The Basics of Service Level Management SLRs and SLAs

Posted on 02/09/2012 at 08:00 am

A Service Level Requirement (SLR), is a prelude to the service level agreement.  It records the business requirement for an IT service.  In the systems development life-cycle the business analyst should support the business owner in drawing up the SLRs to ensure that the information contained in the SLRs is both complete and understandable. The SLR will provide a basis for negotiations with the contractor when formulating the Service Level Service Level Agreements (SLAs).

A Service Level Agreement (SLA) is an official document that is considered an addendum to the contract, and includes detail description of services required, level of performance and credits and incentives.

To prepare an effective SLA, you need to understand what the necessary service level specifications are that will adequately support your business processes. It is critical to take the time to really understand what the needs are, while at the same time not over engineering the service relative to the business requirement.  Rather than over engineering for future needs, it is more appropriate to include an agreement in the contract to review SLAs after a certain period of time to make adjustments based on current technology and business needs.

SLRs and SLAs Working Together
Now we understand the difference between service level requirements and service level agreement, we can look at how they work together.  As stated earlier, service level requirements are the prelude to the service level agreement and as such they are the basis for describing the business requirements for an IT service.  Once the contract is awarded, the customer and vendor will use the service level requirements to negotiate the service level agreements that will be documented and added as an addendum to the contract.  The service level agreements will ultimately be the basis for periodic performance reviews and may result in performance credits being applied, if there are any SLAs that fail during a given period of review.  We discuss credits and incentives a little later in this discussion.

Scoring service level requirements:  Determining your “key service levels”
Key service levels are those service levels that are defined as service level agreements and officially documented in the contract.  The customer should review all the service level requirements and score them, a simple high, medium and low designation will work.  The goal is to identify a reasonable number of key service levels that can be managed as part of a monthly performance review, and do not become such a burden to the customer that ultimately overwhelms them to the point where they default to approving all vendor invoices without truly reviewing performance.  The key service levels should provide an overarching view into performance of all the IT services being provided by the vendor.  So, as an example you may have several SLRs associated with the service desk service such as: call Answer Time, First Call/Contact Resolution Time, Call Abandonment Rate, Average Call Hold Time, Call Resolution Time, Call Backs (reopened tickets), Routing of Incidents, Help Desk Availability – Live Agent, Customer Satisfaction and as part of your scoring you may call out Call Resolution Time as your key service level for the service desk service. 

The thing to understand when we are scoring the SLRs and reducing them down to the key service levels for SLAs, is just because certain service level requirements are not included in the “key service levels” does not mean they have no significance.  First, they provide an objective measurement for tracking performance in areas that are important to the customer’s business and can spotlight the problem areas.  Second, these non-key service levels are in fact contractual obligations which if not met, could form the basis of a claim of breach of contract by the customer.

Service Level Requirement Template
Here is a sample service level requirement template that can be used to capture service levels that are important to the customer’s business.  Using this template when capturing service requirements will provide key data points to be used when negotiating the service levels, such as performance target, SLR performance and how the service level will be monitored.  It is important to include the monitoring method here to ensure the data required is readily accessible for the periodic performance review cycle.

SLR #

SM-SLR-01

SLR Name

Reporting

SLR Description

Delivery of all reporting on schedule as defined in report specifications

Definition

Desired Outcome

Service Measure

Performance Target

SLR Performance

Monitoring Method

Provide relevant  reporting information for all report requirements

Reports are completed, and submitted to client staff on approved schedule

Timeliness and completeness of reporting

Reports delivered by 2ndth business day of delivery frequency.

 

 

Meet performance target for at least 90% of requests

Formula: Number of instances within performance target ¸ Total number of instances during measurement interval = Service level attained

Periodic review.

 

Credit and Incentives
So after defining key service levels, and putting in place a process to review performance against the key service levels, the question is what happens if a service level is missed, or what happens if the vendor exceeds performance targets.

In the case of customer credits, the situation is pretty clear, at least from the customer’s point of view.  If a key service level target is missed the customer should be entitled to compensation for unsatisfactory performance, in this case we are calling this a credit to the customer. 

While the customer is entitled to credits for unsatisfactory performance, the question then becomes, should the vendor be entitled to incentives for performance that exceeds the service levels.  And although there are no absolutes in life and everything is negotiable, in typical IT outsourcing customers expect the vendor to exceed the service levels without special compensation.

Service Performance Cycle Review Results:
In this example two key service levels were missed in the current month, this resulted in 50% of the total possible credit being awarded to the customer. This table can be modified to capture year-to-date and contract life credits.

SLA: Key Service Levels

Invoice Month

Maximum Credit

SLR Credit

Percentage

Pass/Fail

Current Months Credit

 

$10,000

$1000

 

 

 

Business Application Availability

 

 

25%

F

$250

Service Desk – Call Answer Time

 

 

25%

P

0

Time to Restore Data from Backup

 

 

25%

F

$250

Telecom Availability

 

 

25%

P

0

 

 

 

Total Penalties

$500

 

What about Force majeure clauses  
Force Majeure literally means "greater force".  These clauses excuse a party from liability if some unpredictable event beyond the control of a party prevents it from performing its obligations under a contract.  Typically, force majeure clauses cover natural disasters or other "Acts of God", war, or the failure of third parties to perform their obligations to the contracting party. It is important to remember that force majeure clauses are intended to excuse a party only if the failure to perform could not be avoided by the exercise of due care by that party. When negotiating such a clause it is always a good practice to include specific examples of what will be covered under such a clause.

Some final thoughts

  • Only ask for what you really need – It is easy to get carried away and try to account for every possible capability in your IT services.  So it is important to stay focused on what you “Need” versus what you “Want”.  You may want the system to be available 24/7, but in reality you only need it available Monday thru Friday from 6AM – 6PM.  Take the time to really scrutinize your business requirements and base them on needs versus wants.
  • Include the best and worst case situation - In general, 98% availability sounds like a good figure to aim for, however if the reporting period is based on months, it would mean it is acceptable to have 14 consecutive hours down time and the provider has no obligation resolve the problem sooner as long as that 98% measurement is still fulfilled.  Again it comes back to understanding your business processes and how the key service levels will support them in all scenarios.
  • Clearly define terms and monitoring processes - Building off the previous point, if we agree to 98% system availability, we need to understand and agree to what this is measured against.  Does it include scheduled maintenance, acts of God, or natural disasters, how do we measure this and most importantly, how do we monitor it.
  • Ask for continuous adjustment to meet current business needs and evolving technology standards - As business needs and technology are constantly evolving it is important to incorporate periodic reviews of your service levels with the vendor and make adjustments as necessary.  This should be documented in your service level agreements to ensure all parties have the same expectations.

- Les Milner, Senior Consultant

Tags: Information Technology  IT Service Management  

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