PSA Software vs. Project Management Software: What’s the Difference?

The Project Management Institute defines project management as “the use of specific knowledge, skills, tools and techniques to deliver something of value to people.”

Project management software enables project teams (headed by project managers) to develop, monitor, manage, correct, and change the various tasks – many of which are interdependent – that govern successful project completion.

On the project management landscape “successful project completion” is generally understood as an outcome that meets three criteria:

• All expected business objectives have been achieved per scope documents and customer expectations (note: the customer can be internal or external to the organization carrying the project)
• The project has finished on time as per the schedule
• The project has finished within budget

Of course, using project management software does not automatically guarantee positive results. There are many factors that enable success; especially with respect to managing change and stakeholder expectations.

However, failing to use good project management software virtually assures that projects – especially if they are complex – will be troubled at best, and disastrous at worst.

Why use project management software?

Why is project management software essential rather than optional? As experienced project managers fully understand and new project managers rapidly discover, projects generate a massive, and in many cases overwhelming amount of raw information.

For example, each individual task or project can have tens or hundreds of thousands of other tasks associated with the duration, cost, resource, and relationship with other projects.

What is more, the task may also be linked to the risk management plan and the communication plan (which trigger additional tasks). On top of this, changes that are in response to negative or positive developments, add to the growing volume of information that must be captured, categorized, and used accordingly.

Project management software enables project managers (or other designated members of the project team such as resource managers, budget managers, etc.), to track and control progress and facilitate effective collaboration, communication, and decision-making. As a result, projects will ideally reach the finish line on time, within budget, and having achieved all business objectives.

And when this ideal is not achieved (which unfortunately happens quite frequently; especially in IT), project management software plays a pivotal role in illuminating what went wrong, so that lessons can be learned for the future.

PSA software is a multi-faceted solution that is developed specifically for organizations that deliver billable projects, activities, or provide managed services.

There are multiple PSA software solutions available in the marketplace, and each has its own functions, features, capabilities, strengths, and limitations. However, according to Service Performance Insight all robust and enterprise-grade PSA software solutions support the following fundamental objectives:

• Capture project revenue and cost data in a central database
• Provide a user interface that is consistent across all applications
• Co-locate costs and deliverables, so that productivity can be measured, analyzed, and improved at various levels (e.g., territory, account, project, and individual resource)
• Embed reporting and analytics within the application, so that leaders are proactively informed of risks and issues before they become complex and costly problems
• Create an audit trail to identify success (for best practices) and failure points (for lessons learned)
• Support for global operations with multicurrency and multilingual applications that comply with local regulations and taxes
• Reduce administration costs by replacing (or at least reducing) the use of manual error-prone spreadsheets
• Establish a single-source-of-truth and visibility driven by real-time information

Why use PSA software?

Organizations utilize PSA software to solve different problems and achieve various goals. However, there are four key reasons why Service Performance Insight, in its 2022 Professional Services Maturity™ Benchmark, states that PSA software has become the “core solution for business planning with a view of the best projects, best clients, best services and best people to translate the business plan into reality.”

PSA software drives engagement confidence by successfully delivering business outcomes for customers

On the post-pandemic business landscape, customers expect milestones to be achieved sooner and deliverables to be accomplished faster. PSA software enables this by integrating project and resource management, configurable workflow automation, and collaboration — ultimately so that teams can deliver projects using multiple work methodologies at an accelerated pace. PSA software also helps proactively identify and resolve capacity and staffing issues that would otherwise negatively impact the ability to deliver.

PSA software generates full visibility that drives better and faster decision-making

PSA software generates real-time transparency into engagements and the entire quote-to-cash cycle. Is also creates a reliable system of record that centralizes and automates activities and data, and provides decision-makers with real-time, actionable business intelligence regarding engagement health and operational performance.

PSA software centralizes key processes and optimizes the services end-to-end lifecycle

PSA software centralizes all functions and operations for the full end-to-end lifecycle of services engagements. This includes pipeline management, financial management, project management, resource management, change management, reporting, and business processes.

PSA software drives profitability

This fourth and final key reason for using PSA software is not essentially a standalone benefit, but more of a culmination of the three previous reasons: it drives profitability. As noted by Service Performance Insight:

“[PSA solutions] continue to drive significant operational performance benefits, yielding higher revenue and profit for professional services organizations…PSA solutions help match the right resources, with the right skills at the right time to the right projects. PSA solutions yield several core benefits to PSOs, but most executives only need to look to the relative 11% (from 68.1% to 75.3%) increase in billable utilization as a primary reason to select PSA.”

Earlier, we noted that enterprise-grade PSA software and project management software share some similarities. These functionalities typically include project management, resource management, time management, collaboration, and process management.

Project management

Project management functionality refers to integrated tools that help leaders and teams create, edit, and manage all tasks and assignments – ultimately so that work can be efficiently and effectively ushered forward through to completion, and projects can (ideally) finish on time, within budget, and having achieved all business objectives. In addition, out-of-the-box and customizable templates can help teams accelerate, streamline, and simplify planning.

Resource management

Resource management functionality generates insights into how resource assignments align with financial objectives. In addition, leaders can perform hypothetical “what-if?” analysis to validate that existing capacity will meet anticipated demand (and if not, then recruiting can be accelerated to avoid a bottleneck). At the same time, this visibility ensures that resources are not “left on the bench” – which adds to overall labor costs and reduces project profitability.

Time management

Time management functionality gives leaders access to accurate, updated time and expense data. This increases the accuracy of financial projections, and of particularly importance for professional services organizations and managed services providers, this also enables real-time revenue recognition.

Collaboration

The surge in remote working accelerated by the pandemic is forcing organizations to re-imagine how they serve customers at a distance, but in a way that enhances vs. diminishes performance, efficiency, cost savings, and customer success. Collaboration tools help teams – regardless of whether they are co-located in the same physical space, or working in different cities, countries, or continents – share information in an organized and structured way.

Centralizing communications in PSA software or project management software also creates an archive for reference and audit purposes.

Process management

Automation dramatically improves efficiency, ensures compliance, and reduces (or ideally eliminates) human input error. Process management functionality enables customized workflow engines, which establish a framework for creating simple or sophisticated automated process based on project type and other key operational attributes (e.g., time and expense approvals, resource requests, etc.).

While there are some significant similarities between PSA software and project management software, they are nevertheless distinct solutions with fundamentally different applications – which means they are not interchangeable and are focused on achieving different business outcomes.

For professional services organizations, people and not projects are their differentiators. This is especially the case today on the post-pandemic landscape with the massive expansion of remote work (and hybrid work). People need to be connected to the right tools, data, and automation to provide more valuable experiences, streamline processes, and improve productivity.

This is at the heart of the business impact that robust PSA software provides: it connects people with the right technology for client engagement, opportunity planning, flexible delivery, financial insights, all empowering services organizations to delight their customers while driving profitable revenue.

By connecting systems, data, work, organization, people, and customers, PSA software offers the future of connected services today – enabling new ways of working, operating at the speed of business, and adapting to evolving business models.

Later in this article we explore when organizations should use PSA software vs. project management software. First, let us go deeper into several aspects that make PSA software different.

Financial management and GAAP

A critical – and difficult – challenge for professional services organizations is enforcing consistent compliance with time and expense policies for operations. PSA software addresses this priority by establishing heightened governance for time and expense administration, which ensures fluidity and sound business operations.

In addition, professional services organizations are responsible for providing accurate revenue with respect to public accounting standards (ASC606 IFRS15). PSA software creates scalable and repeatable structure and governance in categorization of revenue recognition methods. This drives efficient auditable revenue recognition, to ensure profit and loss margin real-time visibility.

Contract management

PSA software features customizable contract definition tools that create financial and billing rules, including rates. It also enables secure document sharing, so that leaders (and other authorized team members) can view and collaborate on proposals, agreements, change orders, NDAs, and other engagement-related documents. Furthermore, activity tracking helps evaluate actual performance vs. prospects, leads, and pipeline opportunities, while consistently staying in alignment with customer expectations.

In addition, PSA software and CRM integration also enables professional services organizations to track customers through the engagement (“bill to bid”) lifecycle, and target specific customer segments and offers by understanding key details of the relationship.

Resourcing for financial margin targets

In the previous section, we discussed that both enterprise-grade PSA software and project management software offer resource management functionality. However, PSA software expands on this capability with tools that enable professional services organizations to maximize resource utilization across multiple contracts, when evaluating demand and capacity against resource skill sets and competencies.

Services planning and financial forecasting

Another key challenge that professional services organizations face is difficulty managing the pipeline of incoming projects. PSA software enables full, real-time visibility of the sales pipeline and services backlog, so that leaders can focus on proactive planning vs. reactive problem solving – or worse, damage control.

Budget management at opportunity, contract and project levels

PSA software connects the “front office” (sales) with the “back end” (service delivery and finance), so that all individuals attached to a project can clearly see what has been contributed to a customer’s account (and by whom and when).

Revenue recognition

Revenue recognition is a process that enables professional services organizations to record revenue generated from work done for a customer. The work can include projects and tasks still in progress, as well as completed projects and contracts. It is important to note that the revenue recognition process is separate from the invoice process, although the data from both processes should reconcile. The revenue recognition process covers six core activities:

• An engagement is created in the PSA software (and the appropriate revenue recognition options are selected)
• A pre-run report is executed, and as necessary engagement-level adjustments are made
• A tentative report is executed
• Revenue is committed
• Revenue transfers are made
• Reconciliation with invoicing takes place

The revenue recognition method that is selected must also align with the requirements of an engagement and/or the preferences of a customer.

Support for multiple billing methods

In professional services, there are various business methods for how customers are billed, such as time and materials, fixed fee, packing services as subscriptions, or outcomes achieved. PSA software supports each of these business methods, so that the best option can be selected based on organizational policies, project dynamics, and customer preferences or requirements.

Billing rule tracking and automation

In some professional services organizations, billing is tedious, time consuming, and error prone. This not only leads to costly re-work, but it can damage reputation and erode customer trust.

Indeed, there is really no such thing as a “good” billing surprise in professional services: all situations that force organizations to provide customers with revised invoices or a statement of account are unwelcome.

PSA software streamlines billing and expedites the processing of precise and timely billing/invoices. This also reduces days sales outstanding (DSO), as well as accounts receivable/finance maintenance.

Financial performance and health tracking

A lack of visibility into engagement health and status forces leaders to guess vs. know whether engagements are on track and profitable. This risk is bigger and more difficult to mitigate in longer engagement, and especially when delivery team members are embedded in a customer organization.

PSA software enables transparency into project portfolios and core KPIs and provides a harmonized view of critical metrics to closely monitor health, schedule, budget, and delivery of services.

Customers at the center

PSA software helps maintain customer satisfaction throughout the engagement by measuring customer feedback, mitigating service risks, and improving delivery processes. A Forrester survey of professional services organizations around the world found that the number one benefit of PSA software adoption is improved customer satisfaction and advocacy.

There are three types of organizations that use and benefit from PSA software:

Conventional professional services organizations

Professional Services Organizations (PSOs) need robust, all-in-one PSA software that seamlessly handles opportunity management, contract management, and workstream delivery. This drives accurate forecasting and real-time monitoring of services, which leads to full, accurate revenue recognition and better profitability.

Embedded services organizations

Embedded Services Organizations (ESOs) are usually part of larger product-based companies and provide consulting services that are related to those products. Like PSOs, ESOs need PSA software to establish a single integrated view of financial operations and generate real-time snapshots of how the organization is performing against benchmarks.

Managed service providers

Managed Services Providers (MSPs) typically (but not exclusively) provide ongoing IT support through an outsourced relationship. PSA software enables MSPs to track smaller time increments, and access real-time customer and project visibility in one place.

Also, MSPs face some challenges that are not shared by PSOs and ESOs. Specifically, it can be excessively difficult for MSPs to understand contract margins in relation to subscription work. MSPs can also miss too many SLA targets, which puts both engagement health and the customer relationship at risk. Fortunately, PSA software addresses both challenges.

With respect to the former, PSA software streamline workstreams through better governance against appropriate subscriptions. This results in greater accuracy for subscription (or multiple subscriptions) profitability.

PSA software heightens SLA monitoring and compliance of response times and solutions defined through contracted SLA requirements.

This enables MSPs to take intelligent, proactive action (which could include stopping customers from unintentionally engineering adverse outcomes), and reducing the volume, frequency, and severity of missed SLA targets.

While project management software (and most project and portfolio management solutions) helps in controlling and closing projects on time, the central focus is on the project.

PSA software includes all the core aspects of project management but adds a substantial amount of functionality that focuses on the financial aspects of the business. For example, leaders can identify and allocate resources based on whether they will drive the best revenue margins for the rates billed in a contract and monitor and evaluate how change will impact revenue targets.

This is a level of financial sophistication that is typically not required in conventional project management – and therefore, not supported by standalone project management software.

Through PSA software, organizations establish a single, integrated view of the entire organization’s financial operations provides an invaluable snapshot of how the organization is performing against benchmarks, and helps leaders identify areas of improvement and growth because:

• Information is organized on how work and resources are allocated, and margin impacts to the business
• Financial performance is planned and tracked daily
• Hours, costs, and revenue estimates are at the detailed level, and provide roll-up views
• Detailed records reduce invoice disputes, which results in fewer credits and greater accuracy of reported revenue

The right PSA software plays a pivotal role in making engagements more predictable and profitable, customers more satisfied and loyal, and professional services organizations more successful and competitive.

Learn more about Planview’s PSA software solution by requesting a demo.