Professional services firms offer customized, knowledge-based assistance to clients in a variety of industries, including advertising, architecture, finance, engineering and technology. These firms must manage countless business processes when completing projects for customers, including tracking employees’ time, billing clients, creating invoices, analyzing financial data and managing resources. Instead of requiring the use of different systems to manage all these business functions separately, professional services automation (PSA) allows firms to unify a variety of business operations using a single software solution.
PSA helps professional services companies overcome challenges and streamline their operations throughout the bid-to-bill process so they can plan, deliver and invoice projects with ease.
Benefits of Professional Services Automation
Many firms still use Excel spreadsheets and disparate IT solutions to support different stages in their bid-to-bill process. As a result, planning, project execution, invoicing and delivery are often managed in silos. When teams have a limited view of a company’s financial resources and project data, they may find it difficult to keep track of both the progress and costs of projects, and deliver their services on time and on budget.
With so many moving pieces to manage, a business project can spiral out of control, incurring unnecessary costs and delays. And those extra costs can eat into a professional services firm’s profit margins, preventing it from continuing to invest in and grow the business.
PSA provides several benefits that meet the specific needs of a services-based business, including resource management to make the most of employees’ billable time and assist with capacity planning, revenue forecasting to ensure accurate planning, and improved performance for sales pipelines. For example, PSA can:
- Manage multiple business operations seamlessly. When combined with financial process management, customer relationship management (CRM), human resources (HR) and other functions of a professional services firm, PSA not only automates tedious manual processes but also gives businesses a single view of project data, which aligns their operations at every stage of a project.
- Provide accurate accounting and billing information. PSA allows businesses to automate their billing and revenue recognition throughout the project life cycle, speeding up their financial operations and improving transparency. The result is more accurate project accounting, efficient invoicing and faster payment for services delivered to customers. In turn, accurate project accounting automation streamlines back-office processes like resource management and financial reporting.
- Track skills and staff availability. The percentage of time employees spend on billable projects — also known as their utilization — is a core metric that professional services firms rely on. But staying on top of utilization as employees take on bigger, more complex projects can be difficult, especially when a firm is using disparate systems to manage talent and other resources. PSA provides visibility into each consultant’s skills, capacity and workload across the firm, allowing managers to allocate the right resources to the right projects at the right time. The result is more efficient use of employee time and reduced reliance on expensive third-party contractors.
- Better manage project financials. Continuous revenue calculations and allocations can be difficult for a finance team to manage, and the work is especially time-consuming when done manually. The data can also be prone to human error, particularly for firms that serve multiple clients and operate in several geographic areas. By automating these calculations and allocations, PSA helps businesses accurately recognize revenue and bill for projects. What’s more, it provides information that helps ensure compliance with financial regulations.
- Deliver projects on budget. Collaboration and visibility are essential to delivering projects on or under budget. Rather than working in silos and using different systems and data sets, teams across the project delivery chain can use PSA to obtain a single, up-to-date view of a project’s progress and gain awareness of any potential upcoming hurdles. Whether it’s an equipment malfunction in an engineering company or a potential rise in subcontractor rates in the face of limited supplies, firms can plan for future expenses and take proactive steps to head off problems.
- Deliver projects on time. Much like delivering a project on budget, delivering a project on time often depends on collaboration and transparency among teams. PSA provides every team on a project with real-time data related to the progress of the project as a whole. That data allows decision-makers to stay on top of projects, set realistic timelines and deliver results on time.
- Provide anytime, anywhere access to data. PSA typically makes crucial project data, like financial and CRM information, available on any device to decision-makers across the project delivery chain. Many professional services team leaders use purpose-built mobile apps to capture detailed time and expense data while they’re on the move.
Calculating the ROI of PSA
Return on investment, or ROI, is the primary metric that businesses use to measure the value delivered by a new software deployment. In the case of a professional services firm, ROI takes three forms: improved profit margins, reduced revenue leakage and faster project delivery. Rather than relying on a single figure to quantify the return on investment of a PSA deployment, professional services firms can take all three of these measures into account to calculate the true ROI of their investment.
ROI of PSA Formula
The basic formula for calculating ROI for a new software deployment is simple. Divide the increase in value of your investment by its initial cost, and multiple that number by 100 to get a percentage. This formula is shown below:
ROI = [(Current value of investment – cost of investment) / cost of investment] x 100
Calculating the ROI of a PSA software deployment requires professional services firms to break down their revenues and costs even further, with a focus on how effectively they use billable time and how quickly they can deliver projects.
3 Professional Services Automation ROI Metrics
Organizations can generate a strong return on their investment in professional services automation with software that boosts profit margins, reduces revenue leakage and accelerates the speed of project delivery. Measuring these three outcomes can help professional services firms pinpoint exactly where their PSA investment is hitting the mark and where it may be underperforming.
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ROI of Profit Margin Gain
A company’s profit margin is the ratio of its profit compared to its costs. When calculating the profit margin for a professional services project, a business needs to account for specific project delivery costs, such as employee salaries and special equipment purchased to complete the work, as well as general overhead costs, such as utility expenses and rent.
To calculate the ROI of profit margin gain of its PSA software, the firm must compare the yearly average profit margin for projects completed before deployment of the solution with the annual average profit margin for projects completed after going live. With those figures, it can then calculate the total profit margin before and after implementing its PSA solution as a function of the revenue generated by its employees. Here’s the equation:
Total profit margin =
annual revenue generated by each billable employee x # of billable employees
x
average yearly profit marginBy comparing the total profit margin before and after the PSA deployment, a firm can easily quantify the value delivered by its investment. It can also re-evaluate its profit margin gain each year to ensure that it is taking full advantage of its PSA software.
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ROI of Revenue Leakage Reduction
Revenue leakage refers to losses resulting from improper project planning, tracking, and invoicing. Too often, professional services firms miss out on revenue because they waste too much time struggling to stay on top of customer contracts and payment follow-up processes.
Professional services firms want to make sure that most of the time their employees spend at work is billable, with the least amount of “leakage,” or time that couldn’t be billed to customers and therefore didn’t produce a revenue return. With PSA software, workers record their time and also link their hours to particular customers and projects, allowing companies to track billable hours more easily.
As with profit margin gains, the impact of PSA software on revenue leakage is calculated by comparing its performance before and after a deployment. The formula used to calculate total leakage is:
Total revenue leakage =
annual revenue generated by each billable employee x # of billable employees
x
average yearly profit margin
x
leakageOnce again, the impact of PSA is found by comparing the total revenue leakage calculated after implementing PSA with the total revenue leakage calculated before rolling out the software. This information allows professional services firms to see how much revenue they were previously losing as a result of inadequate project tracking and invoicing.
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ROI of Delivery Improvement
The ROI of delivery improvement following a PSA deployment can be complicated to calculate, as there are many factors at play. For instance, new hires might be more adept at using cloud-based work tools than veteran employees, which means they can complete projects more quickly.
That said, it is still advisable to estimate the ROI of delivery improvement by focusing on the percentage of projects that have been delivered on time and within budget. As with other ROI calculations, the aim is to compare the project delivery success rates before and after a PSA deployment, using the following formula:
Project delivery success =
annual revenue generated by each billable employee x # of billable employees
x
average yearly profit margin
x
% of projects delivered on time and within budgetPSA software helps by compiling data on every project it delivers, including information about project milestones, delivery dates and budget tracking. This information can easily be inserted into the above formula to calculate the project delivery success rate following deployment.
ROI of PSA and ERP
An enterprise resource planning (ERP) platform automates several business processes across the organization, from CRM and HR to financial resourcing. The integration of PSA within an ERP solution allows businesses to combine all of these data streams on a central platform and create better alignment among teams across the project delivery chain. Not only does the platform drive collaboration and more streamlined processes, but it also positions growth-oriented businesses to scale easily.
Take the case of Oakhurst Signs, which needed to consolidate its project delivery and financial operations with three other signage companies following a series of acquisitions. With no way to centralize or standardize its paper-based project management processes across the group, Oakhurst implemented PSA software as part of an integrated ERP platform, bringing consistency to its project management and delivery operations. The business has also set itself up for further growth by using a single integrated software solution to underpin its operations.
Another firm that benefited from integrating PSA within an ERP solution is Datavalet, a network service provider that needed to manage its financials while recognizing subscription-based revenue on its previous accounting platform. Since implementing PSA as part of its global ERP solution, Datavalet has gained a unified platform to manage even its most complex billing and financial needs. It now has its sights set on expansion across North America.
Manage Professional Services Projects in a Single Location With NetSuite
No project is completed and delivered successfully by accident. It takes a precise approach to staffing, scheduling, budget tracking, billing and more to deliver projects on time and within budget. NetSuite Professional Services Automation unifies and automates all of these functions, taking complexity and human error out of the equation. What’s more, it integrates directly with NetSuite ERP, allowing businesses to manage project delivery seamlessly across every element of their operations, all from a centralized software platform.
NetSuite SuiteProjects(opens in a new tab) is a single, cloud-based suite designed to support service businesses. From billing and invoicing and project and resource management to time and expense tracking and project accounting, Suite Projects helps companies deliver projects accurately and on time, while improving their accounts receivable cycles.
From granular project management and expense tracking to financial processes like billing and invoicing, the suite delivers a strong ROI across the project life cycle. The result is maximized profits, minimal leakage and faster delivery.
World's #1
Cloud PSA Software
At the speed and scale that professional services firms must work today, automation is increasingly necessary for companies looking to complete projects on time and within budget in a competitive economic environment.
Automating professional services helps growing companies stay on top of project schedules and costs while avoiding inefficiencies and potential revenue losses. The power of PSA multiplies when the software is integrated within a cloud-based ERP solution, aligning mission-critical functions like CRM, financial resource planning and HR tasks, and allowing firms to more efficiently complete projects from start to finish.
