This is the fourth post in our series on developing the business case for professional services management software. In our previous posts, we have shown how firms can quantify the value found within resource management software and process automation. In this post, we will be focused on the final pain point for our business case – Increasing Margins.
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All professional service firms desire to increase their margins. However, without the right information, this task can be difficult. To increase profit margins, firms need to be able to identify the following business intelligence:
- Accurate estimate of costs – Most firms gain clients by bidding on projects. One of the difficulties of bidding on projects is ensuring that the cost estimate is low enough that the project will be profitable. To make an accurate and profitable bid, firms need to be able to know specifically what it costs to deliver a particular product or service.
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- Project Delays – For service firms that deliver projects, the eroding of profit margins is frequently caused by project delays or failure to deliver projects on time. Frequently, these delays could have been prevented had senior management intervened earlier in the process.
- Profitable Projects – Not every project is profitable. Developing firms tend to track projects by cash flow, not by traditional accounting methods. However, to determine whether a project was profitable, management needs to track the project financials by the traditional accounting method. Without a final profit and loss statement for a project, senior management is unable to identify whether the project was profitable.
Most firms attempt to track this information for their business within QuickBooks or multiple spreadsheets. However, neither tool was specifically designed to track the financial details of projects and therefore cannot be reliable sources of information for improving profit margins. The pain point is obvious. The solution is to purchase professional services management software that is designed to track this information. However, does the added benefit inherent within professional services management software justify the added expense?
In short, yes it does. First, professional services management software provides firms the tools necessary to increase the accuracy of their bid. This is done through the knowledge management system. This system allows the salesmen to search through completed projects to identify ones similar to the bid. With a better understanding of actual costs, managers can refine their bid and become more accurate and increase the project margin.
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Second, professional services management software offers managers real time status updates in regards to project progress, milestone completion, and the budget. Real time updates are valuable because they provide managers within information for the operation of business. Since the information is provided in real time, managers can become proactive in solving problems rather than reacting after the fact. Intervening early to prevent delays is another way of increasing profit margins.
Last, professional services management software provides managers with detailed financial breakdowns for each project. Using this information, management and sales can target only those types of projects that bring in the most profit. Doing this will also increase the bottom line.
Quantifying these benefits is firm dependent. But let’s assume that a combination of these tools increases the bottom line by 5%. Assuming that the firm earns $1,000,000 a year, this would be an additional $50,000 a year. Under this scenario, the software would pay itself off in just a few years. To learn more about this possibility, please contact us.
In tomorrow’s post, we will conclude our business case by calculating the ROI on professional services management software.
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