<PAGE>   1
                                                                   Exhibit 10.14
                                                                  Execution Copy

                          EMPLOYEE SEPARATION AGREEMENT
                          -----------------------------


     THIS AGREEMENT made as of this 31st day of July, 1996 by and between
Project Software & Development, Inc., a Massachusetts corporation having a usual
place of business in Cambridge, Massachusetts ("PSDI"), and Dean F. Goodermote
("Goodermote") of Wayland, Massachusetts.

                          W I T N E S S E T H  T H A T:
                          - - - - - - - - - -  - - - -         

     WHEREAS, Goodermote currently serves on the Board of Directors of PSDI;
     WHEREAS, PSDI has employed Goodermote most recently as President and Chief
Operating Officer; and
     WHEREAS, PSDI and Goodermote wish to set forth the terms of the termination
of Goodermote's employment as President and Chief Operating Officer of PSDI, his
retention as an employee of PSDI with modified responsibilities and his
continued undertaking to serve as a director of PSDI;
     NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth herein, PSDI and Goodermote hereby agree as follows:
     1. Goodermote hereby resigns as President and Chief Operating Officer of
PSDI, effective July 31, 1996 (the "termination date"). At the request of PSDI,
Goodermote will execute and deliver to PSDI a separate instrument embodying such
resignation.


<PAGE>   2



     2. Commencing on the termination date and continuing until January 31, 1997
(hereinafter referred to as the "continuation period"), unless extended,
Goodermote shall continue as an employee of PSDI and shall be paid an amount
equal in rate to the base salary of $833.33 per month less applicable
deductions. Except as expressly set forth in this Agreement, he shall not be
entitled to benefit from or continue to participate in any bonus or deferred
compensation plan maintained by PSDI and as of July 31, 1996, shall participate
in welfare or benefit plans maintained by PSDI under PSDI's policy for
terminated employees. All payments during the continuation period shall be made
consistent with PSDI's regular pay cycle. During the continuation period and in
consideration of such payments, Goodermote shall use his best efforts to perform
such duties as the Board of Directors of PSDI, or the Chief Executive Officer of
PSDI in consultation with the Board of Directors, shall assign to him; provided,
however, that the time reasonably required to perform such duties shall not
exceed an average of 2 hours per week in any calendar month during the
continuation period. 
     3. All options which have heretofore been granted to Goodermote under
PSDI's Amended and Restated 1994 Stock Incentive and Nonqualified Stock Option
Plan (the "options") shall be exercisable, and expire, in accordance with their
terms. It is specifically acknowledged by the parties hereto that the
continuation period shall constitute continued employment by PSDI for the
purpose of Section Sixth of each such option relating to the vesting and
expiration of each such option and that no


                                       -2-

<PAGE>   3



options or portions thereof shall vest after the last scheduled vesting date in
the continuation period, December 31, 1996.
     4. Goodermote shall be entitled to his laptop computer when his employment
with PSDI ends.
     5. Except as provided above or as otherwise agreed with PSDI, all other
benefits heretofore provided by PSDI to Goodermote as a full time employee have
terminated as of the termination date. Goodermote specifically acknowledges that
the payments during the continuation period are in lieu of all other benefits
and payments which otherwise may have been payable to him as a result of his
termination under benefit plans or policies of PSDI, including, without
limitation, additional severance, bonus payments and separation pay, and he
hereby waives any rights he may have in or to any such other benefits or
payments, it being the intention of the parties hereto to convert and merge all
such rights into this Agreement. 
     6. Any other provision hereof to the contrary notwithstanding, Goodermote
agrees that it is his intention, if he is elected, to continue to serve on the
Board of Directors of PSDI through the conclusion of the term expiring upon the
qualification of a successor director elected at the 1998 annual meeting of
stockholders of PSDI. By written notice to Goodermote, PSDI may terminate
Goodermote's employment hereunder prior to the end of the continuation period if
he should resign as a member of the Board of Directors, commit a material breach
of this Agreement or be removed as a member of the Board of Directors for cause
before the end of such period. PSDI shall


                                       -3-

<PAGE>   4



provide Goodermote such expense reimbursement and cash compensation as is
typical for its directors who are not full time employees in connection with any
such service rendered by Goodermote after the conclusion of the continuation
period on January 31, 1997; provided, that, PSDI shall not be required to grant
Goodermote any further options as a result of such service or election.
     7. Goodermote understands that as a director, officer and senior employee
of PSDI he has had access, and that as a director and employee of PSDI he will
have access, to confidential and proprietary information concerning PSDI and its
affiliates. Goodermote agrees that he will not disclose or use any such
confidential or proprietary information, whether for his benefit or for the
benefit of another, and that, without limiting the generality of the foregoing,
unless he has specific prior written authorization from PSDI, he will not
disclose any such confidential or proprietary information to any person, firm,
corporation or other entity, whether or not in competition with PSDI or any of
its affiliates, for any reason or purpose whatsoever. Goodermote has heretofore
signed a Proprietary Information and Inventions Agreement ("Proprietary
Information Agreement") in favor of PSDI and agrees to continue to comply with
it fully after the date hereof. Goodermote specifically agrees that the Board of
Directors process leading to his resignation is confidential and proprietary
information of PSDI.
     8. Goodermote hereby agrees to be publicly supportive of PSDI. Goodermote
agrees not to criticize, disparage or otherwise


                                       -4-

<PAGE>   5



comment negatively about, orally or in writing, directly or indirectly, PSDI,
its affiliates or any of their respective past, present or future officers,
directors, employees, agents, businesses, suppliers or service providers,
products or services. PSDI agrees not to criticize, disparage or otherwise
comment negatively about Goodermote, orally or in writing, directly or
indirectly. As used herein, the term "publicly" shall include communications
with analysts, investment bankers, stockholders of PSDI and other members of the
financial community. Goodermote agrees to use his best efforts to ensure that
none of the members of his family so criticize or disparage any of such persons
or entities. Goodermote further agrees that he shall be publicly and privately
cooperative and supportive of PSDI in regard to its personnel, corporate
practices and policies and other matters.
     9. For a period of one year from the date of this Agreement (the
"Restricted Period") Goodermote shall not (i) solicit, encourage, or take any
other action which is intended to induce any other employee of PSDI or any of
its affiliates to terminate his or her employment with PSDI or any such
affiliate in order to become employed by or otherwise perform services for any
other person or entity, or (ii) knowingly interfere in any manner with the
employment relationship between PSDI or any of its affiliates and any such
employee of PSDI or any such affiliate. During the Restricted Period, Goodermote
shall not knowingly permit any organization of which he is an officer to employ
any such employee of PSDI or its affiliates.


                                       -5-

<PAGE>   6



     10. This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective heirs, legal representatives, successors and
assigns, and shall inure to the benefit of all past, present and future
directors, officers, stockholders in their capacity as stockholders, employees,
affiliates, agents and attorneys of PSDI and their respective heirs, legal
representatives, successors and assigns.
     11. This Agreement and the Proprietary Information Agreement constitute the
entire agreement between the parties concerning the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between them
concerning such subject matter.
     12. This Agreement shall be governed by, and construed and enforced in
accordance with, the substantive laws of the Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
     13. This Agreement may be executed in one or more counterparts, each of
which when so executed shall be deemed to be an original, and all of which
together shall constitute one and the same agreement.
     IN WITNESS WHEREOF, PSDI and Goodermote have set their hands and seals as
of the date first above written.

ATTEST:                                         PROJECT SOFTWARE &
                                                  DEVELOPMENT, INC.


/s/ Peter M, Rosenblum[Seal]                    By: /s/ Robert L. Daniels
----------------------                             --------------------------
                                                   Its CEO thereunto
                                                   duly authorized

WITNESS:


                                       -6-

<PAGE>   7




/s/ William G. Nelson[Seal]                         /s/ Dean F. Goodermote
---------------------                               ----------------------
                                                    Dean F. Goodermote



                                       -7-