12 Service Level Agreement (SLA) best practices for IT leaders

Service Level Agreements (SLAs) help IT leaders get the most from technology vendors and service providers. Are your best practices for SLAs up to date?
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All IT leaders need to get the most from their service providers: Service Level Agreements (SLAs) serve as a key tool for doing just that. “[They] set the standard of service and the expectations for service providers,” says Amy Fong, vice president at Everest Group. “As IT is under greater pressure to deliver business outcomes instead of technical outcomes, SLAs are increasingly evolving to measure quantifiable business outcomes.”

What is an SLA?

An SLA specifies the level of service you expect, the metrics that will quantify that level of service, and remedies and consequences if the provider fails to meet those metrics.  Common SLAs include those with software vendors, cloud service providers, and outsourcing providers. IT leaders often also have internal SLAs – agreements with other functions in the organization.

The confluence of increasing digital transformation demands and cost-consciousness makes paying attention to SLAs more important than ever.

For IT leaders, the confluence of increasing digital transformation demands and cost-consciousness makes paying attention to SLAs more important than ever. “It is critical to confirm the expected outcomes in advance relative to the IT spend,” says Dave Jordan, vice president and global head of consulting and services integration at Tata Consultancy Services (TCS). “Otherwise, IT leaders will be disillusioned and disappointed in the results.”

12 Service Level Agreement (SLA) best practices

Consider these emerging best practices for negotiating, creating, measuring, and managing SLAs today.

1. Review all terms

“In the context of the SLA portion of the contract, it often boils down to IT leaders hating to read legal agreements while procurement,” says Joel Martin, research vice president of cloud strategies at HFS Research. “And legal teams can be focused on business and financial risk rather than IT dependencies or the impact of system outages to delivering services.”

2. Negotiate conditions

Smart IT leaders understand that negotiation is not concession. It’s critical to reach a mutually agreed pathway to providing the service that the client expects, says Vamsi Alla, CTO at Think Power Solutions. In particular, IT leaders should work with providers on penalties and opt-out clauses. “A good SLA has provisions for mutually agreed-upon financial and non-financial penalties when service agreements are not met,” Alla says. Without that, an SLA is worth little more than the paper on which it’s written.

[ After 2020's upheaval, are you ready for the opportunities and risks? Read also: Digital transformation: 5 new realities for CIOs. ]

3. Get everyone on the same page

“There needs to be alignment between business and IT, and then alignment with the company’s strategic partners to develop end-to-end SLA targets and expectations,” says Jordan of TCS. “With digital transformation, both the budget and decision-making has in large part come from IT and the business, but it is up to the CIO to implement these decisions to make it happen.” This is where the SLA comes in.

IT leaders should take the time to align internal SLAs with those of their providers.

IT leaders should take the time to align internal SLAs with those of their providers. “If you promise your users four hours for urgent and two days for general service support, but your provider requires you to triage before escalation to their teams, you can quickly find that you exceed your internal promises to stakeholders, employees, and customers,” says Martin of HFS Research.

[ Get exercises and approaches that make disparate teams stronger. Read the digital transformation ebook: Transformation Takes Practice. ]

4. Create realistic goals

“Understand what a reasonable level of performance is in the market so as not to over-spec expectations."

“The most common mistake is to include performance metrics that are properly reviewed and unattainable,” Alla says. “This is usually done because the client has asked for it and the service provider is too willing to oblige. This may cause the contract to come through, but the road to execution becomes bumpy as the metrics can’t be achieved.”

The level of service requested directly impacts the price of the service. “It’s important to understand what a reasonable level of performance is in the market so as not to over-spec expectations,” Fong of Everest Group says.

5. Be specific

“Having abstract terms that are very much subject to interpretation is something that will lead to disagreements down the road,” says Alla. For example, an SLA term that dictates simply a “reasonable turnaround time” is not quantifiable. The service provider may consider a day to be a reasonable turnaround period, while for the client, it means 15 minutes.

6. Clarify who tracks SLA performance

Hint: it should be you. “I have seen cases where the customer gets the SLA report from the provider. And it is written into their contract that only the provider’s SLA documentation is considered factual and accurate,” says Martin. The most common mistake is not measuring performance at all, and therefore not having the data to hold providers accountable or drive improvements, according to Fong. “SLAs in a contract don’t matter unless both parties share one version of the truth,” Fong says.

7. Consider business unit level SLA policies

Factor in the criticality of the system, workflow, or process and its dependency on other systems, advises Martin. For instance, if an invoicing module and core financial both are offline, will the provider(s) be in sync with remediation timelines to get accounting and receivables back online together?

8. Build in increasing efficiencies

“When organizations write SLAs, they must understand that vendor efficiency in performing tasks will increase over time. Hence, it’s important to progressively narrow SLAs over time,” says Ali Yasin, managing director in the financial service technology group at Protiviti. “This incentivizes vendors to consistently improve and remain accretive to the relationship.”

9. Avoid overly complex targets

"Measurement takes resources and you want your service providers optimizing for the right things." 

“Measurement takes resources and you want your service providers optimizing for the right things,” says Fong. “We sometimes see combination metrics that bring together multiple factors. These can be effective if they are similar and well-aligned – but avoid the trap of designing something so complex the average worker can’t understand their own impact.” Focus on what matters.

10. Shift from inputs to outcomes

Many IT organizations and their providers are advancing from process- or input-based measurements to output- or outcome-centric metrics. “The most interesting shift is from SLAs to what we refer to as XLAs, or experience level agreements,” Fong says. “These measurements focus on the business outcomes of the service being delivered tie directly to end-user satisfaction.” As businesses themselves become more customer-centric, they need more sophisticated SLA targets that reflect that.

11. Amend contracts when situations change

For example, if you hire a service integrator, make sure to revisit all SLAs. “If an organization has a partner contract with partner X based on outcomes unrelated to those with the service integrator, they can’t expect changed behavior or performance,” Alla says. “Yet they [may] commit this performance and change behavior to the business, but not take the time with legal to reflect these changes.”

12. Don't rush it

“To make this work effectively, this cannot be a sprint. Achieving the right business outcomes through SLAs and service integration is like a marathon,” Alla says. “IT leaders must build the muscle memory in defining their role and understanding the dollars they spend relative to the business outcomes or benefits.” Establishing ongoing competence around value realization in SLAs is critical to achieving a clear understanding between investment and performance.

[ Get answers to key digital transformation questions and lessons from top CIOs: Download our digital transformation cheat sheet. ]

Stephanie Overby is an award-winning reporter and editor with more than twenty years of professional journalism experience. For the last decade, her work has focused on the intersection of business and technology. She lives in Boston, Mass.