Driving Growth and Profits Through Professional-Services Automation Software

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Professional-services automation (PSA) software helps service organizations increase profitability through top-line growth and improve management effectiveness. The effectiveness of a professional services organization (PSO), whether a consulting-services firm or an internal-service organization, depends on its ability to fully leverage its collective skills and expertise to efficiently generate business and deliver work product of the highest quality. Irrespective of their specific missions, PSOs across a range of industries are governed by similar economic drivers. A few key areas, such as resource utilization rates, have profound impacts on profitability. The idea is to work smarter, not longer.

PSA software measures performance in key areas and provides the tools that lead to performance improvement. PSA also generates a rapid and substantial return on investment by improving operational efficiency, employee effectiveness, and management visibility.

This article outlines the primary areas in which PSA solutions drive growth and increase profits to deliver positive ROIs. Although different organizations derive value from different areas, the gains come primarily from a combination of the following eight benefits of PSA solutions:

1) Develop More New Business: For a service group, developing new business hinges on generating opportunities to bid on projects, quickly delivering compelling proposals, and accurately estimating the projects. Generating repeat business depends primarily on customer satisfaction. A complete PSA system includes modules that help in each of these areas. However, the real power of PSA comes from integrating these components into a single system. PSA includes sales-force automation, so a company can track prospective opportunities efficiently.

Using the knowledge-management component of PSA, a searchable repository of company documents, one can access successful past proposals and use them to quickly develop effective proposals for new opportunities. Similarly, one can locate actual prior-project plans and use them as the basis for estimating new projects. This quickly creates an accurate estimate that is as competitive as possible while also ensuring profitability. The resource-management functionality makes it easy to determine the composition of the project team so they can support the sales process. As discussed below, PSA includes several tools that help ensure client satisfaction, making it easier to solicit repeat business from existing clients.

2) Increase Utilization Rates: The utilization rate for a client-facing professional service organization most often measures the number of total billable hours as a percentage of total hours worked. In an internal professional-service firm such as an IT department or in-house consulting group, the utilization metric is less a gauge of profitability than productivity by measuring effort against projects. Regardless, PSA increases utilization rates in three major ways:
  • By conducting forward-looking utilization reports, staffing managers are able to anticipate when employees will be "on the bench" or assigned to non-billable work. These employees can be rapidly deployed to billable activity or other efforts of more significance to the firm, such as supporting business development efforts.
  • Staffing managers are better able to forecast revenue and improve rate-yield by ensuring resources are assigned to the most-profitable projects.
  • Billable employees capture a higher percentage of actual billable hours, thereby reducing revenue leakage and increasing the effective utilization rate.
According to Aberdeen Group interviews with customers of PSA vendor OpenAir, the above features combine to produce an average increase of seven percentage points.

3) Increase Project Margins: PSA helps ensure high margins by providing tools to ensure that project bids are accurate, by managing projects more effectively, and by providing executives with analytic tools to identify and focus on the most profitable projects. A company is also able to continually refine the project-estimating process. When bidding on a project, the business-development team can use the knowledge-management system to find relevant, past-project plans and use the actual costs to create an accurate new bid. The knowledge-management system also includes tools to conduct scenarios and see the impact on projected profitability. The best PSA systems include a comprehensive project-management system that is accessible online. Web access means project plans can be continually updated and reviewed with real-time information on status relative to milestones and budget. Project managers are thereby able to identify and address issues early to minimize absorption. Since employees track time back to specific projects and clients, managers and executives can conduct detailed profitability analysis to ensure the company is focused on the most profitable engagements.

4) Reduce Employee-Turnover Costs: PSA helps companies reduce employee-turnover rates and lower the costs associated with turnover. Staffing managers who use PSA effectively are able to weigh employee interests and development goals when assigning employees to projects, ensuring a high level of satisfaction and motivation. PSA systems often include an objective and easily-accessible record of employee accomplishments so that the best performers can be identified and rewarded. When an employee needs to be replaced, having a standard PSA system facilitates the integration of new employees into project teams, thereby reducing the costs of incorporating new employees into the organization.

5) Increase Average-Billing Rates: Companies using PSA effectively report that they have increased billing rates while still improving customer satisfaction because of two primary gains in effectiveness and efficiency. Staffing managers can staff projects with more effective teams by matching available employee expertise and interests to the demands of projects, and a project team using a PSA solution with a knowledge-management component can draw on the collective knowledge and expertise within the organization by systematically accessing prior work product, by collaborating with resident experts, and by sharing best practices throughout the organization.

6) Improve Client Retention: PSA enables teams to deliver higher-quality client products and collaborate more effectively with clients, which in turn improves customer satisfaction and retention. By drawing on prior-project plans, a project manager is able to develop an accurate on-going plan to set realistic client expectations at the project outset. With an online, real-time project-management system, project managers also gain early insights into project risk so they can take corrective action and ensure delivery on-time and within budget—or they can set client expectations appropriately. Project quality is further enhanced through project-collaboration functionality, through which project teams can bring to bear state-of-the-company expertise for each client project. Finally, the most-flexible PSA systems enable clients to become more involved with the project teams by creating fully customized project roles that grant access to selected information.

7) Improve Cash Flow: PSA systems that include strong billing functionality can accelerate customer billing cycles in four ways:
  • Data entry handled through Internet connections, PDAs, or WAP-enabled phones helps ensure that billable information gets loaded into the system sooner.
  • Sophisticated billing engines let project managers automate billing based on several criteria, such as fixed fees, for meeting project milestones.
  • Online billing capability further expedites the delivery of invoices.
  • Integration with major financial packages transfers billing information into existing invoicing systems faster.
8) Reduce-Fixed Costs: PSA streamlines several administrative functions that can translate into lower cost of sales and reduced administrative expenses. A PSA that has a strong sales-force-automation component also helps business-development teams generate new projects more efficiently for lower cost-of-sales. PSA automates several business processes, including time tracking and expense processing, so the efficiency gains create the opportunity to more effectively deploy administrative personnel.

This article has addressed the ways in which a fully-implemented PSA system can generate substantial profitability gains (i.e., the numerator in the ROI equation). Just as important are the time and costs required to deploy and maintain a PSA system (i.e., the denominator in the ROI equation). This article stops short of attempting to quantify the profitability gains a PSA system can be expected to provide.

About the Author

Tom Brennan is the chief financial officer of OpenAir, which provides a web-native professional-services automation solution that helps independent software vendors, marketing-services companies, consulting firms, and internal corporate-service organizations increase top-line growth and improve operations and financial controls.
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