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 efficiency of business processes
- Financial management
- Managing customer relationships
In the past, it has proved fairly complicated and time-consuming to manage projects, resources, and finances with complete accuracy. Thanks to the evolving technology, 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 much easier than ever by helping companies optimize the way they track, manage, and utilize their time. Let’s take a look at these software types to understand how they might help you and the differences between each.
What Is ERP?
Enterprise resource planning, known as ERP, is software that helps you manage your daily business processes like production, accounting, manufacturing, team and project management, and more. ERP links together many related parts of the business, enhances efficiency by eliminating errors, and ensures that data is not duplicated. ERP was designed predominantly for resource planning, budgeting, procurement, and sales.
Instead of having numerous databases and spreadsheets, an 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
What Is a PSA?
Professional services automation, or PSA system, helps companies manage their processes. A PSA 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 spent on various projects and tasks for billing. All this will help you project profits and identify inefficiencies.
The Differences: ERP vs. PSA
Even with the advancements in technology, current ERP implementations lack flexibility and scalability to solve modern business problems. A recent example is the increasing remote work due to the COVID-19 pandemic where ERP systems are falling short in scaling up and accommodating these types of employees.
Here are a few of the main differences between an ERP and PSA:
- ERPs Have Continuous Cost: ERP software is getting expensive and inelastic because of the constant need for additional customizations, enhancements, and improvements in functionality. According to Technology Evaluation Centers (TEC), the implementation cost is almost three to four times what was initially estimated. The necessity of today’s workforce is diverse, mobile, and advanced, but legacy ERP systems/users cannot meet it, making themselves part of a costly and disruptive upgrade treadmill.
- 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 will not be able to run their business as usual. It is estimated that 50 percent of organizations experience disruption at the operational level when they go live.
- 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 places ERP software fall short.
To sum up, 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 that is 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 as to why companies are opting for PSA:
- A PSA integrates well with other software and tools like CRM, ERP, etc.
- It acts as an alternative to an array of software — project management, time tracking, invoicing, resource planning, and business intelligence.
- Centralizing project delivery data provides visibility into performing metrics such as revenue, cost, utilization, and profit margins.
- It enables employees and managers, who are accountable for business performance, to handle and evaluate delivery at scale.
- Account and resource managers can identify trends and allocate staff to match demand through reporting features.
- Leaders can view the areas in which the business is performing well and the opportunities to enhance efficiency.
- Projects can be managed efficiently by reducing spreadsheet time and manual entries.
- Real-time reporting and visibility help optimize resource use and drive more significant profit margins.
- A PSA helps in gaining control over the projects, financials, timelines, and resource data.
- Companies can choose to upgrade their software when headcount and demand increase.
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.
Ready to learn more? Download our ebook about the Ultimate Guide to Operational Efficiency within the Professional Services Industry.