PSA vs. ERP-Why It’s Crucial to Know the Difference

For any business, time is as important as capital, assets, and resources for its success. On average, employees contribute their time towards: 

• Operational expenditures
• Increasing the efficiency of business processes
• Financial management
• Business development 
• Managing customer relationships

In the past, it has proved complicated and time-consuming to manage projects, resources, and finances with complete accuracy. Thanks to the evolving technologies, tools like Enterprise Resource Planning (ERP), designed for product-based businesses, and Professional Services Automation (PSA), designed for project-based businesses, now make this job easier than ever by helping organizations optimize the way they track, manage, and utilize their time across various business activities. 

Let’s take a look at these software types to understand the differences between these and how they can help you so that you can choose the one that best aligns with your needs. 

What is ERP? 

Enterprise resource planning, known as ERP, is software that helps you manage your daily business processes like production, accounting and manufacturing, as well as team and project management and more. ERP links together many related parts of the business, enhances efficiency by eliminating errors, and prevents data duplication. ERP was designed predominantly for resource planning, budgeting, procurement, and sales.

Instead of having numerous databases and spreadsheets, ERP software brings all of the data together to create, use, and store it in a protected and structured repository.

ERP gives you: 

• Real-time business insights
• Decreased risk and management costs
• Better costing, efficiency, and user experience
• Streamlined processes
• Improved collaboration

According to recent survey data in SPI’s Professional Services Maturity™ Benchmark Report, professional services organizations (PSOs) that use ERP solutions see the following improvements versus organizations that don’t have such solutions in place:  

• 9% improvement in employee billable utilization
• 74% year-over-year change in PS revenue 
• 10.5% increase in profits (EBITDA) 

What is a PSA?

Professional services automation, or PSA, helps companies manage their processes. A PSA system is the closest thing to an ERP in running daily business operations. Different PSA software vary in functionality, with a pretty broad range of options.

A well-designed and customized PSA will have some critical functions, such as automated project, time, expense, asset, and resource management. With a PSA system, you can see and meet project timelines and milestones and allocate resources in a way that maximizes their utilization. A PSA solution can also track how much time an employee spends on various projects and tasks for billing purposes.

All this will help you project profits and identify inefficiencies.

ERP vs. PSA: The Differences

Here are a few of the main differences between an ERP and PSA:

ERPs Have Continuous Cost

The modern workforce is now more mobile, global, and digitally connected than it has ever been, but traditional ERP platforms were not designed to support this type of agility. According to Gartner, around 60% of ERP implementations need substantial customizations to adapt to changing business needs, and 70% fail to meet the initial business goals. 

This often results in organizations getting stuck with increased total costs and extended upgrade cycles with disruptive processes that can’t keep up with the expectations of today’s workforce. 

ERPs Experience Disruptions to the Backend

Whether businesses choose to upgrade or undertake a custom project, they will inevitably experience some downtime. This will require a lengthy support process, during which they can’t run their business as usual.

ERPs Can Lead to Data Silos

ERP investments can date back a decade or more; therefore, companies are employing CRM, HRIS, PSA, and additional solutions to fill gaps in their original ERP solution. All this makes it difficult and time-consuming for leaders and managers to get a complete view of time, data, and other measurement systems across their company and teams.

Data accuracy, user experience and analytics are the top three areas where traditional ERP software solutions fall short.

Here are a few more differences at a glance:

To sum up, even with the current technological advancements, current ERP implementations lack flexibility and scalability to solve modern business problems arising due to regulatory shifts and economic volatility.

That’s why ERP systems need to be used with other solutions to handle functions like resource management, timesheets, accounting, project management, etc.; however, you can choose to use one solution i.e. PSA as all these functions exist in it. 

Why Choose a PSA?

The bottom line is that ERP implementations and patchwork solutions have left enterprise projects, resources, and time data fragmented in multiple systems like ERP, CRM, HCM, BI, and even Excel. Businesses lack a single source of truth for their project organization, which makes harnessing and managing the data a tedious process that ultimately costs businesses significant overhead. 

To bridge the gap, companies are opting for a solution like PSA. Here are 10 reasons why companies are opting for PSA: 

1. A PSA integrates well with other software and tools like CRM, ERP, etc.
2. It acts as an alternative to various software — project management, time tracking, invoicing, resource planning, and business intelligence.
3. Centralizing project delivery data provides visibility into performance metrics such as revenue, cost, utilization, and profit margins. 
4. It enables employees and managers, who are accountable for business performance, to handle and evaluate delivery at scale. 
5. Account and resource managers can identify trends and allocate staff to match demand through reporting features. 
6. Leaders can view the areas in which the business is performing well and the opportunities to enhance efficiency. 
7. Projects can be managed efficiently by reducing spreadsheet time and manual entries. 
8. Real-time reporting and visibility help optimize resource use and drive more significant profit margins.
9. A PSA helps gain control over the projects, financials, timelines, and resource data.
10. Companies can choose to upgrade their software when headcount and demand increase.

According to SPI’s report, organizations with a high level of business process maturity have properly integrated CRM, PSA, ERP/CFM systems that offer a 360-degree view of client relationships.

From top client and partner programs, client centers of excellence, and global contract and pricing management to strong customer reference programs, such firms have a rock-solid system for managing customers and thriving despite increasing competition. 

SPI’s survey also indicates that the use of PSA solutions by professional services organizations (PSOs) results in the following improvements when compared with organizations that don’t use such solutions:

• 8% improvement in employee billable utilization
• 288% year-over-year change in PS revenue
• 117% increase in profits (EBITDA)

Not only this, the level of satisfaction that these organizations have with these solutions correlates with their critical performance KPIs.

For example, organizations that are very dissatisfied with their PSA solution have -1.0% revenue growth, 60.5% billable utilization and a 9.6% increase in EBITDA as opposed to 5.6%, 67.8% and 12.9% increase for very satisfied organizations. 

Organizations today are rapidly adopting an array of digital tools and steering themselves towards more automated and eventually towards AI-driven processes to maintain and elevate their competitive advantage. With this, they’re able to optimize their processes to cut down inefficiencies and deliver value to their clients with heightened consistency.

SPI’s report also highlights the declines in project delivery timelines at 73.4% and increased project overruns at more than 18%, critical KPIs that impact Professional Services Organizations (PSOs) as a whole. By leveraging AI and Generative AI (GenAI) for project management and resource planning, PSOs can work on this to stay ahead. 

Choosing the Right PSA

Currently, available PSA applications have almost similar capabilities like project management, accounting, planning, collaboration, etc.; however, they differ in the strength of those capabilities and user interfaces. 

To choose the right PSA solution for your organization, you need to identify your business goals and needs. You need to know what features and capabilities will fulfill your requirements and lead you to growth. The right PSA system will keep you out of spreadsheets and manual processes, and make you more engaged with the data in real time to help you make decisions that drive better profitability.