Understanding Service Level Agreements

Abstract

A service level agreement (SLA) represents a binding contract between a network service provider (or communications carrier) and a customer. The SLA specifies, in measurable terms, what services the network provider will furnish and the penalties, if any, for not providing a specific level of service. Because an SLA indicates an expected level of service as well as potential penalties for not providing such service, many information systems (IS) departments in large organizations have adopted the concept of providing SLAs to their customers. While such agreements are to be commended because they clarify customer expectations, this article primarily focuses on SLAs issued by network service providers to their customers. For both types of agreements, it is important to have measurable or quantifiable metrics incorporated within the contract. Such measurements should be easily determined by both parties to the agreement, and any penalties resulting from a level of service falling below a specified level should be carefully examined by organizations on the receiving side of an SLA. As discussed later, certain limitations that place a cap on poor performance can result in an organization having a legal obligation to continue to pay for inferior performance while being limited to receiving, at best, a minor amount of credit each month.