A Service Level Agreement (SLA) is a contract between a service provider and a customer that defines the quality and scope of the service that will be delivered. It is a critical document in any business relationship, specifying the responsibilities, expectations, and obligations of both parties, as well as the metrics for measuring and enforcing the service level. It also defines the remedies that will be available to the customer if the service provider does not meet the agreed-upon levels of service.
SLAs are important for both service providers and customers. For service providers, SLAs help to ensure that they are meeting the expectations of their customers while also setting reasonable expectations and protecting against scope creep. For customers, SLAs provide a guarantee of the level of service that they can expect.
Benefits of SLAs
The business benefits of having an SLA are:
1. Performance Assurance
SLAs provide a clear benchmark for service performance, giving customers peace of mind that they will receive the quality of service they expect.
By defining responsibilities and performance metrics, SLAs establish clear lines of accountability. If the service provider fails to meet their obligations, the SLA provides a basis for addressing the issue.
3. Dispute Resolution
In the event of disputes or service failures, SLAs serve as a reference point for resolving conflicts. They help avoid lengthy legal battles by providing a framework for addressing issues.
4. Continuous Improvement
Regular monitoring and reporting of SLA metrics encourage service providers to continuously improve their services. This benefits both parties by ensuring that services remain reliable and efficient.
An SLA can help to protect both parties and ensure that the relationship is successful.
Who Uses an SLA?
SLAs originated with network service providers and IT-related services but are now widely used in a range of fields and businesses. Today, they are commonly used by companies that are software as a service (SaaS) and departments such as customer service and sales. Although typically between companies and third-parties, SLAs can also be between departments within a company. Companies can also use internal service-level agreements to avoid misinterpretation and miscommunication between departments.
Types of SLAs
There are three main types of SLAs:
Service-based SLAs: These SLAs focus on the specific services that are being provided by the service provider. For example, a service-based SLA for a cloud computing service might define the uptime, response time, and resolution time for the service.
Customer-based SLAs: These SLAs focus on the overall experience of the customer. For example, a customer-based SLA for a software company might define the number of support tickets that will be responded to within a certain amount of time.
Multi-level SLAs: These SLAs combine the features of service-based and customer-based SLAs. They can be used to define different levels of service for different customers or different types of services.
When creating an SLA, it is important to carefully consider the needs of the customer and the capabilities of the service provider. The SLA should be specific, measurable, achievable, relevant, and time-bound.
Components of an SLA
A typical SLA contains several key components, each of which plays a crucial role in defining the terms and conditions of the service:
1. Service Description
This section outlines the services to be provided, specifying what the customer can expect from the service provider. It may include details about the scope of services, such as the number of support hours, software updates, or maintenance tasks.
2. Service Level Objectives (SLOs)
SLOs are measurable targets that the service provider commits to achieving. These objectives can include metrics like uptime percentages, response times, and resolution times. SLOs are often expressed in quantifiable terms, making it clear what is expected in terms of service performance.
3. Performance Metrics
SLAs define the specific metrics and KPIs (Key Performance Indicators) used to evaluate the service provider's performance. These metrics can include system availability, error rates, and other relevant performance indicators.
This section outlines the responsibilities of both the service provider and the customer. It defines who is responsible for what, making it clear how each party contributes to meeting the agreed-upon service levels.
5. Reporting and Communication
SLAs often specify how performance data will be collected, reported, and communicated between the parties. Regular reporting ensures transparency and allows for continuous improvement.
6. Remedies and Penalties
In the unfortunate event that the service provider fails to meet the agreed-upon service levels, SLAs may include provisions for remedies or penalties. These can involve financial compensation or additional services to rectify the situation.
The challenges of managing SLAs with traditional methods
Managing SLAs (service level agreements) manually can be a daunting task for any organization. SLAs are contracts that define the expectations and obligations of both the service provider and the customer, and they often involve complex metrics, calculations, and penalties.
Some teams store their contract data in SharePoint. Others have homegrown systems. Some still use old-fashioned file cabinets and Excel spreadsheets. In most cases, these standalone contract repositories are only accessible to certain individuals and groups, with significant differences from one system to the next.
Lack of visibility: Without a centralized system to track and monitor SLA performance, it can be difficult to know if the service provider is meeting the agreed-upon standards and deadlines, or if the customer is satisfied with the service quality and outcomes.
Human error: Tracking commitments and deadlines is a manual contracting process, one that’s prone to human error. Service level agreements (SLAs) details are often overlooked. For example, a service provider may use different formulas or definitions to measure SLA compliance, or a customer may dispute the accuracy or validity of the data provided by the service provider.
Inefficient review cycles: Manual SLA management can consume a lot of time and resources, both for the service provider and the customer. For instance, a service provider may need to collect data from multiple sources, perform calculations, generate reports, and communicate with the customer on a regular basis. A customer may need to review and verify the reports, provide feedback, and escalate issues if necessary.
Lack of agility: Manual SLA management can limit the ability of both parties to adapt to changing needs and expectations. Bogged down with siloed systems and inefficient processes, a service provider may not be able to adjust the SLA metrics or terms in real-time to changing conditions or customer demands. A customer may not be able to renegotiate the SLA without incurring penalties or costs.
A CLM System That Solves Those Challenges
The good news is that Contract Lifecycle Management (CLM) solutions exist to help you avoid these risks.
Contract management software makes it possible to automate and streamline all aspects of the contract lifecycle. A CLM system unifies contracts, previously scattered and siloed, into a single, central repository. From contract creation to tracking and compliance, you’ll have an accurate, real-time picture of your organization’s contracting risks and opportunities. These insights save precious time and resources and help cash flow management become much less complicated.
A best-in-class CLM software may include:
- End-to-end contract automation for all contract types
- Risk and compliance management
- Business rules automation
- Effective template and clause library management
- Sourcing and invoicing collaboration portal
- Channel and vendor payment compliance
- Real-time reporting and analytics
With the advancements of AI technologies, artificial intelligence can further amplify the power of a CLM System from start to finish. ICI’s machine learning engine ensures that the whole system grows increasingly smarter and faster as it absorbs new information. It uses AI to discover and elevate SLA obligations hidden in complex contract language, ensure compliance, and strengthen customer and supplier relationships. That is called Contract Intelligence.
In short, Service Level Agreements are an essential part of any business relationship where services are being provided. By clearly defining the expectations of both parties, SLAs can help to ensure that the relationship is successful. Companies that use a CLM system to manage their SLA contracts are able to standardize and automate their contract lifecycle, fulfill obligations efficiently and reduce risks. And with the advent of AI, insights and relevant alerts are surfaced to the user intelligently.
Want to learn more about Contract Intelligence and how it can revolutionize the way you manage contracts? Schedule a call with one of our platform specialists or join an upcoming CLM demo to discover how Icertis can help you go beyond manual contract management to find your new strategic advantage.