Service Level Agreements An Overview April 1, 2008 © Huron Consulting Services LLC. All rights reserved.

Service Level Agreement (SLA) – Definition An SLA is an agreement or arrangement between Service Centers (SC) and their customer base/key stakeholders which defines a service or set of services that a service provider will supply to the service users at a defined service level. The SLA may: Identify the service commitments of both the SC and the customer base in an effort to define responsibilities and boundaries Detail the metrics by which performance will be evaluated Establish processes to track performance levels Define teams responsible for reviewing metrics, resolving problems and modifying goals over time as technology and business requirements change

Service Level Agreement – Purpose The purpose of an SLA is to: Agree to expectations with customers Formulate the commitment of the SC to it’s customers Ensure an overall understanding of predetermined priorities Define requirements for successful achievement of customer satisfaction Define the contact point in the SC for feedback and issue resolution Define a performance measurement methodology Establish, clarify and confirm customer expectations of the SC Create a partnership between the customer and the SC as well as between each SC

Service Level Agreement – Characteristics Effective SLAs are: Proactively created Centered around business objectives Simplified and focused Balanced performance metrics Managed by predetermined metrics Well defined baselines SLAs are meant to clearly communicate the goals and objectives of the partnership between the SC and the customer.

SLA Components – General Section Description Introduction Name, version, date, purpose of document and contents scope Service Scope Who, what, where, when Service Performance Basis for service measures and levels which include availability, reliability and response time based on user requirements Constraints The boundary within which the service level is based Price/Fee Structure Cost or charge to the customer for use of services Service Management Scheduled meetings, escalation procedures as well as potential liabilities on the part of the service provider and the customer for non-compliance

SLA Components – Service Performance Subsection Description Availability The scheduled timeframe when service is available to the users Reliability The frequency with which the scheduled service is permitted to fail (i.e. the maximum number of failures allowed within a defined scope) Down Time In event of a service failure, the period of time it takes the provider to restore service Cycle Time The time between requesting or initiating a service and a usable result received by the user User Satisfaction The users’ perception of performance received relative to expectation Performance Metrics Defined metrics to evaluate the SLA performance factors and the tracking activities that will be adopted Reporting The content and frequency of reporting of performance statistics/levels. Distribution of reports - who, how and when Improvements The service areas where continuous improvement initiatives will be focused based on the SC’s strategic direction and customer requirements Account Responsibility The specific identification of which transactions and accounts will be managed and maintained by the SC 52

SLA Components – Constraints Subsection Description Workload The level of demand or activity beyond which defined performance cannot be guaranteed Conformance Requirements The rules and regulations within which the service will be delivered (company policies, regulatory requirements, etc.) Dependencies Requirements placed on the user by the SC which if not fulfilled results in the SC not achieving the service level commitment (e.g., customer processing requirements, quality of incoming documents for processing) 53

SLA Components – Service Management Subsection Description Disaster Recovery Policies and responsibilities of how data and information will be restored in the event of a physical disaster. This establishes back-up procedures the SC will maintain in order to mitigate loss of data and information Escalation Procedures The mechanism on how to elevate problems or disputes on how services provided by the SC are resolved. This procedure also deals with how the SC will manage problems with the customer or customer representatives Scheduled Meetings The establishment of formal performance evaluation and status updates between the SC actual service results versus user requirements. This meeting also provides a format for users to discuss new requirements and establish new plans in conjunction with the SC Confidentiality Agreements Conditions under which types of information can be released to external parties and the amount of access vendors and external customers have to internal systems and data Contact Information The establishment of resources for maintaining the relationship between the SC and the customer Understanding expectations is a key component of SLA development. Expectation management is a key component of service management. The expectations cycle: understand - measure – communicate - change. 53

Basic guidelines for creating SLAs Dos Don’ts Create a partnership Use SLAs as a stick to beat the participants Focus on key priorities Have too many agreements Focus on inputs and outputs Detail processes Balance requirements with cost effectiveness Provide service in isolation from cost Position SLAs as part of an overall customer focus including: training customer advisory groups customer surveys Center in an “ivory-tower” Involve the service teams in creating, owning and publicizing the SLAs and their performance against them Document as “Shelfware” Discuss, review and update the SLAs regularly to accept business changes Let SLAs become out-of-date and irrelevant

Basic guidelines for creating SLAs (continued) Define the baseline and compare to benchmarks: Baseline Existing service levels and current costs form the baseline and are key to measuring future performance and customer satisfaction: Determine the number and type of services performed Determine current service levels (hours of operation, response times, etc) Assess the cost of providing services to customers Understand and measure the existing customer service satisfaction levels Determine the volume of activity serviced Benchmark operations Against similar institutions or third party service providers Against the institution’s own goals and objectives Be careful to benchmark “apples to apples” It is impossible to know how to get where you want to be unless you know where you already are. Therefore, SLA baselines must begin with the services as they are today.

Basic guidelines for creating SLAs (continued) Establish performance metrics and design reward systems: Performance Management Create a ‘balanced’ view from multiple perspectives relevant to both the SC and customers Customer satisfaction Quality of service Technical performance SLA performance must be reviewed and monitored by the SC management Metrics should describe the desired results rather than the efforts required and must reflect reasonable customer expectations Metrics must be tracked and reported regularly and consistently, always checking for alignment with business objectives Focus on “a few good metrics” which customers can understand Keep in mind that metrics affect behavior and build in metrics that encourage “good behavior” and penalizes “bad behavior” Team and individual incentives should be developed to achieve/exceed the performance targets within the SLAs Targets must be attainable and reasonable

Basic guidelines for creating SLAs (continued) Establish consistent reporting mechanisms: Reporting Track and evaluate metrics every month. Include the SC staff and customer representatives to review and discuss results Hold executive reviews quarterly to discuss strategic implications of actual performance Need to increase or decrease service levels Long-term changes in business needs Requirement for new services or different service levels Define people who receive regular reports, attend executive reviews and also those who manage customer relations Post results over the Web Distribute results to customers to demonstrate improvement Setting, tracking and reporting performance goals is the only way to achieve continuous service level improvement

Sample SLA Table of Contents Introduction Service Scope Service Performance Availability Reliability Down Time Cycle Time User Satisfaction Performance Metrics Reporting Improvements Account Responsibilities Constraints Workload Conformance Requirements Dependencies Price/Fee Structure Service Management Disaster Recovery Escalation Procedures Scheduled Meetings Confidentiality Agreements Contact Information