What is a Service Level Agreement(SLA)?
Trust, clarity, and precision are what make all business relationships successful. With the increasing need for outsourcing, especially within the technology industry, it is very important to have legal agreements in place to protect the rights of all parties to a business relationship. One such legal agreement is an SLA. SLA is an acrynm for Service Level Agreement. An SLA is an agreement between a service provider and its customer. The purpose of an SLA is to define the scope of services, the metrics for measuring services, and the consequences of non-compliance. Apart from these major points, other important points related to the service being provided are also a part of any SLA draft. It is easy to get Service Level Agreement(SLA) Draft online. However, with that said it is also the responsibility of the parties to it, to have a clear idea of the terms of an SLA.
Service-level agreements (SLA) are an important part of marketing. It is a form of legal instrument widely used in service providers. It is the responsibility of a company to know what services they’re offering and how long it will take for them to be delivered. This blog post will give you a general overview of SLA’s and what they mean, as well as cover some best practices in setting up a SLA.
A Service-Level Agreement (SLA) Explained?
An SLA is one of the most important agreements between a service provider and its customers. The SLA covers what services the service provider is giving to the customer and also outlines the consideration or payment terms. Further, a valid SLA would also include the basic standard and security measures taken by the service provider to the customer. Hence, it is easy to say that the basic purpose of an SLA is to make it easy for the service provider to manage customer expectations
An SLA is a contract between the business and one of its customers, outlining the level of service that will be offered. It contains agreements between a service provider and a service user in the form of a legal document, in which the service provider is responsible for ensuring the standards related to the service according to the committed content. By signing this contract, it sets up what to expect from the company within their own services or products. This can include timeframes for expected resolutions for errors, deadlines for project delivery and also metrics on how well they are meeting with their customer’s expectations.
Short history of Service-Level Agreements (SLAs)
The first SLA was created in 1987 for the US telecom company MCI to specify what level of service they were offering and also guarantee that it would be met. In 1998, Microsoft introduced an online tool called Service Level Manager (SLM). A year later, it became part of Operations Manager and is now known as the Service Level Agreement Wizard.
Nowadays, many large companies use SLAs to ensure they are meeting their customers’ expectations. Having a documented process for SLA’s is key in making sure that both parties are on the same page with what is expected of them and when.
Why do service providers need an SLA?
Ever since the trend in outsourcing, SLAs have gained immense popularity. It started in the 1980s with the emergence of I.T. services outsourcing in India.
The following are the major categories of service providers that use Service level agreements to form business relationships with their customers:
- Network Service Providers;
- I.T. Service Providers;
- Managed Services;
- Cloud computing Providers; and
- Internet Service Providers.
The above listed type of service providers usually have two agreements that help them with all their clientele.
Master Service Agreement
A Master Service Agreement or (MSA) sets out the generic terms of the service provider. We can safely state that it covers all the basic rules and regulations, scope, etc.
Service Level Agreement
The Master Service Agreement(MSA) usually acts as a base for preparing the service level agreement format. Hence, the SLA acts as a more specific service-based agreement, whereas the MSA sets out all general terms.
Major types of SLA
There are 3 major types of SLA: Customer Service-Level Agreement, Internal Service-Level Agreement, Multi-level Service-Level Agreement.
1. Customer Service-Level Agreement
A customer service-level agreement is an agreement between a business and its customers that clearly states what they can expect from the company. This could include how long it will take for someone to respond to their support ticket, or how good of a resolution time they should expect.
For example, a digital marketing company might have an SLA with their customer that says they will respond to support tickets within 1 day and resolutions for the issues should be completed within 2 days.
2. Internal Service-Level Agreement
An internal SLA is one a company creates with its employees. This outlines the service expectation between departments, teams or even individuals within their own organisation. They could be related to things such as daily goals, project deadlines and which department has priority when it comes to issues or problems.
For example, the I.T. department at ABC company has an internal SLA that states they always have priority when it comes to any issues or problems. Another example would be if the finance department had a project due in 2 weeks time, but was delayed because of other departments not meeting their deadlines.
3. Multi-level Service-Level Agreement
A multi-level SLA is a combination of the two types above. It’s an agreement made between an organisation and its customers, as well as between departments or groups within that same company. This is also known as a three-way SLA.
For example, a web design company has multi-level SLAs with their customers. They have a customer service-level agreement describing the quality of customer support and a project completion SLA for how long projects should take to complete. They also have an internal SLA with their team, such as one where they should always prioritise fixing bugs over creating new features so that their customers are happy.
Key clauses of a Service Level Agreement
Now that we have a clear idea about the purpose and meaning of SLAs, let’s dive into the most important clauses of a Service Level Agreement (SLA):
1) Party Details
This includes the name, address, age and occupation of both the parties.
2) Scope of Services
The main idea behind drafting a service-level agreement is to have a definite scope of services. Hence this is the most important clause of an SLA. A well-drafted SLA will also include the exclusions to services mentioned, if any.
3) Term and Termination
The term of an SLA can vary from 1 year to 5 years. It entirely depends on the mutual discussion of the parties. Most service-level agreements are renewable upon the end of their term unless terminated by the parties in question. Further, an SLA shall also include the various situations under which any party can opt for termination, such as sub-par services by the Service provider, no assistance from the client, breach of other terms of the agreement, etc. Ideally, SLAs also have a notice of termination, where both parties need to give written notice at least one month before the termination of the contract.
4) Measures of Performance Evaluation
Since the scope of service is the basis of the Service provider getting their payment in a service-based SLA, it is also very important for both parties to have a mutual agreement on how the performance of the services being provided by the service provider is going to be evaluated.
5) Roles and Responsibilities
This includes roles of both the parties, the service provider and the customer. This includes, security measures of both parties, turn around time, other administrative support etc. These roles and responsibilities also help in evaluating the performance of services as per the standards.
6) Indemnification
This clause protects the interest of one party in case of any breach of law by the other party. Since Service Level Agreements are usually made in an independent capacity, this clause helps protect the service provider.
7) Non Competition
When the duties of the service provider as integral to the core essence of your business, you’d like to take certain extra measures to protect your rights. having a non compete clause or a separate non-compete agreement will help you in taking measures if the service provider starts a competing trade for someone else.
8) Confidentiality
When two independent parties enter into a business relationship, they will have to share their confidential information with each other at some point. To protect such information from being misused, you can add a confidentiality clause to your SLA. However, if more important information is being shared, then you can also enter into a separate Non-Disclosure Agreement.
Benefits of Service-Level Agreement (SLA)
1. SLAs help avoid confusion and misunderstandings in delivering service
To avoid confusion and misunderstandings, many teams have started using SLAs as a way to define their roles, responsibilities and relationships with each other within the same organisation. This ensures that everyone knows exactly what is expected of them and how they will be held accountable.
2. An SLA can decreases overall cost for both parties
SLAs help decrease overall costs for both parties by making sure that they are clear on what is expected of them and their responsibilities before anything starts happening. For example, say there’s an issue with a new website build getting live that leads to some downtime for the customers’ website. The customer is unhappy and wants to be compensated. If there’s an SLA in place, the company knows exactly what they need to do to make it up to their customers for that inconvenience and not waste time figuring it out every time something like this happens.
3. SLAs make service management easier
Using the same example as above, if a company has an SLA with their customers, they can rely on that agreement to ensure the customer that their problem will be resolved in X amount of time. This takes the stress off of not knowing when it would be fixed and allows everyone who is part of the project to focus on what actually matters — getting it done.
4. SLAs help justify price changes
SLAs are a great way to justify price changes to customers. For instance, if the company has an SLA of 1 business day and under no circumstances should it ever take longer than that, they can prove this with data or screenshots from their system showing how quickly they resolve these things on average.
5. SLAs help companies avoid penalties
SLAs can be used to avoid penalties. For example, if there was a penalty clause involved in an SLA that states the company will pay X amount of dollars for every hour something goes over the agreed upon time, it is much better to stick to those guidelines and not go over.
6. SLAs increase customer satisfaction
Lastly, having service level agreements can help increase customer satisfaction because the company is able to create and clearly communicate how they will provide services, while also being held accountable if something goes wrong.
How to set up a Service-Level Agreement (SLA)
1. Determine which metrics matter most
Before you can even start setting up your SLAs, you have to first determine what metrics and service levels really matter, as well as which of them should be focused on the most. This isn’t necessarily a simple task. The key is to list everything you feel is relevant and then have your team prioritise them in order of importance.
2. Set a time period for each service level
Once you’ve set up all the metrics you want to track, it’s time to start thinking about what timeframe each of them should apply to. This can be as simple as defining a specific timeframe for each service level, or you could create different timeframes based on how urgent they are.
3. Decide who’s responsible for each SLA
Since no two companies are the same and everyone defines their SLAs differently, it can be difficult to determine which department within your organisation will need to meet which of your SLAs. You should start by creating a table listing all of the metrics you’ve decided on and which department will be held responsible for meeting each one.
4. Provide training, tools and methods to monitor SLAs
To make sure every member of your team knows exactly what is expected of them if they violate or fail to meet any of your SLAs, you should provide them with training and tools that will help them monitor their actions. You could also create a system where they can easily inform someone if they need to change any part of the SLA so that it’s easier for everyone.
5. Measure KPIs to see how well each SLA is going
Once your SLAs are set up, you need to monitor how they are going and how well each team is doing by monitoring KPIs. For example, if one of your teams has a customer service-level agreement with their customers that says they should respond to support tickets within 1 day, then you will want to regularly check their performance by checking the number of days it’s taking them to respond.
The common structure of an SLA
Most SLAs usually divided into 6 sections:
1. The Introduction
The introduction section gives a brief description of what the SLA is and why it’s important to the company. It should also list out all of the key points you want to communicate to your customers, such as the time zone they can expect service and who they need to contact in case something goes wrong.
2. The Metrics
The Metrics section should list all of the metrics you have decided to include and list out what timeframe each metric will apply to.
3. The Enforcement Guidelines
The Enforcement Guidelines section is where you will define how service levels will be enforced if they aren’t met, which can also include anything from financial penalties and refunds to employee discipline.
4. Cancellation and other Conditions
This section specifies circumstances in which the SLA will be terminated. If one of both sides want to cancel the SLA, then they should specify the conditions under which that will be possible.
Some business providers include other conditions such as force majeure, or acts of God. It has to do with the similar meaning that is not an act of human being and could be caused by natural disaster such as earthquake, hurricane and so forth.
5. Definitions
The Definitions section defines all terms used in the agreement that are not self-explanatory or ambiguous in meaning.
6. Signatures
The signatures section is where the business owner or representative signs an agreement with you. It’s important to include this section so that everyone understands they are bound by the contract.
Conclusion
Service-Level Agreements are a useful tool for any business and should be created with the customer’s needs in mind. By considering what metrics you want to track, who is responsible for meeting each one, providing training tools to monitor SLAs and measuring KPIs, your company will have all of the information it needs to make informed decisions about whether or not an SLA is benefiting the organisation. It’s important that you consider how often these agreements need updating since they can quickly become outdated if there are changes within your industry or market trends.
Most Frequently Asked Questions (FAQs)
1) Does an SLA require revision?
This is solely dependent on the circumstances as per case to case basis. An SLA will usually needs to be revised when there are any of the following situations — Change in business requirements; in the workflow; improvements in tools; changes in other deliverables, etc.
2) Can I draft an SLA on my own?
There is no limitation that a service provider cannot draft their own format of service level agreement. Yet, it is advisable to get your SLA drafts from a verified counsel. If you do prepare your own draft SLA, you can even get it reviewed by a certified lawyer.
3) Is it necessary to review an SLA before signing it?
Yes, it is very important to read all clauses to an SLA before signing. If you are not certain about certain terms, you can also get your SLA reviewed by experts. The ideal time interval for SLA review is 3 to 6 months.
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