Writing service level agreements can be a tricky task, but one that is important to get right. ZDNet Australia shows you how to avoid the common pitfalls.

Service level agreements (SLAs) are often talked about these days. In fact, you probably couldn’t pick up an issue of this magazine without SLAs being mentioned somewhere. The fact that they are mentioned so frequently highlights the importance of the agreements. However, while they are seemingly universal, that doesn’t mean they are easy to figure out, in fact, many companies—both providers and customers—make common mistakes in their SLAs.

Unfortunately not every relationship between customer and provider goes smoothly; things go wrong, relationships break down, and at those times the first thing both parties will be reaching for is the service level agreement. Unplanned downtime, equipment failure, providers failing to meet targets, or non-communicative customers, are just examples of problems that have befallen many an outsourcing relationship.

But if you have a well thought-out SLA, one that clearly states what the role and responsibilities of both the supplier and customer are, and all parties have a clear understanding of the agreed-upon terms, then you can probably rest a little easier next time something goes wrong.

Why have an SLA?
SLAs have increased in use and status over the past few years. While having an SLA, or SLG (service level guarantee) as they are also known, doesn’t mean you will have perfect service, it will clearly state the minimum performance levels and outline the responsibilities of the provider.

Mark Harrigan of application service provider Express Apps says service level agreements are used to manage expectations and provide a documented minimum standard that all can adhere to.

“By making sure the SLA is clear and comprehensive, both the customer and the service provider are reassured that this is a good business direction. After all, the customer wants to remove a headache and know that the things they want dealt with will be competently managed by an experienced service provider, who in turn wants to know that this customer will be easy to deal with and that the service provider can profitably deliver a reputation enhancing service,” explains Harrigan.

SLAs are also used by providers to differentiate themselves from the competition and to give customers peace of mind. At Pacific Internet, Bruce Pyke says offering a service level agreement has become crucia to winning business.

Lorenzo Modesto at managed hosting provider Bulletproof agrees.“It makes the customer feel better about the provider they are going with, and simplifies the selection process,” says Modesto. He believes it is a good sign for a provider to have a service level agreement because it would be rare occasion to get a provider that has SLAs but doesn’t keep them.

What should it include?
It almost goes without saying that what you put in the agreement is very important. While creating an SLA seems to really require use of common sense, mistakes are still often made.

Compass Management Consulting is a company that helps organisations write their service level agreements. CEO of Compass, Rawdon Simon, says setting service levels can be quite complicated, and he has seen a number of occasions where the customer is unhappy because what is being measured isn’t satisfying the customer’s requirements, even though the vendor is providing appropriate service levels.This is usually the time that customers approach Compass.

“We find that some things get overlooked when SLAs are drawn up in a hurry. A few years later they find that what they have is inadequate and then they come to us,” says Simon.

He says the SLA should set out how the performance will be measured, which is a key component that he finds is often missing from the more “amateurish” agreements.

Glenn Miller, CEO of Janteknology, a distributor of security products, sees the opposite happening. Instead he finds too many service level agreements are focused on performance monitoring to the exclusion of other important areas.

“While many emphasise the importance of performance monitoring in a service level agreement, it is but one of a number of areas that should be included. The view that pushes performance monitoring reflects a lack of understanding regarding the construction and management of an SLA. Creating the document and managing the relationship are two very separate sides of the same coin,” advises Glenn Miller.

Miller says other important elements of an effective SLA include: term, scope, limitations, service objectives, service level indicators, non-performance, options, exclusions, administration, reviews, and revisions.

“If these elements are present and the customer has a methodology for managing the agreement, it is possible to improve the business processes covered by the SLA,” he says.

Below is an excerpt from a standard service level agreement used by Pacific Internet. It gives a clear outline of the purpose of such an agreement.

The Service Level Agreement (SLA) defines the prime aspects of the Pacific Internet service activation and service assurance processes, and defines performance parameters of the offered services.

The purpose of this SLA is to clearly explain the arrangement between Pacific Internet and our customers. The SLA is intended to meet the requirements of our customers and support the delivery of a highly reliable service.

The SLA is a living document that evolves over time, with the additional knowledge of customer requirements, and the introduction of new Pacific Internet services.

Penalties and Bonuses—good idea or big mistake?
A topic that is getting more coverage these days is the use of penalties and bonuses in outsourcing relationships. It has elicited a mixed reaction from both vendors and users, some strongly for and others strongly against.

Simon had the most sound advice regarding bonuses, advising to only include a bonus for the service provider if the company will actually benefit from increased service.

“If the customer doesn’t make any more money from increased service, then there is no point,” he states.

As for penalties, he advises against using them, saying they can break down the relationship between customer and supplier. He instead says if a problem comes up, it should be addressed with meaningful discussion between customer and supplier about what went wrong thereby reducing the chance of the problem arising again. “A far better approach is to further the relationship by jointly working to improve the service,” he says.

Modesto agrees with this approach. He says the main benefit of penalties to customers is that it shows the provider will stand by its service levels, but really, penalties are usually quite weak and the rebate value wouldn’t be worth fighting for. And in most cases the customers don’t bother claiming on the penalties anyway because it is time consuming and hard work. Customers just want the service to work, he says, so include conditions in the agreement that will give a customer an easy out if service levels are below standards.

“For an ethical company it works reasonably well­—if a customer has suffered less than an acceptable service level then it is a customer/supplier relationship that isn’t working,” says Modesto.

Advice for customers
The best and most practical advice when it comes to SLAs is to get educated. It is a tricky area and you will be best off representing your company if you know what you are talking about, so do the background research. It is a wise idea to have a staff member managing the agreement, so in-house expertise is essential. Simply typing in -service level agreements" into Google will result in a plethora of information, which is a good start. Otherwise, Janteknology's Miller says there are organisations out there that provide formal training in developing and managing service level agreements.

-These aren't massively long courses and you would be hard pressed to spend $2000â€"and it will be the best $2000 the company has ever spent," he says.

-Open your eyes, gets educated, understand the nature, understand the limits, understand what you are trying to achieve. You certainly need your own expertise, and don't rely on your service provider to be your tutor along the way," directs Miller.

Grant Anderson, national outsourcing manager at KAZ Computer Services, gives the following advice for IT managers: -Don't have metrics that are too difficult to measureâ€"keep them simple, be clear in the objectives, communicate the goals of the organisation clearly to the supplier, and work out mutually agreeable service levels so it is win/win."

A lot of customers have been around the outsourcing block before and have been burned. While it is making the industry more savvy, it is also making for more demanding customers. The concern here is that customers are asking for the impossible, and some providers give in to the pressure to make the sale and are guaranteeing service levels that shouldn't be guaranteed. Miller urges caution: -When customers push suppliers to guarantee things that they can't, it is doomed to fail."

So perhaps the most important advice of all is to be clear about what your company's needs, goals, and objectives are. If you know exactly what your company needs to perform well, then you won't fall in that trap. Don't start trying to write an SLA if you don't know how your IT system is currently performing, so take your time and do your research.

Lawyers and consultants
Of course if it is all too much you can always hire a third party, such as a management consultant, to help you along. Certainly for customers who are approaching a service level agreement for the first time, hiring both a consultant and a lawyer is probably a wise ideaâ€"but don't rely on them to do all of the work for you; you still need to know the basics.

A management consultant can be a good investment as they can offer advice on how to find a provider, advise how much the you should be paying for the service, and help you write the agreement.

The use of consultants is becoming more prevalent in the industry and are used by providers and customers alike. As an example, Pyke says Pacific Internet hired a consultant to put their SLA together from the supplier point of view, and most customers just have a lawyer run through it and add -a few bells and whistles".

Both Harrigan and Miller advise customers to get the lawyers involved after the agreement has been written.

-Lawyers tend to work on the I win/you lose things, its all about conceding points and not conceding points when this is about a partnerships. So I don't let them draft them, but get them involved in the end to make sure that you have covered everything," says Harrigan.

Looking ahead
Service level agreements are constantly evolving, they aren't to be written and then forgotton about. Instead you should make sure there are regular revisions. After all your business is likely to grow and change, so the agreement will need to change along with you.

META Group analyst Wissam Raffoul actually predicts that they way service is measured will change. By 2005 he believes business will start measuring service by workload, such as, by how many customer orders are processed per day. Of course, this will mean a change in infrastructure to include the ability to measure load and volume testing.

Gazing into the future, Pyke sees law enforcement could come into play to report against service performance. -We have an ombudsman and I can see them saying I want to have details of payments under the SLA to ensure you are actually paying out and that it's a reasonable percentage of services sold," he predicts.

Whatever is to come, you can be sure that service level agreements will become more widely used in future outsourcing arrangements. So by getting educated, and following a few guidelines, you hopefully will be able to avoid some common mistakes.

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