What is Service Level Agreement (SLA)

A service-level agreement (SLA) is a document that spells out two or more parties' rights and obligations under a contract for work (such as between a company and its service provider). The main purpose of an SLA is to spell out the level of service that will be provided under the agreement. An internal IT services organisation may also provide an SLA to its internal business “customers.”
The classic example of an SLA is with a software solution provider, where the document depicts like what penalties the provider will incur if its performance falls short of specified qualityand functionality levels. Usually, in this case, the penalties will follow a stepped schedule — for example, “If the software is found to have reported bug, then customer is entitled to a x percent refund of its software cost he paid for; and if the mutually agreed deadline passed then x percent of software cost will be deducted/refunded and so on.

Why is it important to have an SLA?
It is as important to have an SLA as it is to have a contract for business arrangements of all types — because it constitutes a single document that contains the terms of the agreement as understood by both parties. With the SLA in place, it is much more difficult for either party to claim ignorance if the agreement breaks down. CIOs should expect to have an SLA (reviewed by their legal counsel) in place for every significant service relationship they have.

Which side should prepare the SLA?
Most service providers will offer a standard SLA as part of the work agreement. Ideally, you should use that as a starting point. Give their SLA to your in-house counsel department, if you have one, and let counsel make adjustments that are favourable to your side. Or add some provisions that reflect your priorities. If time is of the essence, however, you may have to use the service provider's standard SLA.

What are the basic components of an SLA?
An SLA can comprise a few short pages up to a few hundred pages. The basic components are a statement of the parties' intent, an outline of the responsibilities of each party (including acceptable performance parameters with applicable metrics), a statement on the expected duration of the agreement, a description of the applications and services covered by the agreement, procedures for monitoring the service levels, a schedule for remediation ofoutages and associated penalties, and problem-resolution procedures.

What are some SLA metrics?
Most SLA metrics concern the quality of work to be performed by the service provider. Examples of quality metrics include:
Defect rates: These are counts or percentages that measure the errors in major deliverables, including number of production failures per month, number of missed deadlines, number of deliverables rejected (reworks), and so on.
Technical quality:In the case of outsourced application development, this includes measurements of the technical quality of application code, normally produced by commercial tools that look at items such as program size, degree of structure, degree of complexity and coding defects.
Service availability: This indicates the amount of time/window of time that the services managed by the outsourcer are available, ranging from online application availability to delivery of reports by a specified time of day. Measures can be reported positively or negatively and usually incorporate some level of tolerance (for example, online application availability 99 percent of the time between the hours of 9:00 am and 6:00 pm).
Service satisfaction: This relates to the client's level of satisfaction with the perceived level of service provided by the outsourcer captured for each major function through internal and/or external surveys. Ideally, these surveys are conducted periodically by a neutral third party. Although subjective, they are a good double check on the validity of the other SLA metrics.