What makes project-based ERP software different?

Services firms are uniquely people-focused organizations. They depend on the knowledge and skills of a talented workforce to sell, staff, and deliver a range of products and services -  typically on a project or contract basis.

In an environment where the most valuable part of the organization goes home at the end of every day, fundamental financial requirements for service-based businesses are very different from classic manufacturing and supply-chain focused companies.  Rather than focusing on managing people as an adjunct to physical resources, project-based businesses require  functionality for managing resources (people) and projects (tasks).

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The difference between production-line based ERP and project based ERP

However, traditional ERP systems are firmly rooted in the world of physical resource management for manufacturing industries – making them unsuited to a world where resources are often far less tangible, and management is contingent on a completely different system of dependencies. ERP for a project-based company must account for these differences, helping finance and HR teams track hours worked accurately, monitor and optimize for employee engagement, and ensure that resources are matched to projects in a way that makes the best use of the skills your organization currently has while helping to develop the skillsets that will be relevant to your strategic future.

Project-based ERP software is designed with the organizational logic of project-focused service businesses in mind – focusing on people and tasks over hard-and-fast physical manufacturing resources and processes.

A project-based ERP system is essentially a project management ERP system - an integrated information management tool that manages the capture and flow of information across departments and functions to manage and integrate a company’s financials, supply chain, operations and human resource activities.

It includes a common enterprise-wide database and various application modules to support fundamental business activities, such as accounting, finance, sales, marketing, resource and project management and human capital management. An ERP system is used to standardize business processes and provide reports, insights and control for revenue, costs and billing. The value of such a system is to enable critical information to be analyzed and shared across the organization for more insightful and timely decision-making.

Increasingly, project-based ERP application providers also add rich talent management capabilities to support recruiting, on-boarding, compensating and rewarding the employees who are the core asset of service-based businesses. The more recent incorporation of machine learning and artificial intelligence aims to improve data accuracy and provide fresh insights. Mobile-first is a key requirement for today’s hybrid, project-based businesses with secure access from anywhere to support virtual work styles and organizations.

Over the past twenty years, project accounting, resource management and time capture, and billing modules have been added to many ERP applications. Now most project-based ERP providers also include Human Capital Management (HCM) or talent management extensions to accentuate the important role that recruitment and engagement of a talented workforce has in today’s economy. 

Support for specialized billing methods and complex revenue recognition rules for time and materials, work-in-process, deliverables-based, percentage completion and subscription-based contracts are also important project-based ERP extensions. Artificial intelligence, machine learning and robotic process automation are exciting new capabilities that ERP suppliers are adding to streamline account reconciliations and provide invoice and purchase order analysis, cash management and predictive analytics.

Do you need to make the switch?

Although “modern, cloud-based” finance and accounting applications have been available – and affordable – for almost 20 years, 3% of organizations still run their operations entirely through spreadsheets. Another 3% use homegrown apps, and a further 20% are relying on a combination of legacy on-prem apps and spreadsheets.

This is a troubling situation – especially as firms face an environment of unprecedented change. Relying on a hodgepodge of outdated systems and processes exposes your company to considerable risk:

• Outdated systems are very costly to update and maintain – often carrying high costs in programmer and consulting fees to deal with complex customizations and one-off integrations. They are often several years out of date due to the complexity involved in upgrading to new releases.
• Legacy systems prevent global consolidation and integration of acquired businesses. This results in redundant finance and operations teams and makes a global view of operations impossible – meaning individual business units and regions lack the support they need to succeed.
• They can also result in a systemic inability to support growth by causing difficulty in developing new business models and lines of business, or personnel or revenue types.
• They may require excessive manual workarounds and consulting fees to modify, making it difficult or impossible to adopt new reporting and accounting standards or support multi-entry/multi-currency operations.
• Lack of data visibility can have significant impact on business performance. Leaders at all levels must have a good idea of performance to predict future staffing needs and identify problems before they become unmanageable.
• Beyond this, relying on spreadsheets creates a considerable risk exposure from multiple different directions. Because spreadsheet accounting relies on human input to ensure the accuracy of numbers, even the smallest mistake can cost you dearly - and expose your organization to unnecessary security and compliance risk through accidental data breaches. The European Spreadsheet Risk Interest Group has documented multiple cases of spreadsheet related losses that total in the billions of dollars going back several decades.

If this sounds familiar, it might be time to consider replacing your legacy systems with a modern cloud-based ERP system that can help integrate your operational data, automate core processes, and create a more engaging and positive environment for your newly hybrid workforce. (And to free yourselves of some of the headaches we’ve just described.)

Beyond the reduction in risks presented by adopting appropriate new software, your business stands to both reduce costs and quickly reach ROI by expediting your workflows (through both automation of routine tasks and removal of the need to manually check the accuracy of data, and real-time data visibility) and by ensuring that your people’s workloads are kept manageable and relevant to their skills and development trajectories - while also limiting their time spent managing administrative overheads. 

Ready to learn more about project based ERP?

If you think it might be time to make the jump to a modern ERP system that’s right for the needs of your people-centric organization, download Service Performance Insight’s latest Buyer’s Guide for project-based ERP solutions. In it, you’ll also learn more about what type of modules a Project Based ERP should include, what solutions are on the market, and how to create a selection process that ensures full stakeholder buy-in and the right solution for your needs.