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Last updated on 2024年9月8日

What are the key differences between service level agreements and key performance indicators?

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If you work with vendors, you need to know how to measure and manage their performance. Two common tools for this are service level agreements (SLAs) and key performance indicators (KPIs). But what are the key differences between them and how can you use them effectively? In this article, we will explain what SLAs and KPIs are, how they relate to each other, and what benefits and challenges they pose for vendor contracts.

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Courtney Parker

AI Governance, Technology and Privacy Risk and Law, Category and Contracts Strategy Specialist

1 个答复
Arannyak Ghosh

Collaborative Sourcing | Contract & Commercial Management | Startup Transformation | Fintech
Linda Tuck Chapman (LTC)

CEO @ Third Party Risk Institute | 3PRM Training & Certifications | Acclaimed Author | Strategic Advisor

1 What are SLAs?

SLAs are contractual agreements that define the expectations and obligations of both parties in a vendor relationship. They specify the quality, quantity, and timeliness of the services or products that the vendor will deliver, as well as the penalties or rewards for meeting or failing to meet them. SLAs can cover aspects such as availability, reliability, security, responsiveness, and customer satisfaction.

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Courtney Parker

AI Governance, Technology and Privacy Risk and Law, Category and Contracts Strategy Specialist
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Service level agreements (SLAs) outline specific service expectations, including response times and uptime guarantees, while key performance indicators (KPIs) measure the actual performance against these targets. SLAs focus on contractual obligations, whereas KPIs track performance metrics for continuous improvement. While SLAs set the standard for service quality, KPIs provide insights into operational efficiency and effectiveness. Both are essential for managing service delivery and ensuring customer satisfaction.

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Linda Tuck Chapman (LTC)

CEO @ Third Party Risk Institute | 3PRM Training & Certifications | Acclaimed Author | Strategic Advisor
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SLAs are formal agreements between a service provider and client, defining expected service levels, conditions, and legal obligations. They focus on specific service delivery aspects like uptime or response times. KPIs, on the other hand, are internal metrics used to measure and track performance against targets across various functions, guiding improvement. While SLAs are legally binding and externally focused, KPIs are tools for internal performance management without direct legal consequences.

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Imran Khan

Operations Administration Unit Head @Arab Bank | Operations | Outsourcing | Vendor Management | Risk & Compliance | Digital Transformation | AI Process Automation | Banking | Regulatory Governance | Contract Management
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The key differences between **Service Level Agreements (SLAs)** and **Key Performance Indicators (KPIs)** are: - **SLAs** define specific, agreed-upon performance standards between a service provider and client, focusing on measurable outcomes like response times or availability. They are contractual and ensure services meet minimum expectations. - **KPIs** are metrics used internally to monitor the performance of processes or teams against strategic goals. They track progress over time and help in decision-making but are not legally binding. In short, SLAs set external expectations, while KPIs measure internal performance.

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2 What are KPIs?

KPIs are measurable indicators that track and evaluate the performance of a vendor against the SLAs or other goals. They help to monitor and communicate the progress, results, and value of the vendor services or products. KPIs can be based on quantitative or qualitative data, such as revenue, cost, efficiency, quality, or feedback.

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3 How do SLAs and KPIs relate to each other?

SLAs and KPIs are closely related but not interchangeable. SLAs set the standards and expectations for the vendor performance, while KPIs measure and report on how well the vendor meets them. KPIs can be derived from the SLAs or from other sources, such as business objectives, industry benchmarks, or customer requirements. SLAs and KPIs should align and support each other, but they may not always match exactly.

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4 What are the benefits of SLAs and KPIs?

SLAs and KPIs can bring several advantages to vendor contracts, such as clarifying the roles and responsibilities of both parties, ensuring the quality and value of the vendor services or products, providing a framework for monitoring and managing the vendor performance, increasing the accountability and transparency of the vendor relationship, promoting continuous improvement and innovation of the vendor services or products, and diminishing the risks and disputes of the vendor relationship.

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Nishi Jose

Post Graduate - Business Management || Market Research Professional
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SLAs and KPIs can bring several advantages to vendor contracts, such as clarifying the roles and responsibilities of both parties, ensuring the quality and value of the vendor services or products, providing a framework for monitoring and managing the vendor performance, increasing the accountability and transparency of the vendor relationship, promoting continuous improvement and innovation of the vendor services or products, and diminishing the risks and disputes of the vendor relationship.

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5 What are the challenges of SLAs and KPIs?

SLAs and KPIs can also present some challenges for vendor contracts. It can be difficult to define and agree on realistic SLAs and KPIs that meet the vendor's services or products. Additionally, collecting and analyzing reliable data for the KPIs can be a challenge. It is important to strike a balance between flexibility and rigidity to accommodate changing circumstances. Avoiding over-reliance, manipulation, or gaming of the SLAs and KPIs is also key, as well as resolving any conflicts that may arise from them.

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Arannyak Ghosh

Collaborative Sourcing | Contract & Commercial Management | Startup Transformation | Fintech
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Keeping SLAs and underlying KPIs relevant to business and changing times and sourcing models is the tough part. Many of the times the team that writes the contract and the teams that execute and manage the contract are different and one of the biggest pitfall un understanding what was negotiated and how to interpret. The other pitfall is the danger of over-negotiating. There are some organizations that have built too stringent contracts that are lop sided. Finally, if contracts are negotiated over long periods of time, their relevance is lost with changing times. Are there metrics that that measure the developed AI platforms. maybe measure efficacy of the models that minimize hallucinations ....Food for thought :)

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6 How can you use SLAs and KPIs effectively?

When using SLAs and KPIs for vendor contracts, it is important to collaborate and negotiate with the vendor to define and align the SLAs and KPIs with your business needs and goals. You should document and communicate the SLAs and KPIs clearly and consistently to all stakeholders, as well as review and update them regularly to reflect the performance of the vendor services or products. Furthermore, use the SLAs and KPIs as a tool for constructive feedback, recognition, and improvement, not as a weapon for blame or punishment. Ultimately, strive for win-win solutions and mutual trust with the vendor to maintain a positive and productive relationship.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Vendor Contracts

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What are the key differences between service level agreements and key performance indicators?

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1 What are SLAs?

2 What are KPIs?

3 How do SLAs and KPIs relate to each other?

4 What are the benefits of SLAs and KPIs?

5 What are the challenges of SLAs and KPIs?

6 How can you use SLAs and KPIs effectively?

7 Here’s what else to consider

Vendor Contracts

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