Predicting service delivery cost for non-standard service level agreements

One of the key promises of IT strategic outsourcing is to deliver greater IT service management through lower cost. However, this raises a critical question on how to predict service delivery cost during the service engagement phase where nonstandard service level agreements (SLAs) are negotiated and detailed service modeling data are not available. In this paper we propose a modeling framework that uses queueing model based approaches to estimate the impact of SLAs on the delivery cost. We further propose a set of approximation techniques to address the complexity of service delivery and an optimization model to predict the delivery cost subject to service level constraints and service stability conditions. We demonstrate the applicability of the proposed methodology using data from a large IT service delivery environment.