Business Cost Budgets: A Methodology to Incorporate Business Impact into Service Level Agreements

In this work the authors address an IT service customer’s challenge of selecting the cost-optimal service level agreement among different options offered by an external provider. They model the customer’s optimization problem at distinctive levels of detail with regard to the description of service quality aspects. At each level of detail they explicitly consider the potential negative monetary impact of different service quality levels on a customer’s business process – reflected via the concept of “business cost.” First, they analyze which information a customer typically bases service level agreement decisions upon today and elaborate on the question which additional information a rational customer would need to take a well-founded decision. Second, the authors define a set of concepts that a customer should consider when selecting service level agreements. Third, the authors apply these concepts to develop a “business cost budget method” that enables a customer to compare multiple service level agreements and to select the cost-optimal solution of its optimization problem – assuming customer and provider to collaborate. Introducing this approach, they suggest that both parties jointly define “business cost budgets” as an additional kind of service indicator describing service quality’s adverse business impact instead of only service quality.