What is a Service Level Agreement? Customer Management

A Service Level Agreement (SLA) is a documented contract that establishes a set of deliverables or activities that one party has agreed to provide another. This agreement can exist between a business and its customers, or one department that delivers a recurring service to another department within that business. SLAs are a critical component of any outsourcing or technology vendor contract. Beyond listing expectations of service type and quality, an SLA also provides remedies and penalties when customer requirements aren't met.

Why are SLAs important? – Let us assume that a financial company that deals with stocks has outsourced maintenance of their computer servers and network to a third-party IT Company. As you may be aware, a stock market company is always under high pressure to provide information and trading-related activities like buying or selling to their customers. Every minute is important. But if their computer network is frequently down then they cannot conduct their stock trading business in a reliable manner. This can seriously impact their revenue and reputation. This is when they should consider having a strict SLA with the IT Company on how they should maintain their computer network. The IT Company should outline what services they will provide, how fast they will provide, and what penalties they will pay for deficiencies in service. They should clearly state metrics, responsibilities, and expectations so when technical issues happen neither party can plead ignorance. In short, an SLA ensures both sides have the same understanding of requirements.

Such a document will ensure that IT company takes its responsibilities seriously and the finance company will have the necessary guarantees and assurance that their computer network and business operations are in reliable and in safe hands.

Who provides the SLA? - Most IT service providers have standard SLAs reflecting various levels of service at different prices. For example, an IT service provider can have two or three types of SLAs that customers can choose from. A company that can wait for its computers to be repaired leisurely can choose the low-cost option, while a company that needs a speedy resolution can opt for a high-cost SLA. These should be reviewed and modified by the customer and legal counsel, however, since they are usually slanted in favor of the supplier.