SLA vs KPI: What's the Difference?
In the pre-cloud computing era, application management strategies involved a simple selection of Service Level Agreement (SLA) contract items and Key Performance Indicator (KPI) metrics.
A narrow set of IT solutions, interfaces, and services were deployed on premise to perform a variety of business related tasks. Cloud computing has transformed the strategic options in application management and IT service delivery to an extent that IT professionals and business executives struggle to extract business value from otherwise promising enterprise IT solutions.
This article explores the terms SLA and KPIs, and provides the guidelines necessary to improve service levels and business performance:
An SLA is a written agreement that qualitatively and quantitatively specifies the service committed by a vendor to a customer. It identifies:
An SLA is needed to support the performance of operations that depend upon the underlying services provided by the vendor. Various levels of service may be offered at different pricing ranges and customers often make an optimal trade off between service level and cost.
By setting the SLA contractual obligations, vendors manage expectations across their customer-base. The measured metrics and performance indicators also allow both the vendor and customer to identify, track, report and evaluate the true measures defining real-world business needs and performance.
In addition to the service-related components, an SLA also contains provisions about:
SLAs should be seen as targets for the measured metrics instead of contractual obligations holding provisions for legal and financial penalties upon failure to meet service levels. For instance, a datacenter downtime on average costs around $9,000 per minute according to a 2016 Ponemon Institute research report. Under an SLA agreement, most vendors of cloud-based datacenter services would only reimburse credits charged for the underserved SLA metrics.
SLA should be seen as a process to improve the service qualities that impact business performance. In the age of cloud computing, when business organizations scale their operations proactively in response to market circumstances, SLA metrics and contractual obligations should be seen as a process to improve service quality and meeting evolving business requirements. The following key principles can help organizations devise and seek optimal SLA terms for their business needs:
Key Performance Indicator (KPI) is a measure that defines the progress with respect to a strategic goal. A KPI provides an analytical basis to evaluate progress toward stated objectives. KPIs can be devised for:
KPIs are designed to reduce the complexity in evaluating prior decisions and the resulting impact and consequences. KPIs provide a manageable and holistic visibility into business performance from a variety of angles, allowing decision-makers to adapt strategies for optimum results. It is therefore critical to identify, monitor, report and evaluate the most impactful metrics that indicate the true performance of the associated business component. The following guiding principles can be adopted in identifying the correct KPI metrics:
Both the Service Level metrics and KPIs provide useful information. Service Level metrics provide information on the baseline performance expectations. An agreement toward meeting those expectations is regarded as an SLA term.
KPIs provide information on the efficiency and success in meeting organizational goals or expectations. While SLAs are used to ensure that service level metrics don’t fall below certain metrics criteria, KPIs help ensure that specific performance improvements and results are met adequately or exceedingly. In order to improve service level performance, the engaged service provider, internal or external, is expected to adopt appropriate actions.
For performance improvements on specific metrics and KPIs, organizations need to take appropriate actions internally to meet the strategic objectives.