Abstract
Service Level Agreements define the obligations of service providers towards their customers. One of such obligations is the compensation that customers receive in the case of service degradation or interruption. This obligation exposes the service provider to the risk of paying large amounts of money in the case of massive disruptions. The evaluation of such risk is preliminary to any countermeasure the service provider may wish to take to mitigate the risk. In this paper we evaluate the probability distribution of economical losses associated to service failures under a Markovian ON-OFF service model. We provide expressions for such distributions under three compensation policies, linked respectively to the number of failures, the number of outages lasting more than a prescribed threshold, and the cumulative downtime over a finite time horizon. In order to provide a single measure of risk, we compute the Value-at-Risk (VaR) for those compensation policies. We show that the VaR provides an accurate view of the risk incurred by the service provider, and allows to differentiate compensation policies, even when they lead to equal average losses.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
References
Cholda, P., Tapolcai, J., Cinkler, T., Wajda, K., Jajszczyk, A.: Quality of resilience as a network reliability characterization tool. IEEE Network 23(2), 11–19 (2009)
Moroni, S., Figueroa, N., Jofre, A., Sahai, A., Chen, Y., Iyer, S.: A Game-theoretic Framework for Creating Optimal SLA/Contract. Technical Report HPL-2007-126, HP, July 26 (2007)
ITU-T. Recommendation Y.1540, Internet protocol data communication service IP packet transfer and availability performance parameters (2007)
Martin, J., Nilsson, A.: On service level agreements for IP networks. In: Proceedings of IEEE INFOCOM 2002. Twenty-First Annual Joint Conference of the IEEE Computer and Communications Societies, vol. 2, pp. 855–863 (2002)
Sherif, M.H.: Managing projects in telecommunication services. John Wiley, Chichester (2006)
Hillier, F.S., Lieberman, G.J.: Introduction to Operations Research, 7th edn. McGraw-Hill, New York (2002)
Olver, F.W.J., Lozier, D.W., Boisvert, R.F., Clark, C.W. (eds.): NIST Handbook of Mathematical Functions. Cambridge University Press, Cambridge (2010)
McNeil, A.J., Frey, R., Embrechts, P.: Quantitative risk management: concepts, techniques and tools. Princeton University Press, Princeton (2005)
Chan, C.K., Chandrashekhar, U., Richman, S.H., Vasireddy, S.R.: The role of SLAs in reducing vulnerabilities and recovering from disasters. Bell Labs Technical Journal 9(2), 189–203 (2004)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2011 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Mastroeni, L., Naldi, M. (2011). Compensation Policies and Risk in Service Level Agreements: A Value-at-Risk Approach under the ON-OFF Service Model. In: Cohen, J., Maillé, P., Stiller, B. (eds) Economics of Converged, Internet-Based Networks. ICQT 2011. Lecture Notes in Computer Science, vol 6995. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-24547-3_2
Download citation
DOI: https://doi.org/10.1007/978-3-642-24547-3_2
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-24546-6
Online ISBN: 978-3-642-24547-3
eBook Packages: Computer ScienceComputer Science (R0)