Preparing a Service Level Agreement

What is a Service Level Agreement (SLA)
Possibly the best known definition of an SLA is that of Hiles[1]:

‘An agreement between the provider of a service and its users, which quantifies the minimum quality of service which meets the organisation’s needs.’ Frequently the term ‘customer’ refers to the user of a service.

Service Levels
Principles of setting service levels
The purpose of setting service levels is to enable the customer to monitor and control the performance of the service received from the provider against mutually agreed standards. Agreed service levels are benchmarked for both customers and providers. For customers, the minimum acceptable level of service is that required to meet the present requirements of a particular function, activity or organisation, and against which required levels can be increased, reduced or deleted in the future. For providers, service levels indicate promised minimum standards to which they must adhere. When service levels are not met, the onus is on the provider to take appropriate remedial action. There are four main principles that should be observed when agreeing service levels. Service levels should be:

• Reasonable
• Prioritised by the customer
• Easily monitored
• Readily understood by customers and providers.

Performance criteria
Performance criteria in relation to services are an aspect of quality management. Service quality may be defined as: ‘The degree to which customers’ satisfaction with a service meets the expectations they had about that service before using it.’ Factors that determine customer expectations include:

• what customers think they need;
• their past experiences of using a service;
• what others have experienced in respect of a service;
• what service providers promise;
• benchmarking against other providers;
• the price paid.

Service expectations that form the basis of performance criteria are both general and specific e.g.

• General – tangibles, reliability, responsiveness, assurance and empathy;
• Specific – relate to the service provided – Cleaning example – good standard of appearance, all waste cleared away and compliance with respective legislation;

SLA Applications
SLAs are applicable in two situations: in the provision of internal specialist support services; and in outsourcing.

Internally provided specialist support services
Many private and public sector organisations have adopted the approach that, within an organisation, information technology, legal, human resources, procurement and other support services may sell their expertise to internal customers at an agreed transfer price. SLAs are required to specify the level of service required by customers from their internal suppliers.

Externally provided specialist support services (Outsourcing)
Outsourcing may be defined as ‘the procurement of a specific service(s) or facility(ies) from an outside provider under the terms of a contract which should include a service level agreement.’

For all outsourced services it is important to specify minimum acceptable service levels and to establish procedures to ensure that the agreed levels are being met and to consider whether they need to be reviewed.

Advantages and Disadvantages of SLAs

Advantages

• Attention is focused on what a particular service or services actually do, as distinct from what it is
• believed they do.
• Customers are more aware of what services they receive and what additional services and levels of
• service a provider can offer.
• It is clear what the real needs and levels of service required by the customer are, and whether these
• can be modified at a possibly reduced cost.
• Customers have a heightened awareness of what a service or level of service costs and can then
• evaluate the service or level on a cost/benefit basis.
• Monitoring of services and service levels is facilitated.
• Customer reporting of failure to meet service levels enables providers to eliminate the causes and
• effect improvements.
• Understanding and trust are fostered between customers and providers.

Disadvantages

• The joint drafting of SLAs, installation of measurement procedures and negotiation of SLAs are time consuming and costly to both customers and providers.
• Internal providers of services may be treated as external suppliers rather than as colleagues within
• the same organisation.
• Staff training may be needed in the working of SLAs and to overcome possible initial resistance.
• The need to select specific metrics to measure performance can end up with the supplier department
• chasing the numbers, rather than making the decisions that provide the best outcome to the
• customer department. This is true of any key performance indicators (KPIs). It is therefore important
• to ensure that KPIs within SLAs are rounded.
• SLAs are an important measure of general overall performance, but there are some services where
• failure is critical.

Preparation of SLAs

Outsourced services
Service providers usually have standard SLAs indicating the service level and key performance indicator(s) for each activity. With outsourced services and external arrangements, the SLA may form part of a contract for services covering the whole organisation.

Internal SLAs
The preparation of internal SLAs can be an involved and expensive process.

However, the system for preparing SLAS is basically the same for both types of providers and relies on the provision of a high quality and detailed specification by the potential service user. In the case of outsourced providers, the specification will form the basis of tender documentation sent to potential outsourcers.

Benefits of SLAs
Whether the services are provided from an internal or an external source, the principal benefit to the user department is that it will be able to perform its function more efficiently and more effectively with the expertise support it receives. Without this level of support, it would add significant additional costs and potential delays in operations.

[1] Service Level Agreements: Winning A Competitive Edge for Support & Supply – 2016 - Andrew Hiles