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Iryna Viter

What is Professional Services Automation? The Beginner's Guide to PSA

In the past, professional services operations were managed using a combination of spreadsheets and email. Professional services automation (PSA) has turned that ship around.

Professional services organizations can be tricky to run. They often have plenty of work, but the way that work comes in and gets managed — and the way employees are paid for it — isn't always as straightforward as it is for other types of businesses. Peaks and troughs of activity, so common for agencies, bear a footprint on profitability, people morale, and culture in general.

Couple it with the fact that client expectations are mounting in the professional services sector — and there you have it, a recipe for a challenging business to push forward. 

One survey suggests that client expectations are growing bigger in quality of work (51%), speed of service delivery (50%), cost of work (48%), transparency (37%), and accountability (37%). The question is, what can businesses do to bridge those gaps?

While some digital agencies, consulting companies, and software shops rely on the old playbooks, others have started blazing a trail to a more profitable and efficient future with professional services automation (PSA) software . But what is PSA, and how can you pick your suite?

In this article, we'll go over some of the main benefits that PSA software can provide and things you should consider when buying one.

What is professional services automation? (PSA)

Professional services automation (PSA) is an umbrella term for various blocks of software that automate and connect key processes across the professional services value chain. These solutions help firms more efficiently manage projects, resources, finances, billing, and reporting.

In other words, the software provides a centralized place to manage all aspects of running a professional services business, from project planning to tracking projects and billing clients. But what's more important, it cuts manual work and lifts up a heap of admin tasks from employees' shoulders. Automation is key!

What is the difference between PSA and ERP?

There's a clear analogy between PSA software and Enterprise Resource Planning (ERP) software, so much so that PSA is sometimes even referred to as ERP for agencies as its younger brother. However, while enterprise resource planning originates from accounting systems with added business process modelling, professional services automation sets accounting systems in motion by focusing on timesheets, project management, service desk, CRM and billing.

To add, professional services automation is a critical component of many service organizations' operations, because it allows them to run their business more efficiently, increase customer satisfaction, and accelerate revenue growth.

In fact, according to SPI Research, companies that use professional service automation software have a better employee billable utilization rate of 70.9% compared to those that don’t use a PSA solution at 68.3% (SPI Research, 2019).

PSA solutions help them get the right resources working on the right projects for the right customers at the right time.

An integrated PSA system is designed specifically for professional services firms to manage all aspects of their operations from end to end. It makes sure they're running their business as efficiently as possible in order to drive revenue growth and increase customer satisfaction.

What are the benefits of using PSA software?

Now that we understand what PSA is, let's take a closer look at its benefits.

By connecting so many dots, PSA software can help you boost productivity, lower costs, and improve the quality of your work. But here are its four main benefits:

  • Increased efficiency. With automation, you eliminate many manual processes that slow down your team and eat into their productivity. You’ll have an easier time managing projects, managing workflows, and tracking time — all in one place.
  • Better resource management. Automation helps you become more efficient at scheduling resources and matching them to the right projects or tasks. You can also track underutilized resources so you can avoid paying for idle time.
  • Reduced administrative costs. Streamlining your processes with PSA software will reduce the number of hours your staff spends on administration, allowing them to focus more on billable work for clients that makes money for your business.
  • Streamlined decision making. With PSA, you can get a clearer picture of what’s happening across the organization with dashboards and reporting features that allow you to analyze available data faster, better manage finances and make data-driven decisions that maximize profits

Consulting firms have been using professional services automation solutions since the 1980s. Today, most large consulting firms have their own suite of PSA software tools — similar to ERP systems in many other industries. But if your team doesn't use one, here's why you have to consider bringing it to the table.

Why you need professional services automation

Generally speaking, PSA solutions help in the management of daily business operations and customer relationship management, including project and resource management, time tracking, expense tracking, billing and invoicing, reporting, and analytics. The ultimate goal is to carve out time for the optimization of client experience, rather than spending valuable time on filling a thousand of spreadsheet cells.

By streamlining many administrative tasks, PSA solutions enable managers to spend more time focusing on customers and growing the business rather than operational tasks.

Who can benefit from PSA software? 

But who is the best audience for it? Who can extract maximum value from a PSA tool?

As long as your business runs around the concept of billable work, you stand to gain a lot from getting this type of software. 

Billable work is the backbone of many professional service companies. Professional services automation (PSA) software was developed specifically to support these companies by providing visibility into project performance and financial data. PSA solutions can help companies improve revenue, streamline project delivery, and gain insight into profit margins.

And it’s important to note that the financial benefits of a well-implemented PSM solution are proportional to the size of the company using it.

Now, there are a lot of industries and business models that are built around projects. Here are some of the biggest players there: 

  • Consulting
  • Marketing and Communications
  • Engineering, Architecture, and Construction Services
  • IT, Information Technology 

The building blocks of professional services automation

A professional services engagement has a lot of moving parts. It starts with the client needs assessment and sales discovery process, moves into project planning and scheduling, then resource management, time tracking, workload balancing and more. Then there are all of the financial aspects associated with the project - costs, budgets, billing and invoicing - that need to be managed as well. PSA software is supposed to cover the full project lifecycle

Designed to manage the entire customer lifecycle, PSA solutions will cover the following functionality:

Project management

In the best case scenario, PSA gives you one place to plan, execute, track, and report on your projects from start to finish.

Having a single source of truth is important for businesses with large pipelines because it shows how taking on other initiatives will affect other projects.

Professional services automation should also not impose any limits on what methodology you prefer - Agile or Waterfall - and both families should be supported with features to create Gantt charts or run sprints if there’s such a need.

The same holds true for various budget types - fixed price, time and material, or retainers.

Resource management

Resource management is key to any company that cares about efficient, sustainable workflows. But when it comes to professional service organizations, capacity planning and workload management can make a world of difference in making sure you’re running at 100%.

Professional services automation software equips businesses with the ability to track resource utilization and predict resource demand, so they know when to hire new people. It's a great helping hand when you need to develop a staffing plan or prepare for staff augmentation.

Project accounting

Without project accounting, PSA solutions would never be complete. At their core, project accounting tools allow you to accurately track project-specific revenue, costs, profit, and expenses, as well as bill for your work.

The project accounting module often integrates with the project management, resource management, and time tracking modules so that you can easily generate reports on project profitability.

With project accounting in your PSA software, you'll be able to see how much a project will cost to deliver, and how profitable it will be based on what you'll earn from it. This helps ensure that you'll make money on every job (and make enough money to meet your business goals).

Time tracking

Because billable hours are the bread and butter of service-oriented organizations, time tracking is of utmost importance. It is a commonly used feature of PSA software that helps track employees' time spent on projects. This helps managers see how much time is being spent on each project and how many tasks are accomplished in a particular timeframe.

It also helps to ensure that employees are using their time wisely, especially in the case of project managers who have control over allocating resources such as budget and staff time. Some PSAs can even help ensure that workers aren't overloading themselves with too much work in too little time.That's why professional services automation vendors develop timesheet tools to automate time tracking.

Business intelligence

A good PSA solution will provide data-driven reporting and analytics to give you a full view of your business. With this information, you can easily see where you need to focus your attention to improve efficiency.

The reporting function of your PSA software will allow you to create consistent reports for clients, management and others on demand. Depending on your business needs and the type of reporting you will be doing, it may also include integration with other types of software. For example, if you need to generate sales reports from an existing CRM platform (Customer Relationship Management), you can look for a PSA that integrates with that tool for streamlined reporting.

What are the disadvantages of professional services automation?

While professional services automation (PSA) software can be useful for streamlining internal processes and increasing efficiency, it can also have several disadvantages. 

For example, PSA software can be purchased commercially off the shelf (COTS), built in house, or developed by an outside vendor per request. All of these methods require significant time and money; organizations must spend staff time or budgets on implementation, business process reengineering, and user training. But if you dig deep enough, you’ll be able to identify more peculiarities that will help you narrow down your options using the exclusion method. 

Here’s one such break-down case. 

Off-the-shelf PSA solutions may not be able to fulfill all of your organization's needs. It’s like buying off the rack. The fabric might be nice but the fit won’t be right. The fabric and the fit will be phenomenal, but the price tag will be way out of your budget. All in all, it comes down to how flexible you can get when choosing this software. 

For example, a software package may not integrate with other systems the company uses or offer an API that would allow developers to build their own integrations. 

Organizations that choose to build their own PSA software must also consider maintenance costs, upgrades, and integration build-out expenses.

For most non-management workers in a services organization, the Professional Services Automation (PSA) solution is used primarily to enter time and expenses.

The biggest challenge with this scenario is that it creates an artificial divide between front office (those who use PSA) and back office (those who don't or use only limited functionality of it). This disconnect can lead to resentment among employees who feel they are not being given access to tools they need to do their jobs well. It can also create unnecessary bottlenecks when those same users need information from back office colleagues who aren't using PSA.

Finally, as people move away from using their PSA solutions to actually doing their work, they lose visibility into their projects and tasks which makes it difficult to stay on top of things. In addition, when people don't know what's going on, they can't help each other effectively or contribute meaningfully to projects and teams.

How to choose PSA software

Prioritize your requirements

As a first step, identify the requirements that are most important to your organization. You may want to prioritize these requirements into must-haves and nice-to-haves. You will likely need to make tradeoffs between different applications that offer different capabilities. Remember to consider qualitative requirements like user experience, since this will impact the success of your software implementation.

Identify key stakeholders

Once you have identified your requirements, it’s time to talk with people who are involved in the PSA software selection process. Consider who has influence over the procurement decision or who is responsible for using the system once it is implemented. These stakeholders can help you shape your requirements list and provide input on which features are most important from their perspective.

Calculate implementation time

You also need to think about how much time it will take to implement the software solution into your business operations. If you need something quickly (e.g., within two weeks), then this will limit your options. If you have more time, then it may be worth considering more complex solutions that require additional training and implementation time by IT staff or consultants.

Look into pricing

Another factor that influences choice is budget constraints — some companies have very high budgets while others don’t have any at all! When choosing a PSA tool, make sure that it aligns with your budget constraints.

Evaluate selected tools against your criteria

Once you have determined which features matter most for your business goals, narrow down your list of potential options based on those criteria. While there are many different types of PSA solutions available on the market today, some vendors may offer more than one type of product and thus may be able to meet more than one part of your needs.

PSA software checklist

You’re about to make a decision that will impact your team’s productivity for years to come. Before you invest in a PSA system, be sure to sit together with your stakeholders and answer the following questions:

  • What are your goals? How should a PSA tool help you achieve them?
  • What features do you need? What features would be nice to have?
  • How much are you willing to spend? What budget can you allocate for the purchase of this software?
  • User base: Who will be using the application? What level of training do they require? Are there any special requirements for security or compliance? If you have multiple offices or locations with different needs, you may need multiple versions of the application or separate implementations for each location.
  • Does your company have existing systems that you want to integrate with the new PSA? If so, are there any restrictions on how this integration should occur?

Once you’ve answered these questions, it will be easier for you to select a PSA solution that aligns with your objectives and budget.

Final thoughts

Managing all workflows manually can be a time-consuming task for professional services managers. That's where PSA software comes in. Most PSA systems are designed to automate many of these processes so that managers can focus on work that truly adds value - like growing their business or increasing customer satisfaction.

PSA software helps you manage your people and projects in one central location. It helps you stay organized, provides insights into your business’s performance and increases visibility across teams to help you get more done.

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