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Professional services organizations (PSOs) need to be profitable. And while we’re at it: water is wet, fire is hot, and articles that start off by pointing out the painfully obvious don’t deserve to be read past the first paragraph. “But wait – there’s more!”/
PSOs profitability and marginsThat’s because while PSOs obviously need to be profitable, they also face significant threats that quickly erode margins, and in some cases eliminate them altogether. These threats include the fact that engagements are usually long, multi-faceted, and to some extent iterative (i.e. delivery teams often cannot know what obstacles and issues they’ll have to deal with – or what customers will request or want changed – until the project is underway, and some cost commitments/decisions have been made).

And on top of this, managing customer expectations can trigger early retirement fantasies, while getting sales, finance and service delivery teams on the same page can make plate spinning look like child’s play. Indeed, while project management in every industry is tough, the challenges and risks ratchet up a few notches in the PSO world – and that puts margins and profitability in the crosshairs well before the kick-off milestone.

However, despite these inherent obstacles, there are many PSOs that consistently achieve or exceed ROI targets – and make customers extremely happy. And while talent and timing are part of their success formula, a range of integrated best practices also do plenty of heavy lifting as well. These include:

  1. Align the right resources with implementations as early as possible; preferably during the proposal stage, since this will minimize costs.
  2. Fully analyze client engagements to spot otherwise hidden costs that, if not addressed proactively and documented properly, will erupt later on and sideswipe the budget.
  3. When using remote/virtual teams, ensure that they all have access to a work execution platform that allows for efficient collaboration, status reporting, time/effort logging, and so on.
  4. Focus relentlessly on boosting billable utilization and percentage of billable resources. You don’t want resources sitting on the bench eating up budget, nor do you want to scramble frenetically to fill gaps to keep implementations from riding off the rails.
  5. Establish the right metrics and KPIs for measuring performance and profitability. These could include billable utilization, average project size, on-time rates, on-budget rates, extension rates, cost per resource, etc.
  6. Integrate financial data from various systems to provide PSO staff and CFOs with 360 degree visibility into project financial details, so they can control costs, minimize billing cycles, monitor variances between estimates and actuals, and track trends related to profitability (or lack thereof).
  7. Establish service delivery and project standards, and enforce them to ensure consistency, quality, and efficiency. This is also essential for PSOs that work in environments that require compliance with regulations (which are always changing!).
  8. Use automation and customized workflows to accelerate customer approvals, streamline workflows, integrate and sync systems (e.g. talent management, billing, invoicing, etc.), and to drive collaboration and visibility between sales, finance and service delivery teams.
  9. Conduct a lessons learned after each engagement – however painful it may be – to identify areas that can be improved, and risks that can be mitigated. Mistakes and errors are unavoidable, but allowing them to become systemic and “part of the culture of work” is fatal.
  10. Use a flexible, configurable, customizable and centralized project and portfolio management (PPM) solution that is designed to help PSOs overcome their complex and inherent challenges. Conventional project management software, spreadsheets, and mountains of emails are the enemy here.
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Clarizen is trusted by successful and growing PSOs around the world to ensure that implementations are delivered on time and in scope, resources are optimally utilized and managed, customers are engaged and impressed, business objectives are achieved, and of course: margins are protected and overall profitability is the expectation – not the exception. Learn more with a free 30-day test drive.

Roni Feldsher
Roni Feldsher, Director Customer Success