Professional Services Automation Explained
This article answers the question, “What is PSA software?” and covers the critical aspects you need to know. Professional Services Automation software is sometimes referred to by several other names, some formal and some informal, such as:
- PSA platform
- Professional PSA or Enterprise PSA
- Service Operations Automation
- Project Portfolio Management for Professional Services (PPM for PS)
- Services Resource Planning (SRP)
- Professional Service Automation (without the “s”)
- Project-based Enterprise Resource Planning (ERP Software)
- Project service automation
- Project management systems for services firms
- Professional services management software
- Work management software
- And the list goes on…
Whatever name you wish to use, Professional Services Automation software is the core operational system for professional services resource planning, project management, and time and expenses management.
PSA software can help professional services firms consolidate project tracking software, resource management tools, project accounting solutions, and time tracking technology into one system. Let’s get started and dive-into what to consider when adopting a PSA tool to improve business processes and service delivery:
- WHAT is PSA software in the first place?
- WHY would you want to implement PSA software?
- WHO is a PSA platform meant to help?
- WHEN should you implement a PSA solution?
- WHERE should your PSA system be hosted and your data stored?
- HOW should you select and implement a PSA tool?
What is PSA Software in the first place?
PSA Software Definition.
In SPI Research’s PSA End User Survey, Dave Hofferberth defines PSA software as “an integrated suite of applications used to increase operational visibility and improve process efficiency in project- and services-driven organizations.” If asked to expand upon that definition a bit, I generally think of a PSA tool as the core operational system of a services firm. It usually sits between the organization’s CRM system (such as Salesforce) and their ERP system (such as SAP Financials).
I generally think of a PSA tool as the core operational system of a services firm. It usually sits between the organization’s CRM system and their ERP system.
How Did PSA Originate?
Service Performance Insight (SPI Research) is the premiere research firm that focuses exclusively on the professional services industry. SPI Research’s Managing Director, Dave Hofferberth, was the person who first coined the term “Professional Services Automation” in the 1990’s. He worked at Aberdeen at the time, and he has been covering the industry ever since. Needless to say, he knows a thing or two about the PSA market.
PSA Tools and Revenue Generation.
PSA software is also the system that helps professional services firms manage the core revenue-generating activities of their delivery teams. This can range from ensuring cost effective utilization of allocated resources to accurate revenue forecasting methods. For example:
- Sales teams and solution architects plan and scope project phases and project life cycles
- Resource managers pair up people with resourcing needs on projects
- Project managers track the investment in time and expenses expended to deliver those projects and ensure clients get invoiced for exactly what they should be billed for
- Delivery managers monitor the health of those projects to ensure they get delivered on time and under budget
- Finance teams ensure that the firm is recognizing revenue at the appropriate time, neither too early nor too late
- Executives monitor high-level dashboards from portfolio health, utilization trends, and hiring needs to overall revenue and profitability projections
|Time and expense tracking|
|People and project matching|
|Operational and financial forecasting|
|Task planning and tracking|
|Project collaboration workspaces|
Components of PSA Tools.
Leading Professional Services Automation solutions include a suite of features that can be used individually or, preferably integrated together. These often include:
- Project accounting capabilities to handle everything from time and expense capture to client invoicing
- Resource scheduling functionality designed to help manage resources within the organization
- Project management features to help manage what work needs to get done and when, in order to keep projects on schedule and under budget
- Dashboards and reports to provide the organization visibility into all the delivery operations of the firm from a single source of truth
A top-performing professional services management tool will help you streamline your operations. Imagine replacing that interconnected spider web of spreadsheets or that unmanageable portfolio of siloed point solution applications that many organizations still use to run their businesses with an integrated software solution that boosts bottom-line results.
Why would you want to implement PSA?
Improve Business Results.
$23 million was the average improvement in bottom-line profitability over those five years
96% was the fraction of gains attributable to just the top three categories: improvements in billable utilization, project margin, and successful project delivery
In a word (or two): performance improvement. PSA software, because of its singular focus on the professional services industry, provides the metrics, best practices, concepts, and tools designed to help services organizations operate as efficiently as possible.
More generalized applications have no hope of understanding or managing the fine nuances specific to the professional services industry. This includes:
- Managing utilization
- Measuring backlog
- Incorporating variability into revenue projections
- Balancing the human and the quantitative aspects of resource management
- Or any of the myriad of other fine-grained details involved with efficiently running a services firm…
Studies have shown material improvements in utilization, profitability, successful project delivery, and more when services firms implement PSA solutions. It is always helpful to read customer reviews to see the benefits they have experienced firsthand.
Fast Deployment; Low Implementation Cost.
In addition, modern professional services management solutions are quite inexpensive to implement. SaaS-based products in particular are designed to require no infrastructure in the way of servers, networks, backup strategies, and associated IT investment in order for the product to be implemented. They also are generally designed to be easily configurable, quickly integrated with other commercial or legacy systems, and readily learned by end users.
Research into the return on investment of implementing Professional Services Automation software shows results that are nothing less than staggering. The latest PSA end user survey showed a breakeven time of well under a year and a five-year payback of 125 times the initial investment and ongoing running costs.
The latest PSA end user survey showed a breakeven time of well under a year and a five-year payback of 125 times the initial investment and ongoing running costs.
Who is a PSA platform meant to help?
Does this sound like your firm? If so, Professional Services Automation software might be exactly what you’re looking for.
Classically, Professional Services Automation software was targeted at, well, professional services firms. This often includes management consulting firms, technology implementers, digital marketing companies, and other services organizations.
The common thread running through these companies is that their primary business model is managing client projects and selling high-value, knowledge-based services. Whether those projects involve the development of a custom-built software application or a go-to-market strategy, a top PSA tool can help organizations successfully deliver on project based engagements.
Internal IT Organizations.
The best PSA software is now configurable to the point in which many internal, non-billable, IT organizations have adopted this technology as their central delivery tool. Many managed services operations have adapted the more flexible PSA tools to their recurring revenue business models. Product-centric businesses have even used the non-labor-centric aspects of their PSA systems’ feature sets to bill for and recognize revenue on product sales and software licenses.
It’s important to understand the sweet spot of typical Professional Services Automation solutions, but don’t limit a PSA tool’s role to just that. Take a look at the types of customers and industries served by professional PSA platforms. I bet you will find at least one or two that sound familiar.
When should you implement a PSA solution?
When You’re Preparing for Growth.
Phase your implementation incrementally rather than trying to do everything at once
Rethink your relationship with your vendor as an ongoing partnership rather than a one-shot event
In SPI Research’s Professional Services Benchmark Survey, Dave Hofferberth concluded that by the time a services firm reaches 20 employees, it should have already thought about implementing a PSA tool.
For most organizations I’ve spoken with, PSA is the first or second major application they consider implementing, especially if they’re planning on growing rapidly. One of our oldest clients implemented Projector when they were just an 8-person start-up. They knew they needed to invest in infrastructure early in order to support the exponential growth that they were planning on.
Advice: Find Business Partners, Not Software Vendors.
While implementing a comprehensive, integrated PSA system may sound daunting, the better products will support deploying their solution in incremental phases. Here’s a quick guide to selecting professional services software for your firm, the right way.
The better solution providers have professional services teams that can help you devise a smart phasing strategy and support you through the process of executing on that strategy. For a great perspective on how to intelligently manage a phased PSA implementation, check out the CEO of e4 Services, Jim Hennessy’s story.
Finally, when undergoing a professional services automation software comparison, the best partners recognize that deployment of a PSA application isn’t a one-time investment. Rather, it’s an ongoing partnership that involves continual education, assessment, and evolution. Your business will change and your needs will evolve. Make sure your partner (and the product they produce) are able to do more than keep up—they should be able to support and even help drive that change.
Where should your PSA system be hosted and your data stored?
The Cloud vs. On-premise.
A decade ago, a great debate raged about the fundamental delivery model for business applications like Professional Services Automation software. Should they be licensed in a traditional model and capitalized—or leased on a subscription basis and expensed over time? Should they be deployed on-premise for each individual organization or hosted centrally in the cloud on a multi-tenant infrastructure?
80% of users preferred centrally-hosted, cloud-based solutions. But, research what flexibility you have if that’s important to you.
A Shift Towards Cloud-Based Solutions.
In recent years, that debate has shifted materially on the side of cloud-based services. The latest studies consistently show PSA users heavily preferring cloud-based deployments by as much as a ratio of 4 to 1. The benefits of modern Software as a Service (SaaS) approaches are clear:
- Faster deployment times
- More continually updated products
- Lower total costs of ownership
- Easier integrations
Just because cloud-based solutions are preferred by the majority, however, doesn’t mean they are appropriate for you. Organizations may have specialized needs in the way of more significant data privacy or upgrade control requirements. As such, they may need to have their data or their application hosted by the vendor in a segregated rather than a shared environment. Alternatively, they may require everything to be hosted entirely on their own servers in order to precisely gate access.
The top PSA vendors will provide security and privacy in their centrally hosted offerings. Likewise, they will also provide the flexibility of segregated or self-hosted approaches as well. While these options may not be critical for you right now, your business may evolve over time. This flexibility may come in handy in the future.
How should you select and implement a PSA tool?
Start with Prioritized Goals.
Now that we’ve covered the five W’s (what, why, who, when, and where), the H (how) can be a pretty involved discussion. It starts with understanding what you want to achieve by implementing a PSA application. Hopefully, the discussion above helps frame that question. Assuming you’re not interested in tackling everything at once (and few organizations are), coming up with a prioritized list of goals and a phasing strategy is a good next step.
96% was the fraction of gains attributable to just the top three categories: improvements in billable utilization, project margin, and successful project delivery
Distinctly not average was Projector’s performance in this study—firms that use Projector showed the highest utilization and amongst the highest project margins and successful project delivery rates
Before diving into specific products, there are questions you want to think about that will help frame your decision-making process:
- Do you want to build your own or implement a commercial product?
- Do you want to take a SaaS-based hosted application or the licensed on-premise deployment approach?
- What are the advantages to your organization around best of breed products versus suite/platform-based solutions?
Leverage Independent Resources.
Once you’ve thought about what’s important to you, there are several great resources to help you understand the differences amongst the individual products out on the market.
These guides explore the themes described above a bit further:
- SPI Research’s PSA Buyer’s Guide includes profiles of the top Professional Services Automation software vendors.
- SPI Research’s Professional Services Automation: Reframing the “Best of Breed versus Single Platform Integrated Suite” Debate
- SPI Research’s Evaluating Professional Services Automation Software: PSA Deconstructed
- LinkedIn article: The Best Way to Select Software for your Professional Services Firm and Get it Right
Test Out the Product.
One of the other big advantages of modern SaaS-based PSA software solutions is that it’s generally very easy to give them a trial run. There’s usually no software to install, servers to spool up, or contracts to sign.
Find Software that will Improve Bottom-line Performance.
Finally, there is one last thing I’ll mention about selecting a PSA vendor. The purpose of a PSA software solution is to improve the bottom-line performance of your professional services organization. Make sure that the vendor is able to demonstrate how their product and services specifically can help your organization.
I’ll take a moment to bring us back to that incredible statistic of the 125 times return on investment that SPI Research found in their latest PSA end user survey. Of that return, 96% of the gains were attributable to the top three categories:
- Improvements in billable utilization
- Better project margin
- Successful project delivery
If you’re interested in exploring how your firm’s performance metrics stack up against industry averages, have a look at our professional services performance scorecard:
It’s an unbiased way to see the top eight key performance metrics analysts expect PSA systems to improve and how much of a gain respondents to the SPI Benchmark Survey reported. It also gives you the ability to sketch in your own metrics to see how you stack up against your peers. And no, we don’t store your metrics, so your data remains your data.
To Wrap it All Up.
I hope this exercise in explaining the five W’s (and the H) of Professional Services Automation gives you a clearer view about PSA software. Hopefully, you now understand who might find these applications useful, and how you would go about selecting and implementing a solution.
If you’re interested in learning more about PSA software for services organizations, take a look at our recently published eBook entitled Professional Services Automation: A Quick Primer. In it, you’ll find additional information about how Professional Services Automation solutions can improve the performance of a services organization. You’ll also see information on the decision points you’ll need to make when selecting a PSA tool, PSA market trends, and much more: