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9/1/2000
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Finding Alternatives To Service-Level Agreements

As outsourcing projects become increasingly distinct for each of their customers, management service providers are looking for better ways to assure their clients that they'll meet performance goals.

The standard service-level agreement is becoming less attractive to some cost- and quality-conscious customers who want to outsource application, network, and systems-management and systems-monitoring services via the Internet. MSPs are beginning to offer money-back guarantees as well as service-level-objective agreements. "Customer assurances are becoming another point of distinction for customers to consider in the MSP space," says Caryn Gillooly, a Hurwitz Group analyst.

Outsourcing IT projects requires IT managers to have a certain amount of trust in their service providers. Customer-assurance agreements can be used to inspire trust and certainly are used to hold MSPs to their word when they fail to meet goals.

Money-back guarantees are simple enough. Mess up and MSPs give back some fees they've been paid. A service-level agreement is similar in that it sets expectations for services delivered to customers and stipulates financial penalties for not meeting those expectations. It's appropriate for more black-and-white situations (a server is up or it's down). SLAs are like insurance policies--they require customers to pay up front for a certain level of service and can be difficult to collect on in the event of a problem.

Service-level-objective agreements establish a response time frame during which the service provider must respond to a problem. Customers are not charged a fee to establish an SLO agreement with a service provider, nor are they entitled to any financial reimbursement in the event of an outage. SLOs are more useful for assuring application performance, taking into account that apps can be up, down, or just running slowly.

StrataSource Inc., an MSP that specializes in monitoring and managing E-business applications, gives a money-back guarantee with its service. StrataSource opted for a guarantee because the MSP believed it could not set realistic expectations for application performance using a service-level agreement. If it fails to meet its service levels for a particular customer, that customer is refunded its fees for the month, which are typically between $7,000 and $20,000.

According to Aptegrity Inc., a similar MSP, more than 85% of its customers choose SLOs over SLAs. Says Bob Petrie, Aptegrity's senior VP of operations, "Aptegrity's incentive to respond within the range of time [that] it establishes with the customer comes at contract renewal time."

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