Conventional project management software is designed to meet your every need — unless you work in professional services. Traditional project management software doesn’t quite fit for these poor souls. The world’s a bowl of soup, and you’ve only got a fork. So you do what any of us do when given the wrong tools for the job. You improvise. You substitute. You build around the problem with spreadsheets. And soon, the whole system becomes so sprawling and convoluted, you spend most of the day just trying to hold the disparate pieces together and connect the dots.
What did professional services firms ever do to deserve this fate, and is there any chance for salvation?
What’s the Difference, Really?
First, we need to understand what makes professional services projects so very different from the engineering, IT, and construction projects that most Project Management software systems (and traditional tools like Gantt charts, for that matter) are designed to accommodate.
The short answer is that a professional services organization’s primary revenue driver is billable labor – a variable that’s inherently more intangible than physical assets, due to its fleeting nature, the inconstancy of billing rates by project and customer, and fluctuations in resource utilization and productivity, all of which impact profit margins.
The result is that the information needs of professional services project managers and services department leaders (namely, detailed data on real-time performance variability for customers, projects, tasks, and people) are divorced from the information needs of the finance department (namely, cumulative data on fiscal periods and entire departments). Furthermore, finance’s view is often through the rear view mirror, while project managers and resource managers must be forward-looking, and react in a more timely manner to change.
And without a software solution to accommodate both parties, fractures inevitably form in the ways that various stakeholders enter, track, and share project details – which breeds confusion, lack of transparency, and unnecessary administrative overhead.
For project management software to be successful in a professional services environment requires two significant changes in approach: accommodating a host of new metrics, and ensuring those new metrics are synchronized with traditional measures, accessible to all, and transparent.
The Missing Metrics
While professional services firms (and their individual needs and operations) are characteristically diverse, certain aspects of the project management challenge are fairly consistent across organizations of this type. With those consistencies in mind, project management software catering to professional services environments should accommodate (and integrate) the following requirements and related metrics:
- Revenue by Contract Type (for example, time and materials, firm fixed price, cost plus with various fees, or a combination of all three): Can you calculate what revenues a project earns, when, and under what constraints? What are the fees? What are the caps? Can you calculate this by customer, department, project manager, project, project type/product etc.?
- Contracted Backlog: Do you know how much work remains on the project and whether you’re on track to meet the budget? This metric should be calculated not just for existing contracts, but also for projects you hope to win, taking into account win probability.
- Indirect Costs & Rates: Which show how fringe benefits, overhead, G&A and other service/support centers impact total (fully burdened) project costs, and a comparison between projected rates and actual rates. Additionally, future planned rates can be used for longer-term business forecasting.
- Project Margin: It’s common to calculate gross margin, i.e. revenue minus direct costs, but do you know net margin or actual project profit taking into account indirect costs that should be attributed to the project such as fringe benefits, overhead, general & administrative costs, or other support services?
- Revenue/head: This can be a key metric for professional services organizations, especially over time to see how process improvement efforts impact performance.
- People Utilization: Which shows if your staffing levels are aligned with your current and forecasted workload. You want to look at both direct (billable) and indirect projects, and whether utilization metrics for individual employees, or departments, are meeting, exceeding, or falling short of their utilization goals. Another factor that may be highlighted is whether unnecessary use is being made of sub-contractors, thereby lowering staff utilization. Understanding the impact of future opportunities on resource utilization and availability, taking into account the probability of winning the work, is essential to see the true picture.
- Customer Accounts Receivable Balances and Days Sales Outstanding: Which identify the time taken to receive invoice payment and convert those receivable balances into cash. Providing this insight to project managers who are closest to the customer can be invaluable in accelerating payments and improving cash flow.
- Contract Win Rate: Which allows evaluation of your firm’s business development function and what types of projects are successfully bid.
- Project Issues and Risks: Which identify projects that may not meet contract terms, may fail to deliver on customer expectations, or incur losses for the business.
- Customer Relations: A non-quantitative view of recent customer activity such as notes, emails, comments from collaboration efforts, comments entered on timesheets, and other indications of the current state of customer interactions and relations can be valuable in addition to financial metrics or measures of project cost and schedule performance.
When project management software fails to accommodate (or to facilitate the sharing of) these metrics, professional services stakeholders find or build auxiliary systems to fill the gaps, thereby creating a tangled mix of poorly integrated solutions, each housing critical silos of project data.
And without a complete, coherent picture of the organization, it’s practically impossible to manage projects (or company finances) intelligently or strategically.
Services Software Salvation
Professional services firms shouldn’t have to settle for tools that don’t quite fit. No, it’s high time for Project Management software providers to meet the specific needs of professional services organizations head-on.
Beyond simply adding metrics, this means uniting project and people management with financial management in a single, unified system – built to support the needs of executives, project managers, operations, and financial teams alike.
And this sort of unification isn’t just valuable to professional services firms. Rather, project-centric organizations of all shapes and sizes stand to benefit from the integrated, comprehensive management of the entire project lifecycle. (After all, frustrations with manual system handoffs, process delays, and inaccurate data are hardly confined to the professional services industry.)
The hope is that with the right software, managers can spend less time worrying about the effectiveness and accuracy of day-to-day transactions, and more time working on transforming and growing their business as a whole.
That’s the power of unified projects, people, and financials — a perfect software fit. To learn more about Unanet’s capabilities and the importance of KPIs and accurate reporting, contact us.