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SMART SLAs enable IT performance measurement



By DD Mishra


Currently a partner at CIO Specialist Advisory LLP, DD Mishra has more than 19 years of experience in IT. He has played key roles, including IT governance and outsourcing, program and portfolio management, consultancy, presales and delivery for various customers in the UK, India and Singapore and has experience from both the buyer side and seller side. He is a member of the Discover Performance community's IT Strategy & Performance LinkedIn group.


SLA (Service Level Agreement) is one of the most mistreated, misunderstood acronyms in our IT and business vocabularies. Yet SLAs can be and effective tool for CIOs to manage relationships with businesses and service partners. As contractual commitments, SLAs determine minimum performance criterion for delivery of service by the service provider to the customer. For example "End User Satisfaction" could be an SLA requirement and the expected level could be 83 percent to be measured on a half-yearly basis. 


The contractual commitment is inked in the form of a separate SLA agreement, data points, measurement criterion and expected levels, frequency of measurement, exceptions, and a penalty and rewards clause for not meeting or overachieving the criterion. Typically, SLAs ensure that services are being delivered as expected and should have the depth and diversity to cover all areas of the services. 


Measuring performance, not perception

The key to successful partnership is measuring and evaluating the partnership across verifiable facts and data. In the absence of data, perception takes over. SLAs provide customers and service providers the opportunity to measure and analyze service delivery, ensure that customers get the right services, and ensure that CIOs can take objective decisions.


Agreement on SLAs does not often guarantee improved services. This is a common failure that occurs due to lack of correct alignment of SLAs to the services agreement and alignment of service catalogue with business. In addition, service levels need to improve over a period of time and this should be guaranteed in the form of Service Level Improvement agreement.



SLAs should be SMART, as they should be Simple, Measureable, Actionable, Realistic and Time-bound. Since an SLA is the key to the relationship between the customer and the service provider, each SLA objective should be carefully measured for months, analyzed and negotiated and finally closed as an agreement. This is a common best practice across the industry. 


Service providers rarely agree to upfront SLA targets when signing the initial deal or entering into a relationship. Service providers usually ask for measurement period, data and validation exercise before they sign SLA contracts. This makes it complicated, as you are negotiating something after you have entered into a relationship. 


It is further complicated by the absence or dispute over data, as the way in which the service provider and the customer look at data could be different from the SLA’s perspective. This requires a good amount of negotiation skills, drive, commitment, maturity and the desire for a win-win from both sides to close the deal. 


In my experience, the chemistry between people involved in this negotiation plays a key role. As a best practice, we should spend a good amount of time in drafting a catalogue of agreed-upon SLA objectives (not targets) much before we enter into a relationship so that the discussion on SLAs becomes objective and stays within defined boundaries. This provides clear targets and visible goal posts for the service partner once the parties enter into a relationship. 


All negotiations for SLAs should close in a time-bound manner and it is good to put governance around it. At times, we should define slabs for achievements over a period of time rather than upfront achievements.


SLAs and penalties

It is always good to define two sets of SLAs—key and critical. Key SLAs are important and do not have penalties while critical SLAs are those which are very important for business and are penalized for underperformance. Customer should always retain the right of switching SLAs from key to critical.


This leads to an interesting question: Is a penalty sufficient to ensure the right behavior on the part of the service provider? My experience tells me that it is not, as no one wins when we fail to achieve. For each penny customer penalizes a service partner, actual business impact to the customer's business could be several times higher. Neither service partner wants to be penalized nor would customer like providers to fail. 


To motivate the provider, the customer should also incorporate the provisions to allow the provider to come out of the penalty situation by consistently exceeding expected service levels for consecutive months or some other criterion where both recover from such situations. Stringent penalty norms and regime do more harm than good to customers and their business.


It will be worth mentioning here that CIOs and IT leaders should be very realistic in setting SLA targets or objectives. Quite often, customers expect the service providers to meet the targets that they themselves never did. It is quite clear, if you have not done it, it is unlikely your provider will be able to do it on the day you transition the services but the same can be possible over a period of time. 


Another aspect is rewarding for overachievement. This works better than penalty for the customer. This motivates the service provider, but customers should tune the reward to business achievements so that customers provide a percentage of business outcomes which they generated from overachievement. This requires a good amount of thinking of what should be the reward structure. 


Traditionally, IT departments have had a tendency to implement SLAs that are less business-facing and geared more toward IT performance. Measuring SLAs from business improvement perspective helps CIOs align IT objectives with business objectives. This is also necessary to measure business performance of technology implementation and not IT performance. 


Next-generation SLAs 

The next generation of SLAs will go one step further to business outcomes rather than business performance and will be linked either to top line or bottom line or both. Currently, this remains a journey for all of us, as the maturity against this will evolve over a period of time. 


In my humble opinion, CIOs should move beyond SLAs to business Key Performance Indicator (KPIs) benchmarking and link it to a balanced scorecard. One way is to look at business service management, process maturity assessment, and automation prior to moving toward business outcome measurement and KPI reporting. 


Related links: When IT cleans house, the business cleans up

Lubrizol IT makes a difference by changing its discussion with the business


This blog was first posted on and is being reposted with prior permission.

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