiceFrame(TM) take advantages of easy deployment options offered by Software as a Service as well as very intuitive user interfaces.

Check out our online demo at [http://www.serviceframe.com/Demo.aspx], or register for a FREE trial at [http://www.serviceframe.com/RegisterForTrial.aspx]

Traoloch Collins is the CEO of ServiceFrame

Our Product

ServiceFrame™ was created as a solution to the challenges faced by organisations that are managing complex sourcing models. ServiceFrame™ is an online application which is used to manage the performance and cost of service providers. Central storage of service provider performance and clear regular reports allow clients to compare the actual service they receive versus the target or expected levels defined in their contracts and/or Service Level Agreements (SLAs).

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What is a Service Level Agreement (An Example)

A SLA’s primary goal is to establish and manage expectations of customers, thus reducing confusion while defining acceptable service.

Below is an example of a Service Level Agreement. Simply replace the bracket information with your information.

SERVICE LEVEL AGREEMENT

BETWEEN

[Company PBX Department]

&

[Internal Customers]

Terms in this document:

PBX is a direct reference to the Private Branch Exchange Department and it’s personnel.

Telecommunications refers to Voice communications and Voice Mail.

Service refers to the Move, Add or Change of telecommunications sets, fax lines, modems and voicemail programming.

Local Switch refers to the [Meridian 81C] switch that services the departments at [Company Name].

Distant Switch refers to the outlying [Meridian systems] at [First Location], [Second Location].

Central Office refers to [Bell South].

Internal Customer refers to the employees and departments of [Company Name].

External Customers refers to those individuals or business outside the scope of control of the PBX Department.

Turnaround Time shall be considered a good faith effort of the PBX Department and it’s staff to remedy a problem.

Business day indicates normal business hours between Monday and Friday, excluding Federal Holidays.

Goal of this Technical Support Service Level Agreement:

The goal of this agreement is to enhance, support and manage our internal customer's telecommunications requirements. A secondary goal is to identify response times, assist in our internal customer’s achievement of maximum proficiency and reliability in their telecommunications environments and set forth escalation procedures.

Specific Goal Topics covered in this agreement:

- Dependable support for a standard telecommunications platform for core business departments,

- Response times to problems, new users, and other service requests,

- Statement of operational hours,

- Reduction in labor cost via standardized call out procedures,

- Procedures for escalation of service request and/or outage reports.

Technical Support Service Level Agreement:

[Company Name]’s Private Branch Exchange Department has identified a standard business approach to providing technical services to the various departments of [Company Name]. The PBX Department will provide support, to include; new set installations and services, movement of existing telecommunication services, reprogramming of existing telecommunications services and maintenance of existing telecommunications services.

This document is the Service Level Agreement (SLA) that defines the scope of support and the services that [Company Name] users can expect:

Support:

The PBX Department will provide technical support to our internal customers via the [Pbx call center or trouble desk].

The [Pbx call center or trouble desk] is responsible for:

- Initial point of contact for the telephone questions and problems

- Issuing trouble tickets,

- Communicating expected response time,

- Tracking of service/problem ticket.

Hours of Service

8:00am until 5:00pm, Monday through Friday will be the normal hours of service. However, if additional coverage is required outside of these hours, the hours may be expanded.

Turnaround Times

The following turnaround times for services will be in effect:

New Service at local switch - within 1 business day with properly submitted requisition.

New Service at distant switch - within 2 business days with properly submitted requisition.

Move or Change of service at local switch - within 1 business day with proper notification.

Move or Change of service at distant switch - within 2 business days with proper notification.

Outage Report at local switch of non-essential telecommunications* - within 4 hours on business days. The following Monday if trouble is reported after 2:00 PM on Fridays.

Outage Report at distant switch of non-essential telecommunications* - within 6 hours on business days. The following Monday if trouble is reported after 2:00 PM on Fridays.

Outage Report at local switch of essential telecommunications** - within 1 hour on a business day. Within 2 hours on non-business days.

Outage Report at distant switch of essential telecommunications** - within 2 hours on business days. Within 2 hours on non-business days.

[Indicate your call out procedures here.]

The following actions require scheduled turnaround times.

- Custom programming,

- Telecommunications projects.

- Upgrade and patches for software releases ,

- Software licensing and maintenance,

- PMI’s,

- System backups and maintenance.

Problem Escalation :

Not all problems are emergencies. But those problems that are not addressed and resolved expediently can become emergencies. After pursuing the standard problem reporting mechanism via a trouble service ticket submitted directly to the [Pbx call center or trouble desk]. The user will have a service ticket that can be used to reference the problem reported. The user can progressively escalate emergency problems in the following manner:

- Obtaining approval for escalation from his/her management,

- Communicating a new acceptable response time.

Recognize, however, that a user(s) who set a pattern of problem escalation (attempting to circumvent the problem resolution queue) will be admonished to respect the service queues and established turnaround times guarantees.

Customer Responsibilities:

Customers of [Company Name] telecommunications services, as part of this SLA in which the services they will receive are detailed, also have some responsibilities:

- Customers should report problems using the problem reporting procedures detailed in this SLA, including clear description of the problem,

- Provide input on the quality and timeliness of service,

- Recognize when software testing and/or maintenance are causing problems that interfere with standard business functions.

"Ever greening:"

Telecommunication environments and requirements inevitably change, and this SLA needs to define an "ever greening" process to ensure that the support agreement keeps pace with the reality of user requirements. As the telecommunications infrastructure moves from the standard Legacy system switch to communications servers and local area networks – the PBX department and the Information Technology department will share in the resolution of a problem, thus possibly extending installation times and response to outages.

The management of PBX and IT will need to create a committee with cross- representation to meet quarterly to review technical support service success, service shortcomings, technology updates, and user requirement changes. Once the support service is initiated, the committee will note the results and recommend the changes and improvements.

Acknowledgment:

The PBX Department and Customers have both acknowledged and accept the terms and responsibilities required for effective and efficient service delivery. Should there be a need to modify the level of support, this will be done by designated individuals/teams of each party.

*- Indicate a general discription of services or departments that are considered non-essential communicatioins (Modem lines, offices with multiple sets, etc.)

**- Indicate a general discription of services or departments that are considered essential communicatioins (Security Department, Executive Office, Offices with only one set, etc.)

Article by Charles Carter

[http://www.cs2communications.com]

Charles Carter is an administrator for the Nortel Portal and Vice President of http://www.pbxinfo.com He has 20 years experience in the telecommunications field, is a software owner/programmer, author of the fictional book "Chaos Theorem" and is currently the President of CS2Communications ([http://www.cs2communications.com]) - A Southern Mississippi Telecommunications LLC specializing in Nortel Meridian Programming, Nortel BCM Programming, Cable Plant Installations and Nortel Symposium Programming

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Service Level Agreement (SLA) Boot Camp

Service Level Agreements, or "SLA's" are tricky but useful mechanisms for managing the risk of an on-going relationship with IT service providers. Unfortunately, most SLA's that show up in service contracts as worthless, cosmetic paper additions. SLA's 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 SLA's:

"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 isn't an SLA?

An SLA is not a way to cut your costs. Rather, SLA's are mechanisms for managing risks, sharing pain, and benefiting from success. Many SLA's 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. Let's say your current billing accuracy is 90%. If you increase this accuracy to 95%, you have directly improved your company's 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 isn't much of a blow to your hosting company. I recognize that my example is slightly exaggerated. Many hosting companies offer a more material penalty and most web sites do not generate $50 in sales per hour. But you can see how this penalty and SLA is mis-aligned with the business model. If you know you make $50 per hour in sales through your website, your hosting company should incur a much greater penalty for not keeping your website up and running! Whether you negotiate an SLA with a hosting company or a large IT company, create an SLA that is specific to your business and truly establishes risk sharing (i.e. we "win" or "loose" together).

Devil In The Details

A good SLA has four critical components: description, target, measurement, and penalty/reward. If you have an SLA that is missing one of these components, you run the risk of losing the benefit of having the SLA to begin with. In the web hosting example above, the SLA sounds good, but the actual measurement and penalty weigh heavily in the favor of the hosting company (they have little to loose!) Make sure your SLA's are well defined and agreed upon before you ink the deal. Here's an example of a good SLA:

Description: Billing - All bills will be rendered, printed, and mailed on a timely basis to ensure unbilled revenue is minimized.

Target: 90%

Measurement: Ratio of number of planned bills / number of bills actually produced. The calculation is based on the number of records in the billing input file compared against the billing output log file which lists the bills actually rendered.

Reward/Penalty: If billing accuracy is below 90%, penalty is calculated as 1% of the unbilled revenue for that billing run. If billing accuracy is above 90%, a bonus is calculated as 1% of the additional revenue billed.

In this SLA example, your service provider stands to loose or gain substantially based on their performance. Similarly, your company stands to loose or gain substantially based on the performance of the service provider. Depending upon your daily billings, 1% could be significant. Note the specificity of the SLA measurement and calculation in my example. If you are not very specific with the calculation methods, actual performance against service levels are open for debate.

Negotiate Up Front

Many businesses strike deals with IT companies and leave SLA's as an open item. Many IT service providers will want to establish a "base line" period where SLA's are measured and then negotiated. In many cases, this request is reasonable, especially if an IT company has little to no understanding of your environment and your current performance record. However, if you wait to negotiate service levels until after you ink a deal, you loose tremendous leverage with your provider unless you really think you can walk away from the deal. Ideally, choose a provider that is willing to negotiate a service level up front. In my experience, these SLA negotiations are much more difficult on the back-end.

Raise the Bar

A service level agreement should be changed periodically. Let's look back at my billing SLA example. Let's assume that after 1 year of service, your provider is billing at an accuracy, on average, of 95%, and in turn, you are rewarding them consistently for beating the original service level. It's time to raise the bar! If your provider can increase your accuracy from 90% to 95%, maybe they can increase your accuracy from 95% to 99%. Raise the SLA bar (target) to 95%, and only reward them if they beat this new level of quality. By providing the right incentives to improve upon service levels, both you and your service provider can benefit.

The Shorter, The Better

I have seen service contracts with dozens and dozens of SLA's. If you establish multiple SLA's, you and your service provider will have broad visibility into performance levels. However, establishing many SLA's can water down the over-arching performance of a service provider. Put simply, a service provider can "make-up" poor performance on one SLA by beating the performance target of another SLA. To keep things simple, pick the few critical success factors of your business and establish applicable service levels that your provider can truly focus on.

Service Level Agreements should be established as a "dashboard" for you and your service provider to share in the success and failure of your arrangement. SLA's are less effective if they are established as contract "outs" or as penalty frameworks, because they fail to drive a partnering relationship. Negotiate SLA's which, if met or beaten, truly benefit your company and your service provider. Always define SLA's to the lowest level of detail possible before you finalize the arrangement since negotiations become even more difficult after the deal is executed. And never commit to an SLA that could hurt you but not your provider.

About The Author

Andy Quick is co-founder of Findmyhosting.com (http://www.findmyhosting.com), a free web hosting directory offering businesses and consumers a hassle free way to find the right hosting plan for their needs. Feel free to contact Andy at andy@findmyhosting.com in case you have any questions or comments regarding this article.

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