Professional Services Automation (PSA) Comparison Analysis Vendor Survey

Welcome to CAmagazine’s 2006 survey of professional service automation systems. This year we have results for 28 different products – Abak, Adagio, BalaBoss, BST, Business First, CaseWare, Corecon, Deltek Vision, Envision, Epicor, Exact Globe. Jovaco, Maconomy, Microsoft Dynamics AX, GP, NAV and SL, NetSuite, OpenAir, OroTimesheet, Project InVision, Projector, ResQ, QuickArrow, Sage MAS 500, SunSystems, Tenrox and TPS.

The Aberdeen Group, one of the leading information technology analysts, defines PSA as a system that “supports the core business processes of services-centric organizations to more efficiently utilize people and streamline the project lifecycle to save time, cut costs and increase revenues.” PSA systems typically cover most, if not all of the core business processes for professional service organizations. But there are other systems (including timesheet, time billing, and practice management) that contain components of PSA, and that we have included under the PSA umbrella.

Professional service organizations typically share similar business processes. The first step is winning the business. PSA solutions can help track the opportunity, determine the impact on resources, and even generate a contract. Next is planning the project – you need to define the work breakdown structure (the activities to complete the project), build a budget and assign resources to each activity. Employees will then enter the time they spent on the project or activity. It should be critical for every professional service organization to have visibility on project status. Everyone needs to know how they are doing compared to the budget. It’s not enough to know how your budget compares to actuals. What if the estimated costs to complete the project are greater than the remaining budget?

Professional service firms use a variety of methods to bill their clients – in detail, in summary, or by reconciling actuals to budget. Unfortunately, many firms use a manual system to generate invoices. Not only is this inefficient; it’s an open invitation for errors. Some firms might also have issues related to when to recognize revenue. Professional service firms need reports to evaluate the utilization and effectiveness of their resources. And just like other firms, they have financial business processes (accounting systems), and need to track and service their customers (customer relationship management) and to manage/pay their employees (HR and payroll systems).

PSA vendors offer a wide variety of functionality. At one end of the spectrum are timesheet systems, which provide timesheets, expense reporting and project management. Next are time-billing systems that include billing, and sometimes purchasing, allowing for accumulation of external costs for products and services so that project managers can compare actual costs of time and materials to budget. When targeted to accountants or lawyers, these systems are usually referred to as practice management systems.

On the other end of the spectrum, PSA vendors offer integrated solutions to meet all the system needs of professional service organizations – including timesheet, time billing, customer relationship management, as well as resource , opportunity and knowledge management.

This year’s survey includes some additions: knowledge management, multicompany considerations and the ability to assign resources to any level in the project hierarchy. Knowledge management is an important technology for any company, but especially for professional service organizations that want to share knowledge among employees and clients. Multicompany requirements can be a significant factor in deciding which system to select, according to Jonathan Taub, CA•IT, at Rimrock Corporation. (Rimrock is a value-added reseller of Microsoft Dynamics GP and Jovaco.) Complex organizations will want to be able to enter time and expenses across multiple companies on the same timesheet and have the system automatically post to the proper project subledger. Another differentiator is the ability to assign resources not just to a project but to a specific task or phase in it.

You will see from the charts that many of the systems listed also fall into the category of accounting or ERP. Vendors have finally realized that professional service organizations’ needs are different from those of manufacturers and distributors, and have added PSA functionality. But in some cases these products don’t go far enough. Eric Lacourcière of Groupe AGI (developer of Abak) explains that his company has been successful by offering PSA features that address the heart of a professional service organization. Abak is an example of a best of breed that is integrated with a number of accounting systems, including Sage Accpac and QuickBooks.

The charts also show that Microsoft offers four PSA solutions, with Microsoft Dynamics SL (formerly called Solomon) having the most out-of- the-box PSA features. However, Microsoft’s Steve Croth says each of the company’s products has PSA features as well as add-ons for deeper functionality from third parties. Croth also spoke about Microsoft’s road map for its business applications. Wave one of “project green” enhances the existing applications with features such as role-based computing (provides a personalized view and access to information and tasks based on an employee’s role), work flow, and business intelligence. Wave two will merge all the applications, using the best of each one. Wave two is scheduled for release in 2008.

Another PSA trend is the spread of the application service provider (ASP). Of the 28 products covered in our charts, nine are now offered via ASP. An ASP hosts the application on its Internet site, which is typically equipped with state-of-the-art technology and security. With an ASP, you avoid the costs associated with managing the computer and database that goes with it. This solution can make sense for professional service organizations that have people scattered across the country.

There does not seem to be as much buzz about PSA systems as there was a few years ago. But although the acronym may change, the need for PSA will not.

2005 Accompanying Article

Welcome to our second annual survey of professional service automation systems. This year's chart features results from 24 PSA vendors, including Abak, BalaBoss, BST, CaseWare, Clarity, Epicor, MAS 500, Microsoft Business Solutions - Axapta, Great Plains, Navision, Solomon, OpenAir, QuickArrow, SunSystems, TPS and Wind2.

As you may recall from last year's survey, companies providing professional services – accounting firms, architects, engineers – have needs that are very different from those of product manufacturers and distributors. For a long time, the popular vendors of accounting and ERP systems ignored the special needs of professional service organizations, but recently they have come out with a variety of PSA products.

Although specifically designed for professional service firms, PSA can be used by any organization that manages projects and tracks time, such as internal IT or R&D departments. The Aberdeen Group, one of the leading information technology analysts, describes it this way: "PSA supports the core business processes of services-centric organizations to more efficiently utilize people and streamline the project lifecycle to save time, cut costs, and increase revenues." PSA systems typically cover most, if not all of the core business processes for professional service organizations. But there are other systems such as timesheets, time billing, and practice management that contain components of PSA and that we have included under the PSA umbrella.

This year’s survey includes several new features, including a section where vendors list the top five reasons to purchase their software, and another that covers the costs of PSAs from application service providers. ASPs host the application on their Internet site, which is typically equipped with state-of-the-art technology and security. This allows the user to avoid the costs associated with managing the computer and database that goes with it. Since Professional service organizations often have people scattered across the country, and ASPs run over the Internet, they would seem to be a good match. Also, ASP is PSA spelled backwards, which must mean something.

PSA vendors offer a full range of functionality – from simple to sophisticated. At one end are timesheet systems that include timesheets, expense reporting and project management. Next you’ll find time-billing systems that include billing and sometimes purchasing, allowing for accumulation of external costs for products and services so that project managers can compare actual costs of time and materials to budget. When targeted to accountants or lawyers, these time-billing systems are usually referred to as practice management systems.

On the other end of the spectrum, you’ll find integrated solutions that meet all the system needs of professional service organizations – timesheet, time billing as well as customer relationship, opportunity, resource and knowledge management.

The various systems in our charts are enablers of business process improvement in organizations. However, good technology is not enough. You need good people and processes. How do you know when your business processes need improvement? One way is to compare your key performance indicators – chargeable ratio, profit, collection period and so on – with the rest of your industry. All professional service organizations are interested in similar KPIs. Unfortunately, it’s not easy to obtain these KPIs from the industry. But in the online version of this article, you’ll find extracts from a report that can be used as a starting point.

Wind2 Software, Inc. recently published the results of its 2004 annual survey of key ratios and statistics. Approximately 68% of the 190 respondents were architectural, engineering or A/E firms. We have assumed that other types of professional service firms would also benefit from the results. Although only 2% of the firms were Canadian, there is no reason to believe Canadian metrics would be significantly different from those of the US.

Here’s a small extract from the 62-page report that can be obtained from Wind2 for US$399 by calling 800-779-4632:

KPI

2004

2003

% change

Chargeable ratio

62.20%

60.00%

3.68%

Net multiplier

2.92

2.85

2.46%

Profit

9.80%

10.40%

-5.80%

Net revenue - all staff

$87,381

$88,889

-1.70%

Net revenue - technical staff

$108,483

$106,570

1.80%

Current ratio

2.91 to 1

2.7 to 1

7.78%

Average collection period in days

67.4

67.6

-0.30%

Completion to billings (WIP) in days

21.4

19.5

10.02%

Wind2 has provided commentary on the KPIs as follows:

Chargeable ratio, the percentage of time spent performing chargeable work, increased from 60% in 2003 to 62.2% in 2004. Over the past 10 years, this ratio has been as high as 65% in 2000 and 2001, and as low as 60% in 2003. Each percentage change in the chargeable ratio typically has a significant effect on profit (income). Usually, an increase in this ratio translates into higher profit percentages. However, this was not the case for 2004.

Net multiplier, a measure of markup on labour costs, rose from 2.85 in 2003 to 2.92 in 2004. This key indicator is somewhat counter to what one usually expects in a somewhat stagnant economy. If you compare the average or mean values, the ratio tends to make more sense with 2004 averaging 2.89, and 2003 averaging 3.01 (a 4% change). Typically the ratio falls as a result of staff time that is not billable or staff “apple polishing” (spending extra time on a project because no other work is pressing).

The decrease in Profit on net revenue before taxes and distributions from 10.4% in 2003 to 9.8% in 2004 reflects a drop in profitability of almost 6%. This is the fourth consecutive year that there has been a drop.

Net revenue per total staff decreased slightly, while Net revenue per technical staff increased slightly from 2003 to 2004. This interesting occurrence was possibly caused by an increase in the proportion of support staff to the total staff count, and a more billable technical staff.

Current ratio, a measure of how well a firm can meet current obligations, increased by almost 8%. An increase in the current ratio typically indicates more of the profit is being kept in the company; therefore, smaller distributions are made to owners. The 2004 survey indicates firms are continuing to take a conservative stance, retaining more profits in the company than in previous years.

Average collection period stayed about the same: 67.6 days in 2003 to 67.4 days in 2004. The number of slow-paying clients always increases with economic downturns. However, collections tended to plateau along with the economy. Firms must continue to closely monitor their “problem” clients.

Completion to billings (WIP) increased for the fourth straight year (15 days in 2001 to 21.4 days in 2004). The continual increase in this KPI is a red flag: firms are taking longer to process their client billings, or more projects are becoming a challenge to bill. Either way, an increase in the average number of days to bill a project translates into further delays in converting services to cash.

After examining your KPIs, you should review your operations for efficiency and effectiveness. At this point you might realize an investment in technology can bring improvements. You might need some integration or customization or even a completely new system. Replacement should be a last resort because of the costs involved. But if you have a compelling business case, you can change your system and optimize your business processes at the same time.

Many of the PSA vendors in the attached chart should be able to help you improve your business processes. Why not leverage their knowledge of your industry? In fact, your final decision should depend to a large extent on how well they know your industry.

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