It is important to understand that although there is some similarity, key performance indicators (KPIs) and service level agreements (SLAs) are not the same.

In this post I would like to explain the difference between KPIs and SLAs and look at the practical business applications of each.  

What is a Key Performance Indicator (KPI)?

KPI

Quite simply, KPIs are the way you measure how well individuals, business units, projects and companies are performing against their strategic goals. It’s the tool that helps leaders of an organization know how close or far the team is to achieving an objective and by monitoring progress toward KPIs, it allows the team to course correct if they are off pace to achieve the strategic goals.

As a navigational tool, a KPI may identify business areas that might be off-track to achieve a defined objective. Similar to how a doctor needs to get information about vital stats of a patient prior to recommending treatment, a leadership team can use KPIs as critical pieces of information to make business decisions.

What is a Service Level Agreement (SLA)?

SLA

An SLA is also a tool to gauge performance, but it is different from a KPI. It’s an agreement that’s between an internal or external service provider and the entity that is the end-user of that service. An SLA should clearly outline in simple language what the client will receive and what should be expected of the service provider.

We often distinguish between three different categories of service level agreements. They include:

  • Service-based: The terms of service customers can expect are similar for all customers on a service-based service level agreement. In this case, everyone working with a service provider receives similar terms. The SLA between you and your mobile service provider would fall into this category.
  • Customer-based: A more customized service level agreement is customer based. This SLA outlines a relationship between a vendor and a customer in detail and is likely not a one-size-fits-all agreement.
  • Multi-level: This category of SLA agreement splits into different levels to address a different set of customers who are using the same service.

When an SLA is in place, the service provider and the customer would regularly assess, communicate and adjust actions to adhere to the agreement. While an SLA might become a part of a legal contract, a contract isn’t necessarily an SLA because contracts can be finalized without outlining any services levels.

While the exact components will vary based on organization and industry, SLAs have relevant use in almost any business relationship.

In general, most SLAs include:

  • A description of what the service provider will do
  • The quality and timing of the service,
  • How performance will be monitored
  • How problems should be addressed
  • Penalties for non-compliance
  • Under what situations the SLA might be waived.

It’s important that SLAs include meaningful measurements so both the service provider and the customer can clearly assess performance, this is where some overlap occurs between SLAs and KPIs.

Overlap and difference between SLAs and KPIs

The fact that SLAs must define the measurements of the service delivery means that many SLAs define KPIs as such measures of service performance. While SLAs define the overall agreement and service standards between service providers and their customers, the KPIs will be used to measure and monitor the performance levels.

For a service provider, it often also means that the metrics defined in their SLAs become important KPIs they will monitor and report as indicators of their overall strategic business performance.

So, in a nutshell:

SLAs are different to KPIs. SLAs are documents that outline the wider service agreements between a service provider and its customers, while KPIs are generally used to measure the performance of companies against their strategic goals. However, KPIs can form part of an SLA to measure the delivery of the defined service standards.