Mazars Czech Republic is local branch of the international accounting firm. Like many mid-sized firms, their paper and excel-based systems just weren’t keeping up with the firm’s growth, neither in the size nor sophistication of the business. Like all paper-based systems, Mazar’s time & expense recording and invoicing was taking up a lot of valuable management time – in addition to this, it was very difficult for the Managing Partner to see key data like work in progress and utilisation until after the end of the month.

In order to cope with these reporting issues, and to reduce the amount of administrative overhead, Erick Gillier, Accounting & Consulting Manager, decided to implement a software solution. After looking at several alternatives, the chose time@work. Read The Case Study....

In recent years a new kind of business software package has reached prominence. First identified in the USA by Industry Analyst The Aberdeen Group, Professional Services Automation or PSA software is now making serious waves in Europe.

The essential idea behind PSA is that it brings the same levels of management control and information to Professional Services organisations – such as Consultancies, Law firms, Accountants, Advertising & PR and and also to internal services organisations, such as IT or engineering. Ironically solutions which provide these controls have been in place in manufacturing, logistics and retail companies for decades.

In this article we will focus on what a PSA is, why it is especially necessary today. We will also consider what a PSA package should deliver, and explore some of the business benefits.

A good starting place is to look at the problems that PSA solutions are supposed to address. After all, how many dot-com casualties were caused by brilliant young men finding ingenious solutions for problems that didn’t really exist. Whilst it is hard to generalize between services firms, between different industries and different geographies, certain issues crop up again and again:

Globalisation

It’s easy to imagine that globalisation doesn’t affect you – especially if you have offices in only country. The truth, though, is that as soon as you start billing in other currencies (such as the Euro) or carrying out work overseas, you can be faced with a raft of legal and commercial issues. Are your invoices legal? Are you able to accurately report for foreign currency revenue? Can you comply with Euro processing requirements?

Changing Measures Of Value

In the IT industry companies are being forced to move from a time & expenses business model to fixed-fee or shared-risk cost models – whilst advertising agencies are often moving towards a time & expense model as a better way of judging their contribution to their clients than an “advertising spend + 15%” model. In recent high-profile cases, law firms, whilst keeping the time & expense model, are being forced to demonstrate a lot more clearly what they are doing for their customers. In each case the message is the same – services firms are being asked more and more to justify the value they add to clients – “this is the way we’ve always done things” is no longer a satisfactory answer to the price-question.

Measuring Profitability

In his book “Managing the Professional Services firm” David Maister says that 80% of the typical Service Firm’s clients are responsible for 125% of profits – this means that 20% are actually producing a loss.

Controlling Cash

From invoice production to cash collection, the post boom environment has served to remind us all of the importance of watching cash properly. When margins are being progressively tightened, quicker, more accurate billing and prompt payment can make the difference between a healthy and an ailing company.

Utilisation

Strictly speaking, utilization is only really important to people who charge on the basis of time & expense – unlike the majority of creative and PR professionals. However it is so important I felt it better to include it here – a friend of mine works as a manager at a Big 5 consulting firm – when asked what were the most important things for him managing his team – responded “utilization, utilization and utilization” – which, in case you haven’t been introduced to the mysteries of services firms, is the proportion of billable time which is actually billed. Whilst there are many ways of calculating this, the high fixed costs associated with skilled people means that a 2% in utilization rates can make the difference between a loss making consultant and a highly profitable one.

Why haven’t these problems been solved in the past? Surely consulting companies have made a lot of money solving the problems of manufacturing and logistics companies – why is this process only just now beginning for services firms. There are several reasons. The typical services firm is smaller, for example the Prague office of PricewaterhouseCoopers (where our head office is based) has around 600 employees, making it one of the largest such firms in Prague, whereas a manufacturer with only 600 employees would be considered quite small. This size is comparable to the largest accounting or consulting practices in, say, Manchester or Leeds in the UK.

Furthermore, whilst manufacturing process are broadly similar (raw materials are transformed into a value-added end product), services businesses have a huge variety of business models. Another interpretation is that in the services industry we have been guilty of trying so hard to solve other people’s problems we haven’t looked at our own – a case of the cobbler’s children going barefoot.

PSA Solutions ...

A PSA solution comprises the following applications:

• A web-based portal, allowing employees access to timesheets, expense forms and reports specific to their work (utilization, project reports etc).
   
• A method of giving customers access to data which concern them – from project reports to time- and expense-form approval – usually in the form of a web-based customer portal.
   
• Optional offline time & expense entry to allow employees to enter information when they are away from an internet connection.
   
• Workflow systems which allow managers to track timesheets, expenses and invoices  Specialised invoicing functionality – the emphasis being on time carried out on a task or achieving of pre-agreed goals.
   
• Budgeting– allowing managers to project the amount of time spent on a project and constantly measure performance against that – giving a kind of ‘early warning’ system on projects.
   
• Resource planning, to allow the correct allocation of people based on their skills, preferences and availability.
   
• Project management – often through integration with Microsoft Project, the industry standard Project Management tool.
   
• Management information tools, giving managers key metrics such as utilization (the proportion of time which can be billed), profitability and discount rates.
   
•  Integration with accounting systems – as business processes become more interconnected, new software has to be able to talk to existing packages and, in the B2B scenario, with the packages of your business partners. Many vendors have adopted technology called eXtensible Markup Language or XML, sometimes called the Esperanto of software.

It’s not difficult to see that these software applications are going to be useful for most services companies, but as accountants we need to quantify what those benefits are. In our experience, the key benefits of implementing a PSA solution come in two areas – financial performance and management information. Whilst it is the financial benefits which produce a measurable return on investment, it is the decision-making support from the analysis and reporting which deliver real long-term value.

Key financial benefits shorter billing cycles, reduced discounting (from having better invoicing and fewer disputed invoices) and improved rebilling of expenses – in fact, one user of time@work expects to gain a return on their investment in under one year on expenses rebilling alone. On the reporting side it’s harder to measure the return on investment – but how do you measure the return on the headlights on your car – they allow you to see where you’re going and drive at night and in dangerous conditions, but assigning a monetary value to that is pretty tough. In the same way, when you’ve got a system that allows you to see things like work-in-progress, utilisation rates (both actual and projected) and realised hourly rate, you can’t imagine what you ever did without one.