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Calculating ROI for PSA
- QuickArrow ServiceLine White Paper
Assessing the impact a software solution can make on your business can be challenging. While sometimes difficult to clearly understand and articulate, the value a software solution could add to your business can have a profound effect on your top line revenues and bottom line profitability. Often times, solutions with the greatest impact can be the most difficult to evaluate from an ROI perspective, and professional services automation (PSA) tools certainly fall into this category.
Usually, the selection process of any new software solution begins with building a business case to determine if making an investment of both time and money would be beneficial. Identifying the solution's benefits is the first step, and should be straightforward. For example, our clients typically tell us that a PSA solution helped them solve the following key problems:
- Lack of visibility into project status and revenue forecasts
- Low project profitability and reuse of intellectual property
- Difficulty in the management and scheduling of resources
- Inaccurate capture of all client billable time and expense
Until now, it has been difficult to estimate the financial benefits of implementing a software solution. This is an essential part of building a business case because it helps prioritize the urgency of replacing the current solution being used in your organization - even if you're only using spreadsheets and manual processes now. To make this quantification easier, QuickArrow has analyzed all of the independent analyst studies results and organized them in a simple business impact calculator. By spending just a few minutes with this powerful new tool, you can model the impact a PSA solution could make on your business and determine if it could be right for your organization.
Challenges of Professional Services
Throughout our eight years in working with billable professional services organizations, whether they are consulting companies or services groups embedded within software/hardware companies, we've consistently heard concerns surrounding the same problem areas: visibility, profitability, managing resources, and capturing all billable costs. While the extent of these problems varies from organization to organization, these challenges are consistent for most, if not all of them.
The following questions should help to identify the relative magnitude of each problem in your organization and determine if a PSA solution may help you gain greater control of your professional services organization:
- Operational Visibility
- Do you have real-time visibility into your opportunity and services pipeline? Is it automated?
- How are your project timelines tracking versus their budgeted plans?
- Is your utilization where you would like or need it to be? How are you currently calculating utilization?
- Project Profitability
- Which of your projects are the most profitable? Which ones are losing money, and which are making money?
- Which of your clients provide you the greatest profit margins?
- Is your historical project intellectual property being reused from project to project?
- Resource Management
- Can you search for various resource skills and availability in an automated manner? How about your external contractors? Do you have the same visibility for them?
- Are you appropriately staffed based on your current and future project opportunities?
- Revenue Leakage
- Are you certain that all of your team's billable time and expenses are reported?
- Can you validate that your billable time and expenses are not incorrectly categorized as non-billable or assigned to the wrong project?
Quantification of Value
Depending on how you answered these questions, you likely have a good idea of if, and specifically where, a PSA solution could make a difference for your organization. The next step in building a business case is to estimate the impact or return in each of these opportunity areas.
The following are metrics and results identified by industry analysts and experts as the benefits of implementing a PSA solution. On average, a PSA solution provided those companies surveyed with:
- Utilization increase of 8%1
- Gross margin increase of 25% for repeat project types2
- Increase of revenue by up to 10% on billable project expenses3
- Invoice cycle time reduction of over 10 days1
- Reduction of time performing administrative tasks of 70%4
- Average payback from any PSA investment is less than 3 months1
These results are taken from end-user satisfaction surveys, business impact surveys, and telephone surveys completed by analysts including the Aberdeen Group and IDC.
These benefits are significant, but please note — they are averages and therefore may not take into account the specific goals and requirements that your organization may have. By using our innovative QuickArrow Impact Calculator, you can use the analysts' improvement figures or your own impact estimates to model the potential benefits for your organization.
You can run the calculator as many times as you wish with varying assumptions to determine the impact even small improvements could make for your top line revenues or bottom line profits. If you have any questions on the impact that a PSA solution may have on your business, please contact us.
1 Aberdeen, Professional Services Automation End-User Study, David Hofferberth
2 Building Professional Services, Thomas Lah
3 Aberdeen, What Works in Professional Services Automation, David Hofferberth
4 IDC, Professional Services Automation Return on Investment Study
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