Seven ways to ruin an sla discussion

2013
By OC Staff Writer
SEVEN WAYS TO RUIN AN SLA DISCUSSION
W W W . O U T S O U R C I N G - C E N T E R . C O M © Outsourcing Center 2013.

“Get over it: SLAs will make or
break your business (and career).”
W W W . O U T S O U R C I N G - C E N T E R . C O M
© Outsourcing Center 2013.
S E V E N WAY S T O R U I N A N S L A D I S C U S S I O N
Seven Ways to Ruin an SLA Discussion
“Get over it: SLAs will make or break your business (and career).”
I heard that from more than one of my managers early in my career, way
back when “we’ve done this for 20 years, SLAs are a piece of cake!” was a
standard way of thinking. If you still feel that way, you might be stuck in old
habits. Because SLAs then and SLAs now are not the same.
How you approach a service level discussion has radically changed over the
past few years. Thanks to process standards like ITIL, new service delivery
models like cloud computing and techniques like virtualization, almost
anyone can deliver quality IT services. What really differs is the experience of
how well people and services around the service work—that means service
management and governance.
But how do you provide an SLA to measure service management or
governance?
If you’re not careful, an SLA can be your worst nightmare—read on to find
out how these nightmares happen so you can avoid them.
What is an SLA? SLAs can serve many purposes. But they really focus on
only three things:
• Upgrade a good contract to a better one (or vice versa)
• Give your business acumen a boost (or prove you don’t have any)
• Ensure the buyer renews with you (or walks)
Given the vital role of SLAs, there are definite, known, proven and tested
wrong, bad, incorrect and crazy ways an SLA can wreck havoc. There may
be others, but the list below of the top seven offenders should be sufficient to
keep you out of the SLA minefields.
2

The Seven Tips
Understanding how outsourcing buyers and providers use SLAs is vital in
realizing how they can go badly wrong.
1. “Keep it Simple, Silly”
Buyers seem to constantly forget the proverbial “KISS” principle when
developingSLAs. Lengthy SLAs only make things more complicated and
therefore should be more aptly named SLDs (Service Level Disagreements)!
It’s not uncommon to see multi-tower service agreements with hundreds of
service level metrics, all of which someone has to measure, report, analyze
and govern. No wonder the entire SLA process has gotten a bad reputation!
Buyers often start writing SLAs without first defining the underlying services
or understanding what they are supposed to achieve. Too often the the
buyer has little understanding of how to build and negotiate services and
SLAs. In effect they are defining the services as well as the SLAs—perhaps
unwittingly.
A well-written service level agreement should:
• Improve service by defining and focusing on key services required to
meet business requirements
• Discipline the provider to review its ability to meet the business
requirements
• Discipline the buyer to examine its requirements for key services
• Align expectations in all parties as to the actual levels of service the
provider will provide at the agreed-upon cost
• Improve understanding and working relationships
2. Avoid fee increases
Increasing provider fees does not ensure better performance. Higher levels
of service must mean better service, right? No! Most often increasing service
levels only goes to increase the service fees and has little correlation to better
performance.
Most service providers have a ‘sweet spot’ in terms of how they are
organized and structured to deliver any given service at an optimal service
level. Usually this represents their optimal cost point as well. Due diligence
in better understanding how the provider achieves its stated SLA, with
deviation (if any) from its ‘standard’ delivery service offering is fundamental to
the conversation on performance.
Also keep in mind one of the most important things to a service provider is to
not to lose your business over service performance. An SLA “outage” clause
that allows you to terminate the contract with little or no penalty is also a key
component of the conversation on performance and SLAs.
© Outsourcing Center 2013. 3

SLA metrics should be limited in number, reflect market-based targets, measure small performance windows, provide for
service credits and incorporate improvement formulas over time
Ensure a Common Understanding of SLAs
Maximum Monthly At Risk Percentage
Total Category Allocation Pool
Category Allocation Pool Assigned
1.1 On-Budget Application Development Projects
1.2 Application Development Project Milestones Delivered to Schedule
1.3 Application Development First Time Right Into Production
2.1 On-Time Minor Enhancements
2.2 Time to Respond to Requests for Minor Enhancements
3.1 Applications Availability - Critical (Gold) Applications
3.2 Applications Availability - Important (Silver) Applications
3.4 Applications Availability- Support (Bronze) Applications
Service
Level
Category
Allocation
%
10%
25%
100%
100%
30%
40%
30%
100%
50%
50%
100%
45%
30%
25%
0.30%
0.40%
0.30%
98.00%
98.00%
99.00%
$ 1,135.87
$ 1,514.49
$ 1,135.87
$ 4,732.79
$ 4,732.79
$ 17,038.04
$ 11,358.69
$ 9,465.58
95.00%
95.00%
99.90%
99.85%
99.75%
99.85%
99.75%
99.60%
90.00%
90.00%
95.00%
95.00%
98.75%
1.25%
1.25%
4.50%
3.00%
2.50%
Service
Level Item
Allocation %
"Measurement
Window"
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Percent
Designated
Fees at Risk
Expected
Service
Level
Minimum
Service
Level
Average Performance
Credit assuming
Annual of:
Maximum at risk
$ 37,862.30
$ 4,543,476
SCHEDULE H-1 SERVICE LEVEL MATRIX
ADM 1: Development Changes
ADM 2: Maintenance Enhancements
ADM 3: Applications Availability
10%
250%
250%
Percent at risk of total monthly run rate
Allocation percentage available
to the SLA categories
Confirmation that allocation is assigned
Specific allocation percentage assigned to
each SLA category, all equal 200%
Effective date with burn-in months for
SLA when no metrics exist Measurement period
Fees at risk
percentage
Weighted allocation
within a SLA category
Sub-weighted allocation
within a SLA category
Expected and Minimum for each
line item SLA.
3. Resist tougher SLAs
Increasing the accountability of the provider won’t necessarily result in
superior provider performance.
The law of diminishing returns is alive and well when it comes to SLA
performance and the overall success of the outsourcing relationship.
The buyer may find that it is spending valuable resources analyzing an
overabundance of SLA reports or that it is overpaying for services that
exceed its business needs, while its service provider may be focusing on
meeting performance metrics that have little impact on the operations of the
buyer’s business.
it is critical for the buyer to understand its business requirements because
then it can convert those needs into service metrics. Buyers also have to
learn as well as how to apply incentives to those metrics so they create an
outsourcing arrangement that:
• Provides high quality, cost-effective services
• Allows the organization to successfully pursue its core business interests
Having a shared and common understanding of the SLA structure is also
very important. SLA metrics should:
• Be limited in number
• Reflect market-based targets
• Measure small performance windows
• Provide for service credits
• Incorporate improvement formulas over time
These are depicted in the graphic below.

Maximum Monthly At Risk Percentage
Total Category Allocation Pool
Category Allocation Pool Assigned
1.1 On-Budget Application Development Projects
1.2 Application Development Project Milestones Delivered to Schedule
1.3 Application Development First Time Right Into Production
2.1 On-Time Minor Enhancements
2.2 Time to Respond to Requests for Minor Enhancements
3.1 Applications Availability - Critical (Gold) Applications
3.2 Applications Availability - Important (Silver) Applications
3.4 Applications Availability- Support (Bronze) Applications
10%
250%
250%
Service
Level
Category
Allocation
%
10%
25%
100%
90%
100%
30%
40%
30%
100%
50%
50%
100%
45%
30%
25%
100%
0.30%
0.40%
0.30%
98.00%
98.00%
99.00%
$ 1,135.87
$ 1,514.49
$ 1,135.87
$ 4,732.79
$ 4,732.79
$ 17,038.04
$ 11,358.69
$ 9,465.58
95.00%
95.00%
99.90%
99.85%
99.75%
99.85%
99.75%
99.60%
90.00%
90.00%
95.00%
95.00%
98.75%
1.25%
1.25%
4.50%
3.00%
2.50%
Service
Level Item
Allocation %
"Measurement
Window"
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Percent
Designated
Fees at Risk
Expected
Service
Level
Minimum
Service
Level
Average Performance
Credit assuming
Annual of:
Maximum at risk
$ 37,862.30
$ 4,543,476
SCHEDULE H-1 SERVICE LEVEL MATRIX
ADM 1: Development Changes
ADM 2: Maintenance Enhancements
ADM 3: Applications Availability
ADM 4: Problem Resolution
4. Do not grandstand
Tougher service level penalties won’t really get the provider’s attention.
Designed properly, fees at risk are a tool that will incent proper provider
behavior. But, SLAs should never be intended for revenue generation,
and penalties will never fully compensate for a missed SLA. An SLA is a
financial instrument, not a technical one. If an application is business critical,
no provider is going to provide an SLA that begins to compensate for the
business loss resulting from an outage.
Here’s the key: buyers don’t want money back—they want the service to
work and be available as agreed. They lose money when the service stops.
Using a service level calculator is an effective tool in developing the fee at
risk structure. The figure below depicts such a calculator that incorporates
market best practices including:
• At-risk percentages
• Category allocation pools
• Multipliers
• Service level category and item allocations
• The expected and minimum service level requirements
A calculator used for scenario analysis is useful in determining the optimal
balance and weightings of service level metrics; it clearly shows which
metrics have enough weight to affect proper behavior without being overly
excessive and punitive. In one example, a buyer had all the right elements
in its SLA metric structure, but many of the fee at risk calculations resulted in
trivial levels of fee credits for missed service levels. This essentially rendered
the entire SLA fee at risk schedule useless in terms of achieving its intended
impact for provider behavior to affect service performance.

5. Remember end-to-end accountability is not always good
Providers can’t take responsibility for those things they aren’t performing—
and won’t anyway!
Whereas end-to-end accountability might have been the provider’s selling
point ‘du jour’ in the past, more and more buyers are sourcing individual
towers of service. The outsourcing marketplace continues to evolve away
from single sourcing to multi-sourcing providers within individual service
towers to support the buyer’s overall business requirements.
For a buyer to be able to effectively manage service performance in this
multi-sourcing generation, it is important to understand the relationships and
dependences between the business requirements, service and SLAs and
their underpinning service performance metrics, as depicted below.
Business
Process
Business Units
Business
Process
Business
Process
Business
Process
System
H/W
System
H/W DBMS Network
Infrastructure
Environment Data Applications
Service A
OLA
SLA
Service Level
Agreements
(SLA)
Service
Performance
Metrics
Service
Performance
Metrics
Supporting
Services
Internal Support Teams
Support Team
(i)
Suppliers
Supplier (i)
Supporting
Services
Application
Network
Platform
Desktop
Service Desk
Contract
How Service Relationships and Dependencies are Managed

Each SLA document captures not only the end-to-end service level from
a buyer perspective, but also each of the components the provider must
accomplish in order to meet the service level. The service performance
metrics associated with each constituent component are contained within
underpinning agreements (e.g. service provider contracts, operating level
agreements (OLAs)) depending on who is responsible for providing the
component service.
In any outsourcing arrangement, the service provider will only be responsible
for certain components of the end-to-end SLA. The temptation at this point
is to focus the contract on the specific technology group performance
metrics that apply to that service provider. However, a properly constructed
outsourcing contract will focus on the service level agreement and clarify
how the service provider performance metrics are incorporated into the
calculation. This allows formation of SLAs that are truly meaningful in
business terms and maintains the service provider’s focus on the buyer’s
business goals.
6. Provide no guarantees
It is best to go into the SLA with an understanding of expectations, specific
deliverables and ownership. But never ever believe it’s guaranteed.
Can service level agreements guarantee improvement in service performance
and thus improve the relationship between IT and the business? In short,
no. The SLA itself does not guarantee that the provider will always meet the
expected service levels, even if there are penalties if they do not. This may
influence the provider to only commit to a low service level—rendering the
document meaningless.
Alternatively, if the SLA level is unrealistically high and the provider cannot
meet the targets, the buyer will be disappointed because the provider did not
meet promised expectations. This usually damages working relationships.
Generally, just about everything IT thinks it does is usually annoying to non-IT
people. Why? Because SLA discussions with the business are usually too
technically focused—they’re not couched in business terms. Generally, SLAs
have not been effective for the IT organization to show or prove its value to
the business units, because the business units don’t care about 99.99% of
anything—they want proactive management and the applications available
when they need them.
In another example, the IT organization kept getting better services from
the service provider, and the service provider kept improving service levels.
They were quite pleased, thinking ‘we’re doing such a great job,’ but the
business wasn’t. They were getting more dissatisfied while IT and the service
provider thought they were doing things better. Through a series of facilitated

workshops the CIO’s team and business leaders revised the SLAs to align
them to the most important business requirements; this enabled them to
achieve the business service level. Once that was in place, the business
leaders became much happier—they weren’t hearing about 99.99% of
something—they were hearing the things that were important to them.
7. Keep it alive
The parties often renegotiate SLAs at renewal. But there’s no reason why an
SLA discussion can’t occur before renewal if all parties agree. Better, more
frequent communication often results in a better deal for all vs. staying the
course and suffering collectively.
One of the statements that is always a trigger for needed SLA conversation
is: “The SLA metrics are ‘green’, but the buyer sees and feels ‘red’ with the
service.” Whenever you hear that, it’s a sure sign the SLAs are not achieving
their intended objectives and the business is not receiving the service it
expected. Time for a check-up!
An important component of service management is to operationalize
the agreement by documenting the end-to-end processes for delivering
the services at the agreed service levels. Using the ITIL framework and
service management processes is a good place to start. Clarity in roles
and responsibilities between the internal and external service providers as
well as end users and other stakeholders is imperative for achieving SLA
expectations. Identify opportunities to enhance service delivery processes
through regular and recurring SLA performance reviews. Link the reviews
back to the original process assumptions for validation, especially when the
users feel red when SLA metrics are green.
Service levels and processes should evolve over time and not remain
stagnant. As the business changes, the supporting IT services should
facilitate that change, not inhibit them.
Summary
How do you make your SLAs successful? Follow these steps and you’ll stay
away from the top offenders list:
• Start with services – understand what current services you provide and
what you need to redesign for improvement
• Ask the business leaders what they want…or what they think their
services are
• Use simple and appropriate language

• Keep the SLA realistic and achievable
• Only set up an SLA you can measure
• Keep them short and concise…otherwise no one will read them
• Be willing to change and adapt to stay aligned with the business
Conclusion
The basic reason for having an SLA is simple—it’s a catalyst to improve
service quality. The SLA process is a quality improvement process above all
else, as it highlights gaps and problems in the process of servicing the busi-
ness requirements.
So how do you stay out of the SLA minefields? Agree to spend more time
validating the services and service levels the buyer really needs to support
and enable its business. When you do, the SLA metrics will not only show
green but also feel green. This is a tried and tested way to keep you out of
the SLA minefield.

Seven ways to ruin an sla discussion

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