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Cloud Computing : Cloud SLA – Part 23

Service Level Agreement (SLA)

Service Level Agreement (frequently abbreviated as SLA) is a part of a service contract where the level of service is formally defined.

In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service) or performance.


Service Level Agreement (SLA) is a negotiated agreement between two parties where one is the customer and the other is the service provider. This can be a legally binding formal or informal ‘contract’. Contracts between the Service Provider and other third parties are often (incorrectly) called SLAs, as the level of service has been set by the (principal) customer there can be no ‘agreement’ between third parties (these agreements are simply a ‘contract’). Operating Level Agreements or OLA(s) however, may be used by internal groups to support SLA(s).

The SLA records a common understanding about services, priorities, responsibilities, guarantees, and warranties. Each area of service scope should have the ‘level of service’ defined. The SLA may specify the levels of availability, serviceability, performance, operation, or other attributes of the service such as billing. The ‘level of service’ can also be specified as ‘target’ and ‘minimum’, which allows customers to be informed what to expect (the minimum), whilst providing a measurable (average) target value that shows the level of organization performance. In some contracts penalties may be agreed in the case of non compliance of the SLA (but see ‘internal’ customers below). It is important to note that the ‘agreement’ relates to the services the customer receives, and not how the service provider delivers that service. SLAs have been used since late 1980s by fixed line telecom operators as part of their contracts with their corporate customers. This practice has spread such that now it is common for a customer to engage a service provider by including a service-level agreement in a wide range of service contracts, in practically all industries and markets. Internal departments in larger organization (such as IT, HR and Real Estate) have adopted the idea of using service-level agreements with their ‘internal’ customers (users) in other departments within the same organization. One benefit of this can be to enable the quality of service to be benchmarked with that agreed across multiple locations or between different business units. This internal benchmarking can also be used to market test and provide a value comparison between an in-house department and an external service provider

Service Level Agreements are by their nature ‘output’ based – the result of the service as received by the customer is the subject of the ‘agreement’. The (expert) service provider can demonstrate their value by organizing themselves with ingenuity, capability, and knowledge to deliver the service required, perhaps in an innovative way. Organizations can also specify the way the service is to be delivered, through a specification (a servicelevel specification) and using subordinate ‘objectives’ other than those related to the level of service. This type of agreement is known as an ‘input’ SLA. This latter type of requirement has become obsolete as organizations become more demanding and shift the delivery methodology risk on to the service provider.

Common metrics

Service Level Agreements can contain numerous service performance metrics with corresponding service level objectives. A common case in IT Service Management is a call center or service desk. Metrics commonly agreed to in these cases include:

 ABA (Abandonment Rate): It is the percentage of calls abandoned while waiting to be answered.

 ASA (Average Speed to Answer): It is the average time (usually in seconds) it takes for a call to be answered by the service desk.

 TSF (Time Service Factor): It is the percentage of calls answered within a definite timeframe, e.g. 80% in 20 seconds.

 FCR (First Call Resolution): It is the percentage of incoming calls that can be resolved without the use of a callback, or without having the caller call back the helpdesk to finish resolving the case.

 TAT (Turn Around Time): It is the time taken to complete a certain task.

Uptime Agreements are another very common metric, often used for data services such as shared hosting, virtual private servers and dedicated servers. Common agreements include percentage of network uptime, power uptime, amount of scheduled maintenance windows, etc.

Many SLAs track to the ITIL specifications when applied to IT services.

Typical contents

SLAs commonly include segments to address: a definition of services; performance measurement; problem management; customer duties; warranties; disaster recovery; termination of agreement.

From a business perspective, you may need to look at Service Level Management (SLM) if you need to differentiate the service (i.e. to Gold, Silver, or Bronze) and have a differentiated price for each level of service. Key points are to write the SLA in the language that the user understands and to have regular service reviews.

In Cloud Computing 

Cloud computing, (also Grid computing and service-oriented architecture), use the concept of service level agreements to control the use and receipt of (computing) resources from and by third parties. Any SLA management strategy considers two well differentiated phases: the negotiation of the contract and the monitoring of its fulfillment in run-time. Thus, SLA Management encompasses the SLA contract definition (basic schema with the QoS (quality of service) parameters), SLA negotiation, SLA monitoring and SLA enforcement according to defined policies.

The main point is to build a new layer upon the grid, cloud or SOA middleware that is able to create negotiation mechanism between providers and consumer of services. A European Union funded Framework 7 research project, SLA@SOI, is researching aspects of multi-level, multi-provider SLAs within service oriented infrastructure and cloud computing.

In outsourcing

Outsourcing involves the transfer of responsibility from an organization to a supplier. The management of this new arrangement is through a contract that may include a Service Level Agreement (SLA).The contract may involve financial penalties and the right to terminate if SLAs are consistently missed. Setting, tracking and managing SLAs is an important part of Outsourcing Relationship Management (ORM) discipline. It is typical that specific SLAs are negotiated up front as part of the outsourcing contract and they are utilized as one of the primary tools of outsourcing governance.

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