Why is a service-level agreement (SLA) important?

Service-level agreements (SLAs) are important because they establish clear commitments between a service provider and a customer. 

Service-level agreements are common in the telecommunications industry and provide corporations with a guarantee that certain standards will be upheld. 

They are also useful from the perspective of the supplier because they include a detailed framework of expectations. This framework acts as something of a barrier against unreasonable client demands. 

Service-level agreements fulfill the following requirements:

  1. 1. Outline obligations between a service supplier and a customer.
  2. 2. Stipulate a mutually agreed set of quality standards for the services provided.
  3. 3. Allow for contingencies and compensation when service standards are not met.

Let’s look at each of these points in a little more depth. 

What is a service-level agreement (SLA)? 

A service-level agreement or SLA is a contract between a service supplier and a customer. They are typically found in the corporate space but may also be used by retail organizations that cater to individuals (like internet providers). 

Service levels are concrete, measurable standards that a supplier agrees to uphold. Examples include customer support response time, service uptime (such as in the case of shared hosting), speed of equipment replacement, and so on.

They are standard documents in the telecommunications and information technology (IT) sectors. For example, corporations will typically have service-level agreements with cloud computing and technology hardware suppliers. 

Why is a service-level agreement (SLA) important?

Service-level agreements (SLAs) are important for the following reasons:

1. Protect both vendors and suppliers

An SLA is essentially an outline of mutual responsibilities between a corporate customer and a supplier. If one party does not meet these responsibilities, there are grounds for terminating the agreement. In this way, all entities involved are protected.

Suppliers know exactly where they stand in terms of deliverables, and clients can be confident of access to the services they need. 

2. Stipulate quality and performance measures

SLAs define specific metrics for ascertaining service quality. When a supplier signs an SLA, they agree not to dip below these standards.

For example, a broadband provider will usually guarantee a certain amount of bandwidth along with near-immediate responses to emergency customer support requests. 

3. Specify exceptions and extenuating circumstances

Often, suppliers that fail to meet agreed-upon service levels will provide corporate customers with service credits.

The nature of such a credit scheme will be detailed in the agreement. Similarly, SLAs usually contain clauses covering extenuating circumstances like natural disasters, power cuts, temporary downtime, and so on. 

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