<PAGE>   1

                                                                   Exhibit 10.1









               PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES

                          YEAR ENDED SEPTEMBER 30, 1997

                              EXECUTIVE BONUS PLAN




                                 September 1996


<PAGE>   2


               PROJECT SOFTWARE & DEVELOPMENT, INC. & SUBSIDIARIES
                          YEAR ENDED SEPTEMBER 30, 1997
                              EXECUTIVE BONUS PLAN


1.       PURPOSE
         -------

         The purpose of the FY97 Executive Bonus Plan ("Plan") is to provide key
         management employees of Project Software & Development, Inc. and its
         subsidiaries ("Company"), with an incentive to make significant and
         extraordinary contributions to the long-term performance and growth of
         the Company, to join the common interest of the Company and key
         executives, and to attract and retain executives of exceptional
         ability.

2.       ADMINISTRATION
         --------------

         2.1      The Plan shall be administered by the Compensation Committee
                  of the Board of Directors of the Company (the "Committee").
                  The Committee will base all decisions and awards on quarterly
                  and annual financial statements filed with the Securities and
                  Exchange Commission.

         2.2      By adoption of this Plan the Board has deemed eligible those
                  individuals named in Appendix I. The Board shall have full and
                  complete authority and discretion to make binding decisions on
                  the administration of the Plan and shall adopt such rules and
                  regulations and make all other determinations deemed by it
                  necessary or desirable for the administration of the Plan.

         2.3      The Compensation Committee and Board of Directors of the
                  Company shall have the authority to amend or terminate the
                  Plan, provided, however, that if the Plan is amended or
                  terminated, the Company shall be required to complete payment
                  to each Participant of the amount which that Participant
                  otherwise would have received based on the provisions set
                  forth in paragraph 7.2.

3.       DEFINITIONS
         -----------

         3.1      PLAN YEAR means the fiscal year ended September 30, 1997.

         3.2      PLAN QUARTER means each of the three-month  periods ended 
                  December 31, 1996,  March 31, 1997, June 30, 1997, and
                  September 30, 1997.

         3.3      PARTICIPANT means any executive of the Company who is 
                  designated in Appendix I.


<PAGE>   3


         3.4      PERMANENT DISABILITY, means a Participant's inability, as a
                  result of illness, incapacity, disease or calamity to perform
                  a substantial part of his primary job responsibilities as set
                  forth in his employment contract or job description for any
                  concurrent six month period.

         3.5      PLAN means this FY97 Executive Bonus Plan.

         3.6      Except as otherwise indicated by the context, any masculine
                  term used herein also shall include the feminine; the plural
                  shall include the singular and the singular shall include the
                  plural.

         3.7      COMPANY means Project Software & Development, Inc. and its 
                  subsidiaries  included in the consolidated  financial
                  statements.

         3.8      PLAN NET INCOME means net income as disclosed in the
                  consolidated quarterly financial statements of the Company,
                  before deductions and additions of:

                  (i)   Taxes calculated by net income.
                  (ii)  Extraordinary items as defined under US generally 
                        accepted accounting principles.

4.       ELIGIBILITY AND PARTICIPATION
         -----------------------------

         Executives eligible for bonuses under the Plan shall be those
         individuals specified in Appendix I.

5.       CALCULATION OF BONUSES
         ----------------------

         5.1      The on-target bonus will be determined as follows:

                  (a)      Each Participant will be eligible to receive an
                           on-target earnings bonus if the Company achieves
                           quarterly and annual Plan Net Income as stated in
                           Appendix II.

                  (b)      The percentage of the on-target earnings bonus
                           described in Appendix I earned by each Participant on
                           achievement of the amounts stated in Appendix II in
                           respect of cumulative quarterly and year end is:

                           (i)      Q1         8%
                           (ii)     Q2         9%
                           (iii)    Q3        11%
                           (iv)     Q4        12%
                           (v)      Year end  60%


<PAGE>   4



                  (c)      As a result, the full on-target bonus stated in
                           Appendix I for each Participant can only be achieved
                           if all four quarters and annual Plan Net Income equal
                           or exceed all of the target amounts stated in
                           Appendix II.

         5.2      An incremental bonus is earned on corporate achievement above
                  the on-target earnings specified in Appendix II and will be
                  calculated as follows:

                  (a)      The aggregate incremental bonus amount to be
                           distributed to all Plan Participants in each Plan
                           Quarter will be 6% of the difference between Plan Net
                           Income and the amounts stated in Appendix II for the
                           quarter.

                  (b)      The aggregate incremental bonus amount to be
                           distributed to all Plan Participants in respect of
                           year end will be 9% of the difference between Plan
                           Net Income and the amount stated in Appendix II for
                           the year.

                  (c)      The amount of bonus calculated in Section 5.2 (a) 
                           and (b) shall be distributed as follows:

                           CEO                                   48%
                           Paul Birch                            24%
                           William Sawyer                        14%
                           Jack Young                            14%

6.       PAYMENT OF BONUSES
         ------------------

         Bonus earned under the provisions of 5.1 and 5.2 will be payable sixty
         days after the end of the period in which the bonus was earned provided
         that the results for the period have been issued to the public.

7.       TERMINATION OF EMPLOYEE
         -----------------------

         7.1      If a Participant's employment is terminated prior to the
                  conclusion of any Plan Quarter or, following the conclusion of
                  a Plan Year, but prior to distribution of all installments:

                  (a) By reason of (i) any deliberate material breach by the
                      Participant of his employment obligations with the
                      Company, which, if curable, is not cured within ten (10)
                      days after the Company shall have notified the Participant
                      in writing describing to Participant all material facts
                      concerning such breach,


<PAGE>   5



                           (ii) any deliberate material breach by the
                           Participant of his employment obligations with the
                           Company, which is not curable according to notice
                           from the Company, or (iii) the conviction of a
                           felony or the commission of a material, fraudulent
                           act by the Participant against the Company;
        
                  (b)      Voluntarily by Participant other than for a "Reason
                           Constituting Good Cause." Reasons Constituting Good
                           Cause are limited to: (i) a significant change in the
                           nature and scope of Participant's duties combined
                           with a change in the Participant's title resulting in
                           a position of materially lesser authority, or (ii) a
                           reduction in the Participant's base compensation.

                  Then, Participant shall cease to have any rights to any
                  amounts unpaid on the date of termination of employment.

         7.2      If a Participant's employment is terminated:

                  (a)      By reason of Death, Permanent Disability; or

                  (b)      By the Company for a reason other than one described
                           at subparagraph 7.1(a);

                  If such a termination occurs prior to the conclusion of any
                  Plan Quarter or Year, the Participant shall receive the amount
                  which the Participant otherwise would have been entitled to
                  receive had he remained in the employ of the Company through
                  the end of the Plan Year, but pro-rated based on the number of
                  complete months of employment with the Company during such
                  Plan Year. The amount earned shall be paid according to the
                  Plan rules.

8.       BENEFICIARY DESIGNATIONS
         ------------------------

          8.1     If a Participant's employment with the Company is terminated
                  by his death or if he dies after termination of his employment
                  but prior to the distribution to him of all amounts payable to
                  him under the Plan, any amounts otherwise payable to him
                  hereunder shall be distributed to his designated beneficiary
                  or beneficiaries. For the purposes of this plan a
                  Participant's beneficiary will be the beneficiary designated
                  under Company provided life insurance coverage. However, a
                  Participant may from time to time revoke or change any
                  beneficiary designation on file with the Company.


<PAGE>   6



                  If there is no effective beneficiary designation on file with
                  the Company at the time of a Participant's death, distribution
                  of amounts otherwise payable to the deceased Participant under
                  this Plan shall be made to the Participant's estate. If a
                  beneficiary designated by the Participant to receive his
                  benefits shall survive the Participant but die before
                  receiving all distributions hereunder, the balance thereof
                  shall be paid to such deceased beneficiary's estate, unless
                  the deceased beneficiary designation provides otherwise.

         8.2      The Company shall deduct from the distributions to be made to
                  a Participant or his designated beneficiary or beneficiaries
                  under this Plan any federal, state or local withholding or
                  other taxes or charges which the Company is from time to time
                  required to deduct under applicable law and all amounts
                  distributable under this Plan are stated herein before any
                  such deductions. The Company may rely on a written opinion
                  from its legal counsel regarding any questions which may arise
                  in connection with any such deductions.

9.       RIGHTS, PRIVILEGES AND DUTIES OF PARTICIPATION
         ----------------------------------------------

         9.1      No participant or other person shall have any interest in any
                  fund or in any specific asset or assets of the Company and its
                  Subsidiaries by reason of being a Participant under this Plan
                  nor any right to receive any distributions under the Plan
                  except as and to the extent expressly provided in the Plan.

         9.2      The Company shall have the right, but shall be under no
                  obligation, to segregate cash to fund bonuses payable under
                  the Plan. However, any such segregated amounts shall at all
                  times remain Company assets, subject to the claims of its
                  creditors.

         9.3      Each Participant shall be entitled to receive a current copy
                  of the Plan upon his designation as a Participant if a written
                  request for a copy of the Plan is provided to the Chief
                  Financial Officer. Thereafter, as long as he remains a
                  Participant, he shall be entitled to receive copies of any
                  amendments to the Plan within sixty (60) days after their
                  adoption.

         9.4      The designation of any employee as a Participant under this
                  Plan shall not be construed as conferring upon such employee
                  any right to remain in the employ of the Company and each such
                  Participant shall remain an employee at will. The right of the
                  Company to discipline or discharge an employee shall not be
                  affected in any manner by reason of such employee's
                  designation as a Participant under this Plan.


<PAGE>   7


         9.5      To the extent permitted by law, the right of any Participant
                  or any beneficiary to receive any payment hereunder shall not
                  be subject to alienation, transfer, sale, assignment, pledge,
                  attachment, garnishment or encumbrance of any kind. Any
                  attempt to alienate, transfer, sell, assign, pledge or
                  otherwise encumber any such payment whether presently or
                  thereafter payable, shall be void. Any payment due hereunder
                  shall not in any manner be subject to any debts or liabilities
                  of any Participant or his beneficiary.



<PAGE>   8


                                   APPENDIX I


                      PROJECT SOFTWARE & DEVELOPMENT, INC.

                              EXECUTIVE BONUS PLAN
<TABLE>

                              ELIGIBLE PARTICIPANTS
<CAPTION>


                                          On-target Bonus
                                             as a % of              On-target
                       Base Salary          Base Salary               Bonus
                       -----------          -----------               -----

 <S>                    <C>                     <C>                 <C>     
 CEO  (Estimate)        $250,000                100%                $250,000

 Paul Birch              168,000                 75%                 126,000

 William Sawyer          150,000                 50%                  75,000

 Jack Young              140,000                 50%                  70,000
</TABLE>




<PAGE>   9


                                   APPENDIX II


                      PROJECT SOFTWARE & DEVELOPMENT, INC.

                              EXECUTIVE BONUS PLAN

                          ON-TARGET CUMULATIVE EARNINGS




       Q1  FY1997 Year to Date                            $  5,400,000

       Q2  FY1997 Year to Date                             $11,300,000

       Q3  FY1997 Year to Date                             $17,850,000

       Q4  FY1997 Year to Date                             $25,250,000
                                                           -----------
       FY1997 Total Year to Date                           $25,250,000
                                                           ===========

       The on-target earnings established for each plan quarter and the year for
       any year will not be less than 125% of the actual earnings in the
       corresponding period of the prior year.