We’ve all used KPIs and SLAs before. They are part of our everyday vocabulary. In fact, many of us have used them to the point where we have forgotten what they even stand for. (Hint: Key Performance Indicators and Service Level Agreements… not that you needed reminding). Sure, we understand that when we discuss KPIs and SLAs, we are discussing vendor performance, but for many of us, that is where our understanding comes to an end.

Service Level Agreements are expectations that are set between a client and a vendor. Usually, these are specified in the initial statement of work. They are essentially agreements about the level of service that can be expected to be delivered. For example, when you hire somebody to work on your house, you set up certain expectations about the quality of work, the schedule, and the estimated costs. Depending on the type of contract you set up, these agreements may or may not be binding. Setting these expectations upfront allows both parties to start the relationship knowing what is expected of them and what they can reasonably expect from the other party.

Key Performance Indicators are the measures that are defined between a client and a vendor (or sometimes, simply imposed upon the vendor by the client) that must be met to measure how well the vendor is doing. Think of it like a report card that indicates how you are performing in key areas. These are objective measurements that will highlight areas where vendors are under-performing. A KPI for the handyman working on our house could be that he finishes on jobs on time according to the schedule you have defined. This is something that is easily measured and reported on (did he finish on time, or not?) and can be used to assess how well of a job he is doing.

Where it gets confusing is that sometimes there is overlap between KPIs and SLAs. Indeed, most KPIs start out as SLAs. When you begin an engagement, you define the SLAs that are important to you. Then, you define KPIs to help you measure how well you are doing. KPIs measure how well you are meeting expectations.