Professional Services Automation Software Return on Investment (ROI)

Highlights

  • Professional Services Automation software is the core business application to run a services organization.
  • It provides the process automation and information reporting to improve resource management, project outcomes, customer satisfaction and financial margins.
  • It improves project estimating and solutioning, facilitates consistent and repeatable project execution, and delivers real-time visibility to project performance and profitability.
Johnny Grow Revenue Growth Consulting

Professional Services Automation (PSA) software benefits include simplified time and expense entry to capture time more easily, streamlined invoicing to accelerate cash flow, improved services repeatability to drive project quality, automated project accounting (i.e. allocations, burden, overhead, WIP for unbilled time) for cost accounting purposes, automated revenue recognition for more timely financial reporting and centralized information reporting that delivers a single source of truth for all project and services delivery.

In a prior post we identified both tactical and strategic benefits of PSA software. In this post we want to share the payback from this business technology. Based on our experience in implementing PSA systems for service organizations the benefits that drive ROI fall in either an efficiency or effectiveness category.

The Return on Investment (ROI) from a PSA Implementation

Efficiency benefits are measured in labor savings and reduced cost to serve. Some of the most common benefits include the following.

  • Improved Project Manager Productivity
    By centralizing project data and making it available in real-time, project managers acquire more control and oversight in less time. PSA software highlights what work needs to get done and identifies variances or deviations to project quality and financial targets. This information provides early notice and time to implement course corrections to keep projects on schedule and budget. These capabilities can free up about 25 percent of a project manager's time, or put another way, the same project manager can manage 25 percent more projects.
  • Reduced Cost of Project Administration
    PSA systems provide similar labor efficiencies for administrative resources. With automation for timesheet compliance and approval processing, invoice generation, cost accounting calculations, revenue recognition based on various contract types, and project-based financial reporting distribution, we typically see a 20-22 percent cost savings with back office administrative resources. Resources are the number 1 cost for professional service firms so the ability to manage more projects with fewer resources is essential for scale.
  • Reduced Cost to Serve
    Some PSA apps offer customer self-service portals and knowledgebases. These tools can enhance customer service with 24 x 7 access and provide digital footprints and customer insights that can be used to grow customer relationships and identify future services.

Effectiveness benefits are measured in improved project delivery and revenue enhancements.

  • Customer Share Expansion
    While cost savings go right to the bottom line, revenue improvements drive the biggest financial impact. Increased real-time project visibility quickly identifies variances for fast resolution, opportunities for improvement and increased achievement of on-time, on-budget project deliveries. Improved project deliveries result in increased client expansion with lower cost per sale.
  • Faster Time to Revenue
    Service delivery models that match staffing capacity with project demand based on forecasted sales and resource requirements (i.e., skills, location, availability) reduce late starts, cancellation rates, sudden hiring or reliance on contractors — and accelerate time to revenue. More accurate staffing demand and resource forecasts also aid recruiting efforts and hiring decisions.
  • Improved Resource Utilization
    Optimized resource planning and scheduling increases staff utilization and revenue per consultant. Through its resource optimization capabilities PSA technology increases billable utilization, often by 4 percent or more within the first year.
  • Improved Project Margins
    Staffing models allow service providers to model roles and resources (cost and bill rates) and allocate staffing in a way that improves margin and project profitability. Research for the PSA Benchmarks Report found that PSA software improves project margins by an average of 5 to 7 percent.
  • Reduced Revenue Leakage.
    Identifying out of policy expenses, late expenses, and time and expense that should be billed, but isn't, provides an instant revenue pickup. The previously referenced research revealed a 2 to 5 percent revenue pickup from decreased revenue leakage.
  • Increased Staff Productivity
    PSA automates tasks throughout the project life cycle. There is an additional revenue pickup when billable resources spend more time on billable tasks and less time on administrative and manual activities. This benefit scales when projects harvest digital project assets and artifacts to accelerate future project velocity. Process automation and repurposing digital assets decreases (often non-billable) work effort by 4-5 percent.

When to Implement PSA

Service firms implement PSA systems when they need to solve a problem, scale services delivery, or accelerate revenue growth.

Problems occur in the forms of inconsistent delivery and poor quality. These problems result in poor margins, write-offs, staff turnover and customer churn. These challenges are exacerbated with growth. No service firm can sustain these problems.

Revenue growth goals are focused on increasing client acquisitions, client share and client retention. PSA technology aids these goals by facilitating process automation, project repeatability, information reporting and scale.

Information reporting is often the most influential revenue growth driver. When executives gain real-time project-based analytics such as alerts, dashboards and project-based financial reporting they gain visibility which leads to predictability. Information and project control are precursors to increasing staff or business expansion.

Begin with the End in Mind

The best way to achieve the biggest payback is to first predict it and then reverse engineer the path to forecasted results.

The below predictive analytics dashboard is part of the Johnny Grow Professional Services Growth Formula.

Professional Services Growth Formula Predictive Analytics

This example was applied to a business consulting firm with 26 billable resources. By starting with industry-based performance benchmarks, we clearly discovered the areas that needed improvement and delivered predictable revenue uplift.

When the financial goals were set, we applied a Playbook with the four methods of Strategic Pricing (to calculate optimal bill rate), Utilization, Leakage and Attrition. Each method included the road map, sequenced execution, dashboard for progress measurement and best practices. The targeted benefits were realized over an 11-month period.

This consulting firm incurred a total investment for PSA software and implementation of about $180,000 (not including their internal labor cost) and realized a payback period of 10.5 months and ROI of 39%. Thereafter, the ROI increased as the initial investment was absorbed.

The PSA application for this client was a Software as a Service (SaaS) solution. SaaS PSA systems may or may not reduce the software investment as compared to on-premise systems. However, they will reduce implementation costs, internal resource support staffing and provide much more business agility.

See the Professional Services Automation (PSA) software cost savings and revenue growth results that drive impressive ROI.

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