The decision to implement an enterprise resource planning (ERP) solution is one of the principal financial and operational decisions any organization will make. And if your organization derives revenue by providing services and/or manages client-facing projects, the need for both an ERP solution and a system that supports crucial aspects of a project-based business adds another layer of complexity to that decision.
In the fast-growing services sector, organizations that have enterprise resource planning (ERP) systems integrated with a professional services automation (PSA) solution see a 35.7% project profit margin compared to a 30.6% margin for those with no PSA solution, according to a survey from Services Performance Insights, LLC (SPI), a services-focused research firm.
The survey is based on the firm’s project-based ERP buyer’s guide(opens in new tab), and the results suggest that in this competitive market, organizations need the flexibility and visibility that’s simplified by a system that integrates project data with business and financial data.
What is Project-based ERP?
Financial management in services organizations differs from that of product-based businesses in several ways, but fundamentally, services-based businesses are people-driven and rely on the skills and intellectual capital of their resources for their primary revenue. Their profitability hinges on delivering services as efficiently as possible(opens in new tab).
To do this, these project-based businesses need financial and operational functionality to manage people and staff projects. To do that effectively requires understanding how and when to allocate the most effective skills to the right projects at the right time, having real-time visibility into project milestones, including ongoing spending versus targets and the ability to take action when project delivery starts to falter.
SPI defines project-based ERP as “an integrated information management system that manages the capture and flow of information across departments and functions to manage and integrate a company’s financial, supply chain, operations and human resource activities.”
Unified ERP and PSA can help standardize financial and project-based processes that make your organization more efficient, triggering approval workflows or automating billing when project milestones are met, saving hours of time for both project managers and accounting. A unified solution can enhance reporting, providing more meaningful insights around project status, profitability and progress against organizational KPIs like service delivery improvements.
When is it time to adopt ERP and PSA for my services organization?
Of the organizations SPI Research surveyed, 20% are running a combination of legacy on-premises business applications and spreadsheets. Here are some the hurdles this lack of a cohesive approach can introduce:
- Inability to support growth. A big indicator for when it is time to implement an ERP+PSA strategy is when it becomes difficult to add new lines of business, personnel or change processes to support growth. For example, having to manually manage staffing or project billing creates inefficient administrative workloads, taking away time that could be spent on new lines of business.
- Lack of visibility. The ability to see into both project and business performance in a single centralized location is vital for growth. When a business is running on separate spreadsheets or legacy systems, it faces challenges with project reporting(opens in new tab) and KPIs, which requires cumbersome, manual work that can lead to inaccuracies. If services organizations don’t have easy access to accurate information like project status or resource utilization, that lack of insight can directly impact the bottom line.
- Manual workarounds. When your processes or legacy systems require multiple manual workarounds, or you are unable to keep up with reporting or accounting standards to support your business model, it is difficult to maintain profitability. When you spend more time administrative tasks than completing a project, revenue leakage will result.
- Out-of-date, legacy systems. When your system is on-premises or out of date, the administrative or consulting time and energy to maintain those systems can be costly and affect your bottom line.
Core Project-Based ERP and PSA Benefits
An integrated cloud-based ERP and PSA solution provides unified visibility and control, and lowers cost of ownership. Your organization can complete projects more efficiently and with higher profits, and you can consistently deliver them on time. Connecting financials and project data gives stakeholders a complete view of the business’s financial health. It also allows your organization to better utilize your billable resources: companies with unified ERP and PSA see a 72.7% improvement in employee billable utilization over a solution that does not incorporate PSA data in their ERP, according to SPI’s research.
Some other common project-based ERP benefits include:
- All project costs, such as labor, resources, billing rates, time and expense data are captured in a central database that ties to the general ledger account so that not only is project revenue more accurately reported, but the business’s revenue is accurately recognized.
- Automating the exchange of this data allows teams to effectively monitor profitability so that organizations can adjust as strategies shift, ultimately operating more efficiently and staying ahead of the competition.
- It creates a stronger audit trail to better identify success and failure points and comply with regulations.
- Reporting and analytics are embedded within the application, allowing staff to make more timely, data-driven decisions before problems arise.
- Automated billing improves cash management(opens in new tab), leading to a faster close and revenue that is properly recognized.
- Enhanced support for multi-element contracts and invoicing simplifies the implementation of different business models such as fixed fee, milestone, time and expense, cost-plus and subscription-based billing.
NetSuite Connects Project Activities to Company Financials
NetSuite (opens in new tab)SuiteProjects makes project delivery much easier to manage between project and finance teams. Not only does it help align project activities with company financials, but it also helps ensures accurate accounting and billing throughout the project lifecycle. It is integrated with the general ledger, accounts payables, accounts receivables, purchase orders and inventory management to empower visibility, productivity and efficiency. NetSuite SuiteProjects also help deliver projects on time and within budget with collaboration tools, standardized operations and real-time visibility.
To learn more about some of the additional benefits to implementing a unified ERP and PSA solution and to discover the strategic considerations driving the need for project-based ERP, check out the Project-based ERP Buyers Guide(opens in new tab).