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How to Calculate Service Level Agreement


A Service Level Agreement (SLA) sets out the expected level of service from a supplier, defines the indicators for assessing this level, and the remedies in case of non-compliance. It is a critical element of agreements with technology suppliers.


Typically, SLAs are concluded between companies and external suppliers, but they can also be concluded between two departments within a company (although this is not a common practice).


For example, a telecommunications company's SLA may promise network availability of 99.999% (which is approximately five and a quarter minutes of downtime per year) and allow the customer to reduce their payment by a certain percentage if this figure is not met, usually on a sliding scale based on the extent of the disruption.


  • What is a service level agreement in cloud computing?

A service level agreement is fundamental as more and more organizations rely on external providers for critical systems, applications, and data. Cloud service SLAs ensure that cloud providers meet certain enterprise-level requirements and provide customers with a clearly defined set of deliverables. The agreement also describes financial penalties, such as service time credit or a fine, if the provider fails to meet the guaranteed conditions.


Types of service level agreements in the cloud


  • Customer-based SLAs. Customer-based SLAs

It describes in detail the specifics and conditions of service availability, defines responsibilities, and outlines escalation procedures and terms of termination.


  • Service level agreements. Service-based SLAs

Defines a single service for numerous clients. It ensures that all customers receive the same level of service, promoting consistency and clarity in the provision of services to different customers. 


  • Multi-level SLAs: Multi-level SLAs

This agreement is divided into different levels, combining several conditions within a single system. It is well suited for providers with different customers who use their products at different price ranges or service levels. 


  • When is a service level agreement required?

We may joke that we don't read terms and conditions, but it's really important to understand SLAs. Especially for something as vital as cloud computing. Your entire operation could go down the drain.


SLAs protect customers and their data, and set a standard for quality of service (QOS). It's a bit like insurance. The points in the SLA are set:

  • Minimum performance levels and the consequences if they are not met

  • Ownership and rights to your data

  • How the service and its infrastructure actually works

  • Your right to inspect the provider's compliance with security requirements

  • Your right to withdraw from or terminate the service

  • Detailed information about fines. Consider service credits if certain service levels are not met 


If you need more clarification on something detailed in the SLA, you should ask the developer to review it. Ask if it covers typical performance and availability scenarios. 


  • Who prepares service level agreements?

Most vendors offer standard SLAs that may vary depending on the level of services and prices. These agreements are usually in favor of the supplier, so the client and legal counsel should carefully review them and modify them during negotiations. When sending a request for tender, the client should specify the expected service levels, which will affect the supplier's proposals and pricing. For example, a requirement for 99.999% system availability may encourage a supplier to offer a more reliable solution if it cannot meet the initial requirement.


  • Why service level agreement is essential?

An SLA is a key element of a contract with an IT vendor that summarizes information about all services provided and their reliability in one document. It defines the criteria, rights and obligations, and expectations of the parties, provides clarity in case of problems with the service, and eliminates the possibility of pleading ignorance. A properly formulated SLA protects the interests of both parties.


The SLA should reflect the technological and business goals of the agreement. If these requirements are not taken into account, it can negatively affect the price, quality of services, and overall experience of cooperation.


  • Where is the service level agreement used?

Initially, SLAs were used primarily in IT service management, but now they are used wherever fixed service delivery frameworks are needed between service providers and customers.


In fact, almost any area of business can benefit from establishing service level agreements with their customers - both internal and external. For example:

  • IT service management

  • Call center/customer service

  • Field service management

  • Facility management

  • Fleet management

  • Logistics

  • Internet services (e.g. hosting, cloud services)

  • Telecommunication services

  • Personnel services

  • Marketing services

  • Other services

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