What is PSA Software? – A Deep Dive into Professional Services Automation

“What is PSA software?” It’s a question that I get all the time. I can answer that here (and I will), but in the tradition of great journalistic practices, I’ll do more than that. Journalism 101: in order to tell a compelling (and complete) story, I’ll make sure I answer the what—but will also cover the who, when, where, why, and how of Professional Services Automation software.

I recently realized that we’ve touched on all these individual aspects as they relate to Professional Services Automation (PSA) software, but never really pulled it all together into a single place. The group of applications most commonly known as Professional Services Automation is sometimes known by several other names, some formal and some informal: Project Portfolio Management (PPM) for Professional Services, Services Resource Planning (SRP), and Professional Service Automation (without the “s”), project management systems for services firms, professional services management systems, or services management software. Whatever name you wish to use, Professional Services Automation software is the core operational system used by professional services firms to deliver projects and manage resources. PSA solutions typically sit between an organization’s Customer Relationship Management (CRM) system and its Enterprise Resource Planning (ERP) or financial accounting system.

In order to get a clear understanding of what PSA software is and how a professional services management application might help a services firm, people often need to dig through a ton of marketing hype, vendor claims, or perspective-free raw data. So, I thought I’d take an opportunity to answer a few of these questions here in plain English, talk about some best practices when adopting a PSA tool, and give you some pointers to some resources you can look at if you’d like to learn more:

• WHO is a PSA tool meant to help?
• WHAT is PSA software in the first place?
• WHEN should you implement a PSA solution?
• WHERE should your application be hosted and your data stored?
• WHY would you want to implement PSA?
• HOW should you select and implement a PSA tool?

I’m hoping this structure will provide those of you who are new to the idea of Professional Services Automation software a good overview. I’m also hoping that this article will present those of you who already know a bit about PSA software solutions some additional independent resources that you can use to deepen your knowledge.

Classically, Professional Services Automation software was targeted at, well, professional services firms. This often includes management consulting firms, technology implementers, digital marketing organizations, and similar companies. The common thread running through these sorts of companies is that their primary business model is selling high-value, often knowledge-based services, typically in discrete projects. Whether those projects involve the development of a custom-built software application, the customization or implementation of a commercial off-the-shelf system, the execution of a new marketing campaign, or the development of a go-to-market strategy, a top PSA tool can help organizations successfully deliver on these sorts of engagements.

Billable, project-based, and people-centric…that’s the typical profile of the type work that professional services management applications have classically been focused on—but, don’t take that as a hard and fast rule. The best PSA software has gotten so configurable in the past few years that many internal, non-billable, IT organizations have adopted it as their central delivery tool. Many managed services operations have adapted the more flexible PSA applications 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. The moral of the story here is understand the sweet spot of typical Professional Services Automation solutions, but don’t limit a PSA tool’s role to just that—especially if you can find a particularly flexible one. Take a look at our sample list of customers and industries served by Projector, along with quick blurbs about their stories. I’ll bet you will be able to find at least one or two that sound familiar.

Service Performance Insight (SPI Research) is the premiere research firm that focuses exclusively on the professional services industry. Dave Hofferberth, their Managing Director, was the person who coined the term “Professional Services Automation” back in the 1990’s when he was working at Aberdeen, and he has been covering the industry ever since. He knows a thing or two about the PSA market.

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 also think of PSA software as the system that helps professional services firms manage the core revenue-generating activities of their delivery teams. This may start with sales teams and solution architects as they plan and scope projects in the first place. From those plans, resource managers may start to pair up people with resourcing needs on the projects. Project managers can then 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 can monitor the health of those projects to ensure they get delivered on time and under budget. Finance teams use the PSA tool to ensure that the firm is recognizing revenue at the appropriate time, neither too early or too late. Executives may monitor high-level dashboards to monitor everything from portfolio health, utilization trends, and hiring needs to overall revenue and profitability projections.

Top Professional Services Automation solutions comprise a suite of modules 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 the overall supply and demand of people 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 good professional services management tool will help you streamline your operations by replacing that interconnected spiderweb of spreadsheets, that unmanageable portfolio of siloed point solution applications, or that series of disparate whiteboards that many organizations still use to run their businesses.

In his Professional Services Benchmark Survey, Dave Hofferberth at SPI Research 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, it’s 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, knowing that they needed to invest in infrastructure early in order to support the exponential growth that they were planning on. Check out their story if you’re interested in how that investment paid off. Spoiler alert: it did in a big way.

While implementing a comprehensive, integrated PSA system may sound daunting, the better products will support deploying their solution in incremental phases. The better solution providers will 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 Jim Hennessy’s story in our CxO Round Table webinar.

Finally, the best partners will recognize that deployment of a PSA tool isn’t a once-shot 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. Take a look at how we use our Projector e₃ community to educate, engage, and empower our user base in the spirit of ongoing partnership.

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?

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, and 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 be able to provide reassurances of security and privacy in their centrally hosted offerings, but 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, your client base may become more demanding, or regulations and data privacy standards may change, so that flexibility may come in handy in the future.

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 would have no hope of understanding or managing the fine nuances specific to the professional services industry. This may be 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.

All these fine nuances result in performance improvements unattainable by more generalized applications. Studies have shown material improvements in utilization, profitability, successful project delivery, and more (check out our infographic for more details) when services firms implement PSA solutions.

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 were generally designed to be easily configurable by end users, quickly integrated with other commercial or legacy systems, and readily learned by end users.

Because of this focus on fast deployment, inexpensive operational costs, and material improvement in performance, 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.

Now that we’ve covered the five W’s (who, what, when, where, and why), the H (how) can be a pretty involved discussion. It starts with understanding what you want to achieve by implementing a PSA tool. 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.

Before diving into specific products, there are questions you might want to think about that might 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? Many of these themes are explored further in our eBook entitled Professional Services Automation: A Quick Primer. There are also a couple of excellent white papers by SPI Research entitled Professional Services Automation: Reframing the “Best of Breed versus Single Platform Integrated Suite” Debate and Evaluating Professional Services Automation Software: PSA Deconstructed that are worth a read.

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. SPI Research has published an excellent PSA Buyer’s Guide that includes profiles of the top Professional Services Automation software vendors. While most journalists and analysts who specialize in the professional services market use the term “Professional Services Automation,” there are a few other alternative terms in use as well that authors employ to describe PSA vendors. These include Gartner’s use of “PPM for Professional Services” and Software Magazine’s use of “Service Support Software.”

One of the other big advantages of modern SaaS-based PSA software solutions is that it’s generally very easy to take them out for a trial run. There’s usually no software to install, servers to spool up, or contracts to sign. For instance, to try out Projector, you can sign up for a free trial account, play around with a sample implementation complete with demo data, attend a pre-scheduled demo webinar, or schedule a live personalized walk-through.

Finally, there is one last thing I’ll mention about selecting a PSA vendor. Given that the whole point of implementing a PSA software solution is to improve the bottom-line performance of your professional services organization, make sure the vendor is able to demonstrate how their product and services specifically can help your organization. I’ll take a moment to boast a bit here and 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, project margin, and successful project delivery. In those three categories, compared to the top PSA vendors in the report, I was happy (but not surprised) to see that Projector users scored at the very top of the utilization metrics and amongst the best in the project margin and successful project delivery metrics.

If you’re interested in exploring for yourself how your firm’s performance metrics stack up against industry averages, and how organizations that use Projector compare against firms that use other PSA tools, have a look at our professional services performance scorecard:

It’s a nice way of seeing 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.

I hope this little exercise in explaining the five W’s (and the H) of Professional Services Automation gives you a clearer view about what PSA software is, who might find these applications useful, and how you would go about selecting and implementing a solution. I’ve also endeavored to present this story adhering to that other great journalistic tradition of presenting verifiable fact by citing third-party sources including industry analysts, independent journalists, clients, and end users.