SAP Controlling Structures

SAP Controlling Structures deals with the flow of information in the SAP Module.It has the following Organizational Units.The operating concern is the highest reporting level within CO-PA; it  defines the limit of sales and marketing information which can be reported together from this module. One or more controlling areas are assigned to an operating concern when organizational structures are defined. Often, corporations have only a single operating concern, which is recommended for the sake of simplicity and convenience if all controlling areas and company codes share the same fiscal calendar.The controlling area is an organizational unit delimiting the organization's independent cost accounting operations (cost center accounting, profit center accounting, and order accounting)company codes are assigned to controlling areas when organizational structures are defined. 

Often, a 1:1 relationship exists between the company code and the controlling area. However, a controlling area can also incorporate several company codes to take cross-company cost allocations into account.The company code is an independent accounting unit within a client. The legal requirements of a balance sheet or profit and loss statement are fulfilled on the company code level. Plants are assigned to company codes when organizational structures are defined.The plant represents a production facility. It is the primary organizational unit in the SAP R/3 Materials Management and Production Planning application components.

Basic Concepts of CO-PA

Characteristics

Answers the question: "What do I want to report on?"
Ÿ Examples: Divisions, Regions, Products, Customers

Characteristic Values
ŸAnswers the question: "What values can I have for these characteristics?"
Ÿ Examples: Region South; Region North

Profitability Segments

Answers the question: "What is the technical definition of my sales channel?"
ŸExample: combination of Region North, Product Prod1, Sales Rep Miller

Value Fields

Answers the question: "What performance measures do I want to track and analyze?"
ŸExamples: Gross Sales, Surcharges, Discounts, Cost-of-Sales

Meaning of "Characteristics"

Characteristics are the analysis dimensions for CO-PA. They define what items or objects the user will be able to analyze. They determine the technical specifications of a sales channel definition. Several essential and obvious characteristics (like "sales organization"," customer", "product", etc.) are pre-defined automatically for every operating concern; these are known as fixed characteristics. In addition to the fixed characteristics, up to 50 non-fixed characteristics can be added to an operating concern. Often, only 10 to 20 of these are required to meet most companies' reporting needs.

Characteristic Maintenance in the Field Catalog
These non-fixed characteristics must be added to the field catalog before they can be used to define a new operating concern. Characteristics in the field catalog can be accessed in any client.The field catalog originally contains some suggested characteristics which might be used in a new operating concern definition; there are two ways to add other characteristics to the field catalog:

ŸChoose an existing field from certain SAP tables (must be 5 characters long or less)
ŸCreate a characteristic independently (should begin with WW . . ., and be 4 to 5 characters total)
Each characteristic potentially has a check table behind it which carries the characteristic values which are valid for CO-PA; this helps to validate the data flowing into CO-PA.When creating a new characteristic independently in the field catalog, it is possible to choose whether the system should generate a check table for it or not.

Meaning of "Value Fields"

ŸIn costing-based Profitability Analysis, value fields store the base quantities and amounts for reporting. Value fields can either be highly summarized (representing a summary of cost element balances, for example) or highly detailed (representing just one part of a single cost element balance).Ÿ Generally, value fields are highly detailed with regards to sales performance figures (like types of revenues, discounts, surcharges, etc.), and more summarized for other items relating to period costs (like types of period expenses). New operating concerns generally have 20 to 60 value fields.Ÿ Unlike characteristics, there are no fixed value fields for a new operating concern.Value Field Maintenance in the Field Catalog Ÿ All value fields must exist in the field catalog before they can be used to define a new operating concern. Value fields in the field catalog can be accessed in any client. The field catalog originally contains some suggested value fields which might be used in a new operating concern. Value fields can also be defined independently (should begin with VV…, and should be 4 to 5 characters total)

It is not necessary to create value fields for calculated items, such as net sales, contribution margin, etc. These items are normally calculated from the base values stored in the value fields during the report execution progress (to minimize necessary data storage requirements).Fixed Basic Key Figures (Account-Based CO-PA only) Ÿ In account-based Profitability Analysis, all values are updated to accounts. Each amount is stored in up to 3 different currencies under fixed basic key figures, which are accessed in reporting.

Steps in Defining an Operating Concern

You define the structure of your operating concern when you set up your system. This is done by selecting the characteristics you want to use in the data structures of the operating concern.In costing-based Profitability Analysis, you also need to select the value fields you want to use.The structure of an operating concern is valid in all clients. 



Defining Operating Concern and Attributes

The attributes are client-specific parameters of an operating concern. They have different effects depending on the type of Profitability Analysis you are working in.

Currency types

Operating concern currency In costing-based Profitability Analysis, actual data is always updated in the operating concern currency. You can change the operating concern currency as long as no data has been posted in the operating concern. Company code currency In addition to the operating concern currency, you have the option of storing all data in the currency of the relevant company code as well. This makes sense if your organization operates internationally and deals with exchange rates that change daily. It allows you to avoid differences due to different exchange rates and lets you reconcile your CO-PA data directly with FI. Profit center valuation In addition to storing data in these two currencies using the legal (= company code) valuation view, you can also store data in both of these currencies valuated from the viewpoint of individual profit centers. 

Fiscal year variant

The fiscal year variant determines the number of posting periods per fiscal year. Since each controlling area assigned to the operating concern -- and each company code assigned to each of those controlling areas -- can have its own fiscal year variant, the variant you choose for the operating concern must agree with that for the other areas.

Parallel Currencies

In costing-based CO-PA, all amounts are stored at minimum in an operating concern currency, which is specified in the operating concern attributes.It is also possible to configure the attributes to store values in the local currency as well. This has the effect of doubling the stored transaction data, though.Even if all amounts are stored only in the operating concern currency, it is possible to report using other currencies. However, reporting translation is only possible using period-average translation rates.Account-based CO-PA always stores data in three currencies: Transaction, Company Code and Controlling Area currency.

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SAP Meaning,Full Form of SAP Definition and History

SAP has a full form and meaning is to work like a ERP and here in this post we are going to explain what is its definition and how it works.SAP AG began operations in 1972 and became successful in the ’80s with its R/2 solution. R/3, launched in 1992, was the enterprise solution that actually positioned the company in its leadership place, making it extremely successful in the ’90s. The yr 1996, with the introduction of launch 3.1 of R/3, noticed the primary Web-enabled solutions. 1998 was a vital yr wherein it has remodeled from a single product company to a global business options firm with the introduction of the New Dimension merchandise and the first releases of Industry Solutions.

The “first draft” of mySAP.com was introduced in 1999. The first years of the new millennium (2001-2003) would be the new crucial years for the massive deployment and advantages offered by the mySAP.com strategy. Within the earlier days of computing and data technology, the necessity for automating sure processes usually started with the hardware platforms. Past the hardware, firms then used to pick primary growth software program, usually programming languages, and with those components they developed and created their own in-home applications. They often started with financial purposes, corresponding to accounting, normal ledger, accounts payable and receivables, and in addition with human sources, comparable to primary payroll. The traditional evolution was additionally to develop other extra advanced applications, similar to those for materials management, warehouse, distribution, and sales.

In the ’70s, SAP AG, identical to other software program companies, saw the opportunity of growing software that might be deployed not by a single firm, however by many. This software program might be developed once and sold to a number of companies. This was the delivery of standard business applications. But this “standard” software could probably be better deployed in enterprise areas or processes that were frequent amongst similar companies, as an illustration, the accounting processes.

The adoption of ordinary software program methods was neither fast nor easy. On one hand have been technical reasons, such because the dependency on hardware and software platforms through which these functions have been developed. However extra sophisticated to deal with was the truth that even related firms from the same industries did not behave as uniformly as one may think. Additionally, there have been many dependencies on the way firms behaved in response to their nation or region, for occasion, differences in the way a payroll is calculated, or variations in taxes, currencies, and so on.

The first problem began to be solved with the emergence of open programs architectures.The second drawback was dealt with by having a configuration and customization process that was rather more complex and detailed and, at the similar time, flexible sufficient so that it might provide similar but totally different functional potentialities based on the form of company or its geographical location.

With the emergence of networks, PCs, databases, and the large deployment of data technology methods through the ’80s, there was also the wave of creating purposes, coming mainly from software firms, that would run on, and be transportable amongst, different hardware and operating systems. This was the beginning of the open programs structure, whose primary consultant was the UNIX operating system. Later, Home windows NT, even coming from a single vendor, was so spread out that it was also thought-about a de facto open system.

SAP introduced versatile configuration of their R/2 mainframe system to address the problem of numerous business practices. SAP R/2 included great performance for several enterprise areas such as accounting, warehousing, distribution, materials administration, human assets, and so on. SAP reached approximately three,000 R/2 installations all over the world.

The emergence of open methods, world networks, downsizing, and reengineering have been some of the causes to evolve the R/2 solutions to an open shopper/server software system resembling SAP R/three, which made its debut in 1992.SAP R/three quickly turned a worldwide success. It initially had less functionality than R/2, but it caught up shortly, and by 1996, it had surpassed the features coated by R/2. The variety of R/three clients and installations grew exponentially, from approximately 900 installations on the end of 1993 to greater than 20,000 by the yr 2000, changing into the worldwide chief of ERP software program, the primary bigger European software firm, and among the many five largest worldwide.

SAP R/three demonstrated that a normal off the shelf utility package deal might be adopted efficiently by corporations numerous of their enterprise practices. This enabled firms to migrate to straightforward application packages to manage their “again office” operations.Round 1996, SAP added industry specific performance that allowed it to be deployed in specialised trade areas similar to petroleum, the software trade, etc. This addressed issues particular to industries similar to merchandise of an oil firm or pharmaceutical or automotive industries. This was the place to begin of the SAP Vertical Trade Solutions, which is currently a vital piece of the mySAP strategy, now generally identified as the mySAP Trade Solutions. At the identical time, this strategy led to the beginning of transferring from conventional again office functions into entrance workplace applications and areas which can be wanted in a large number of businesses, reminiscent of knowledge warehousing, buyer relationship management, and others. Before getting into this story, and for a better understanding of the muse of mySAP, let’s briefly evaluate these earlier SAP solutions.

SAP R/2

SAP R/2 was introduced in the late ’70s as SAP AG standard business software that ran on mainframe tools by IBM, Siemens, and compatible companies. With this software, SAP got greater than three,000 buyer methods installed. Though most customers have since migrated to SAP R/3, at first of the new millennium, there have been nonetheless more than 1,000 prospects working R/2. SAP has committed support for these programs as much as the year 2004. The SAP R/2 system was primarily focused at enterprises with knowledge intensive and centralized industries, and due to the value of the mainframe hardware and maintenance, it was often acquired by giant corporations.

R/2 was the predecessor of the client/server R/3 system and included comprehensive absolutely functional business purposes, including financials, logistics, and human resources. The SAP R/2 applications were first developed using a macro assembler programming language. The ABAP (Advanced Enterprise Utility Programming) language was launched in later releases. R/2 included roughly 2,000 tables, of which 800 have been for customizing. One of the big differences was that the access was made using terminals in character mode.

SAP R/3

SAP R/three was a technical evolution of R/2.Whether or not the initial thoughts for the design of R/3 were to have a product for small and medium enterprise will not be completely clear; nevertheless, it was quickly adopted by many large and midsize businesses across the world. It became the strategic enterprise utility for these firms that were migrating their legacy functions and had been also on their option to downsizing their systems to consumer/server computing, which was cheaper and extra scalable.

As a standard business application solution, R/3 covered a big deal of functionality, from finances to production planning, from payroll to gross sales and distribution, all of which was primarily based on the business process concept. The mixing of the SAP’s utility module turned the most effective features of the R/three system. SAP added loads of value to its R/3 flagship product by providing an excellent set of companies along with its partners and also by together with efficient implementation tools and a full-featured development surroundings to enhance the system in those areas not lined by the standard.

Because SAP R/three is so necessary as the foundation of mySAP.com, the next sections evaluate in larger detail a variety of the fundamental components, options, and expertise that are present in R/3.

Releases 3.0 and 3.1

The preliminary launch 1.0 of R/three was in 1992, by 1994 release 2.2 was out, and it was 1995 that noticed the looks of launch 3.zero, which was a significant change. In 1996, R/3 launch 3.1, also referred to as the Internet release, was out. The primary options of the preliminary releases that remained and had been further enhanced in each release included the following:

1.Open, moveable, scalable, and shopper/server programs
2. The concept of integrated business processes with a constructed-in reference mannequin and information mannequin
3. The ABAP/four improvement environment
4.Customizing tools

Easy Home windows-based mostly GUI (graphical consumer interface) Releases 3.zero and 3.1 were a definitive step forward for SAP in constructing a stable technological and useful basis for what was to come. With these releases, R/three was improved in the following areas:

1. The Business Framework Structure was launched, which was designed for a better and easier introduction of latest performance and new purposes into current R/three methods, as such offering a broader openness for connecting other R/3 and external systems.

2. Introduction of recent APIs (software programming interfaces) and standard requires add-ons similar to GIS (Geographical Info Programs), CAD (computer-aided design), archiving, electronic banking, Digital Information Interchange (EDI), ArchiveLink, and others.

3. ALE (Application Hyperlink Enabled) expertise, which initially was meant for bigger and distributed techniques that maintained their semantic integration, is now extensively used in mySAP eventualities as well. ALE relies on interfaces that can link several R/3 programs or R/3 techniques with exterior systems.

4. The chance for integrating customary PC (normally Microsoft Windows) functions such because the Microsoft Office tools was introduced.

5. Better and easier GUI (classical SAPGUI) with new personalization capabilities and higher ergonomic options was added.

6. Improvements to the technical architecture, together with new tools for installing or upgrading R/three techniques and for tuning its memory and configuration parameters, were added.

7. Improved transport system for moving customizing and growth objects from one system to others was included.

8. The introduction of the primary ITS (Internet Transaction Server), making R/3 intranet and Internet ready. This characteristic made it attainable for the first time for system customers to run transactions from an Internet browser. ITS is still very important within the general mySAP technical foundation.

9. An enhanced Workflow system, with many object-oriented options, was introduced. SAP calls it enterprise workflow. SAP adopted it up with Web.

10. The introduction of object-oriented BAPIs, which will definitively allow in an easy method the communication of R/3 programs with external net-based applications.

SAP R/3, with the discharge of 3.1, was first to broaden the everyday three-tier consumer server structure to a multitier one by introducing a brand new layer, often called the Web layer, situated between the presentation and application layers. With this approach, SAP elevated the potential entry to the system for 1000's of users or “business partners.” The next new components and features were launched:

1.IACs (Web Software Elements). These were the new elements on R/three utility servers that enable the use of software program modules to support enterprise transactions through an Internet layer. Initially, SAP provided a short number of IACs, around 40, together with elements for human assets applications.

2. Net Browser. An Web browser including Java-enabled components becomes a new user interface (a brand new presentation). Commonest browsers, such as Netscape Navigator and Microsoft Internet Explorer, are fully supported.

3. Web Server. This is the everyday Web server that, in the case of R/3 purposes, allows the Internet or intranet world to communicate with the SAP enterprise processes.

4. ITS (Web Transaction Server). This is the part situated on the Internet stage within the structure and connects the Web server with the SAP IACs.

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Profitability Management in SAP Controlling Continued

Profitability Management in SAP Controlling is going to be continued and it is previously discussed in the previous post.

Flows of Actual Values in Profit Center Accounting

Profit Center Accounting (EC-PCA) is a statistical accounting component. This means that it takes transaction data posted in other components and represents it from a profit-center-oriented point of view. The postings in EC-PCA are statistical postings , since the profit center is not itself an account assignment object in Controlling.The integration of the R/3 system makes it possible to post profit-relevant data to Profit Center Accounting automatically as soon as the transaction is posted. The system either transfers the relevant items from the original postings or creates additional postings.

Profitability segments are the market channels or strategic business units that are to be analyzed in CO-PA. They may be combinations of product, customer, and sales structure information, and/or may encompass company code, business area, and profit center information.Since reporting margins and other profitability figures along marketing lines (as defined by these profitability segments) is the primary purpose of CO-PA, its design has been optimized for producing profit and loss statements under the cost-of-sales accounting format and philosophy.Profit centers are areas of responsibility within a company for revenues and expenses, as well as certain assets and liabilities in some cases. All profit centers are arranged into a standard hierarchy representing the entire organization.

Since reporting performance information along responsibility-oriented organizational lines (as defined by this profit center hierarchy) is the primary purpose of EC-PCA, its design has been optimized for producing profit and loss statements under the period accounting format and philosophy. However, cost-of-sales accounting in EC-PCA is also now possible with the aid of functional areas.

Parallel Currencies in Profitability Management

In costing-based CO-PA, all amounts are stored at minimum in an operating concern currency, which is specified in the operating concern attributes.It is also possible to configure the attributes to store values in the local currency as well; this has the effect of doubling the stored transaction data, though.
n Account-based CO-PA stores all transaction in three currencies, the transaction currency, the local currency, and the controlling area currency. Profit Center Accounting can store transactions in the transaction currency, the local currency, and a special profit center accounting currency.





Different Views of a Corporation

Different decision-makers in a company need different types of information.For this reason, those responsible for the individual group companies require profitability data to be represented from the viewpoint of each company code and to match the income statement from external reporting.For the group head office, the group as a whole is generally the most important view. This means that the basis for decision-making requires the group to be represented as a business unit and to eliminate inter-company profits.Especially if company units such as profit centers are to be run like independent companies, the profit center managers require the equivalent type of information. In such cases, sales between profit centers within a company are also taken into consideration.

Parallel Valuation Views

The view of the individual company and the valuation of business transactions according to legal reporting requirements only represents one of several possible perspectives. Balance sheet and tax considerations play an important role in the financial statements of the individual companies.In addition to this legal view, though, successful corporate and group management needs other information that shows business activities from the point of view of the whole group or of individual profit centers.

Corporate controlling for the entire group requires you to valuate these business transactions using group production costs. Moreover, in many groups the management structures do not correspond to the individual legal accounting units. Internal prices guide the activities of the individual profit centers according to market principles. Consequently, value flows represented from the point of view of profit centers are vital for the purposes of internal management and profitability.




You can conclude as shown.



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Profitability Management in SAP Controlling

Your company's management would like to implement a profitability accounting application in the SAP R/3 System.As a member of your company's project team, you are supposed to provide advice on the question of whether to implement CO-PA and/or EC-PCA in the R/3 System.You then will be responsible for implementing the selected applications.

Methods of Profitability Management

Two accounting methods used for generating profitability statements are the cost-of-sales method and the period accounting method. Applying either method to a given set of business transactions under a given set of laws yields the same bottom-line result (profit) in concept. The difference is in how the overall profit and loss picture is presented.Companies must choose to use one of these methods for generating their legal financial statements.The choice is often determined by country-specific legal requirements. However, the methods facilitate two different types of analyses, both of which a company may want to conduct, so internally there may be efforts to track information in both manners.

Cost-of-sales accounting

With this method, the emphasis is on matching the revenues for goods and/or services provided (the value that a company gains as a result of sales) against the related expenses for those items (the value that is lost when products are transferred out of the company). Therefore, this accounting method displays profit and loss information in a manner optimized for conducting margin analyses, and as  such it is optimal for the sales, marketing, and product management areas.
Period accounting 
With this method, the emphasis is on summarizing the activity and situational change over a period of time, for a given organizational unit. Therefore, this accounting method presents the revenues and primary expenses that have been incurred during a given period of time and the changes in stock value levels, work-in-process, and capitalized activities. As such, it is optimal for the production and
profit center areas.


Views of Profitability Management

Sales Reporting:

CO-PA lets you analyze the profitability of segments of your market segments structured according to products, customers, orders, and summarization of these and other characteristics as well as organizational units such as company codes or business areas. The aim is to provide your sales, marketing, planning, and management organizations with decision-support from a market-oriented viewpoint.Responsibility Reporting:n The business purpose of Profitability Analysis is to provide Profitability-oriented performance information on a company's market segments or sales channels, in order to support corporate planning and decision-making, especially in the areas of sales and marketing.The definitions of both 'market segments' and 'performance figures' are freely definable, allowing for maximum flexibility in market evaluation. The definition of a market is configured in the system through the selection of characteristics that are to be the subjects of analyses. Performance figures may either be profit and loss account balances or freely defined value fields.

Market segments are normally some combination of information regarding customers, products, and the selling organization. Performance figures are normally measurements of quantities, revenues, discounts, surcharges, product costs, margins, period costs, etc.The results of Profitability Analysis can be analyzed with a multidimensional reporting tool, which allows the dynamic sorting and rearranging of data to provide multiple perspectives within a single report.


EC-PCA lets you analyze internal profit and loss for profit centers. This makes it possible for you to evaluate different areas or units within your company. You can structure profit centers according to region (branch offices, plants), function (production, sales), or product (product ranges, divisions).Profit Center Accounting is a component of the module "Enterprise Controlling".

Responsibility Accounting by Profit Center

EC-PCA lets you calculate internal operating results for profit centers. A profit center represents an organizational subunit that operates independently on the market and bears responsibility for its own costs and revenues. You organize your organization into profit centers by assigning the master data of each profit-relevant objects (materials, cost centers, orders, projects, sales orders, assets, cost objects, and profitability segments) to a profit center.All the business transactions in the R/3 System which are relevant for cost and profits are updated in the profit centers at the same time they are processed in the original module, and organized according to cost and revenue elements. This transforms all the flows of goods and services within the company into exchanges of goods and services between profit centers. This profit center structure applies for both actual postings and profit center plan data.It is also possible to treat a profit center as an investment center. In addition to the flows of goods and services, you can transfer selected balance sheet line items (fixed assets, payables and receivables, material stocks, and work in process) to profit centers on a periodic basis. This makes it possible to calculate such key figures as profit on sales, return on investments and cash flow. 

Reporting

The method of determining period operating results in Profitability Analysis is based on the assumption that a company's success can be measured primarily on the basis of its transactions with other companies. The aim is to supply the sales, marketing, product management, controlling, and corporate planning teams with decision-support information.This sales-oriented approach in CO-PA means that no contribution to the organization's success is made until a sales transaction has been completed. Consequently, the products sold are transferred to CO-PA in accordance with the cost-of-sales accounting method and provide information on the sales revenue and sales deductions. This net revenue is then compared with the cost of sales. These costs consist of the cost of goods manufactured of the products sold or services rendered plus any production variances known.To round off your profitability data, you can also assign overhead costs to profitability segments in the course of your period-end closing activities.

The Concept of Integration within Accounting

The R/3 System application component Controlling (CO) contains all accounting functions necessary for effective controlling. If an organization divides accounting into internal and external viewpoints, CO represents internal accounting because it provides information for managers - that is, to those who are inside an organization and who are charged with directing and controlling its operations.CO includes cost and revenue accounting and, together with the component Profit Center Accounting (EC-PCA), it offers all controlling opportunities without being limited to legal structures used in financial accounting.CO is made up of multiple application components optimized for processing different approaches to managerial accounting. CO answers the following typical questions by means of the appropriate component:

ŸWhat costs occur within our organization? (CO-OM)
ŸWhat does producing a product or providing a service cost our organization? (CO-PC)
ŸIn which market segments are we successful? (CO-PA)
ŸHow profitable are our individual organizational areas (Profit Centers)? (EC-PCA)



Flows of Actual Values in Profitability Analysis

Actual Postings represent the most important source of information in CO-PA. You can transfer both sales orders and billing documents from the Sales and Distribution (SD) application component to CO-PA in real-time. In addition, an interface program is available to let you transfer external data to the R/3 System. You can also transfer costs from cost centers, orders and projects, as well as costs and revenues from direct postings (G/L account postings in FI, orders received in MM, and so on) or settle costs from CO to profitability segments.In costing-based CO-PA, you can valuate incoming sales orders or billing documents to automatically determine anticipated sales deductions or costs. You can also revaluate your data periodically to adjust the initial, real-time valuation or add the actual costs of goods manufactured.

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Actual postings in SAP Controlling Continued

SAP Controlling has actual posting where the data is posted and this is the continuation of that post.For assigning processes that do not relate to product, but relate to profitability segments, the template is linked to CO-PA characteristics.Process driver information might be available already e.g. in CO-PA or the LIS. In many service industries process driver data is held in external systems. Functions can be custom-made to calculate with them.

For assigning processes that do not relate to product, but relate to profitability segments, it is also possible to use allocations as well as process templates.There are two methods that can be used to allocate processes to CO-PA.The first method is a direct internal activity allocation, This method is available for actual allocations only and can't be used for plan allocations.The second method of allocating processes to profitability segments is assessment.LIS key figures can be transferred to CO-PA to serve as tracing factors for the actual assessment.The CO-PA record type of “H” has been created for the transfer of LIS key figures to CO-PA. New value fields are needed in CO-PA for the key figures.


Variance Calculation

Because a process is a controlling object in Integrated ABC and will contain both planned and actual costs, variances will naturally occur on a process as they do on cost centers.Complete variance analysis, consistent with the variance analysis traditionally available for cost centers, is available to use on processes to answer the inevitable questions on process management and the differences in actual resource utilization from planned utilization.The same variance categories are used for process variance analysis as are used for cost center variance analysis.
 
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Actual postings in SAP Controlling

One of the great strengths of planning in the SASP R/3 CO module is the similarity between actual postings and plan postings.Plan postings are basically a simulation of actual postings.Once you learn plan or actual techniques, that learning is easily transferred.Each template contains columns for plan calculations and columns for actual calculations.

Resource Quantity Allocation Techniques

For actual quantity resource assignment from cost centers to processes or from one process to another the following activity allocation methods are available:

direct activity allocation
Ÿindirect activity allocation
Ÿtarget = actual activity allocation
The target = actual method would be a viable option to use only when the planned allocations are known to be correct with a high degree of certainty.Resource allocations based on a cost flow only, no quantity flows, can be done using assessment or distribution.




Compared to activity allocations, Template allocation is a much more flexible method of quantity based resource cost assignment.A structured business process template may include cost center/activity types, other processes and other structured business process templates.There are two different types of templates used with processes and each has its own specific and unique purpose.

1-The structured business process template defines the resource assignment from cost centers or processes to an ultimate consuming process, based on the actual output quantities of the “top” process. This template is created in environment “SBP” (“Process ínput template”).
2-The Template is used to allocate process quantities to a cost object that is consuming that process or process group (“Cost object input template”).


Resource Allocation with Structured Processes

The structured process is a more formal type of process grouping as it contains all the data necessary for automatic allocations of resources from the lower level cost center/activity types and/or processes to the highest level business process in the structure.The structured business process is described by a template created in environment “SBP” which means Structured Business Process. This template is assigned in the process master data record.Each template can contain sub-templates where the lowest level in the hierarchy is on the task level represented by a cost center/activity type. This can be effectively used to model multi-level business process hierarchies.There is a graphical display in process master data.


Transfer of Statistical Key Figures from LIS

Quantities maintained automatically by other business transactions integrated with LIS may be transfered to statistical key figures and subsequently used in the actual allocation of resources to processes.The processes in the example use as a statistical key figure "Number of orders". The values of these statistical key figures are to be found in an LIS database called an "Infostructure".The master data for the statistical key figures in CO is tied to the LIS key figure "Number of orders" differentiated by an assigned shipment number range as to foreign or domestic orders.In order for the automatic transfer of values from the LIS database to the processes to take place, the specific portion of the LIS database records that really belong to the specific process must be determined. This is done by a variant which is defined to supply only the relevent data from the LIS database required by the specific process.The key figures then serve as a basis for the resource allocation in CO.The template can also pull process driver information directly from LIS without a statistical key figure linked to it.


Cost Object Controlling with Templates

The cost object which uses process resources receives the actual postings from the template allocation. The process consumption quantities may be adjusted manually.Plan template formulas must be reviewed carefully and not simply duplicated and used as the actual template formulas because actual formulas must address actual values. Where “lot size” was appropriate to include in the consumption formula in plan it will probably be replaced with “order quantity” to calculate the actual consumption.Similar to the transaction that applies surcharges to cost objects, processes consumed by a cost object are actually allocated to the specific cost objects by a periodic transaction located in the menu path under period end processing. You find this menu path always in the menu of the receiving objects (application and implementation guide). It is important to perform this processing before period end closing of cost object controlling (wip, variances and settlement).



Template for Cost Object Controlling

The “Object” cell on a process template determine the process to be consumed by a cost object.The process carries the price (fixed and variable) which will be used to value the quantity of the process consumed by the cost object.The price may be calculated at the end of the period, after the quantity allocation. In this case the price is applied retroactively to the allocation.There are two possible ways for the template to identify the correct business process:

Entering the process directly into the “Object” cell on the template row as shown above.Using template functions to determine the process dynamically as a function of relevant criteria such as plant, profit center, etc. This has the advantage of being able to use the same template row over multiple processes.

Whether a process is active for a given cost object will be determined by the “Activation” column using one of three possible different criteria:

ŸThe cell is set by default to “always active” (by blank).
ŸThe cell may be set to “never active”.
ŸThe cell may use the template functions and let the template determine whether it is active for a certain cost object (with Boolean logic).In the above example, a function call in the activation routine accesses the material classification view of the material master of the material being produced and compares the color found there to the fixed value of "stand", meaning standard color. If the material being produced has a color other than "stand” (the result of the Boolean logic is "true”) then the material will need to be painted and subsequently dried, utilizing process resources.Methods for activation of a process are pre-defined and many functions are available for each company‘s unique needs. You can also define own customer functions.

If the process is "active" for the specific cost object, the template next determines what the cost driver parameters are, where they are found, and how to calculate the quantity of the process that will be consumed by the cost object .There will probably be a different quantity formula for actual quantities from the plan quantity calculation. This example multiplies the process driver quantity by the order quantity confirmed. In plan the same process driver quantity was multiplied by the plan lot size.To simplify process template construction, a set of pre-defined functions are available, and user defined functions may be added.

Note that for the "Activation" example, the colors were compared, while the cost driver amount in the "Quantity" column requires that the value be included in the calculation.Note also that “order quantity confirmed” will result in a period specific quantity calculation discussed in the previous slide for the actual valuation event of “blank”.


If the process is "active" for the specific cost object, the template next determines what the cost driver parameters are, where they are found, and how to calculate the quantity of the process that will be consumed by the cost object .There will probably be a different quantity formula for actual quantities from the plan quantity calculation. This example multiplies the process driver quantity by the order quantity confirmed. In plan the same process driver quantity was multiplied by the plan lot size.To simplify process template construction, a set of pre-defined functions are available, and user defined functions may be added.


Consumption of processes by a product can be determined by a Template. In addition, it is possible to specify process consumption directly in the routing.To do this, you make the following assignments: 1) process to work center , 2) work center to a routing operation.This allows you to post resources from different cost centers to cost objects through a process using one single operation of the routing. The standard values of the routing are used to calculate the process quantity based on PP formulas. The PP confirmation triggers the posting of the processes in the routing real time. Posting of processes not in the routing but in the process template occurs at period end.


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Planning Business with SAP Continued

We have been discussing the planning the way business is done using the worlds best ERP SAP.This post is a continuation of previous post of the blog.

Product Costing with Templates

Product cost planning includes the quantities and prices from the planned consumption of process quantities.The cost component view can be maintained in customizing to include processes in an aggregated view of process costs and quantities.In cost component customization, each component may be assigned as valuation relevant if the process costs should be included in inventory.The itemization view of the product cost estimate identifies process values with a code of "X." Overhead values calculated using a costing sheet are identified with a code of “G.”

Identifying the Template for Cost Objects

Allocations from processes to cost objects may be done using distribution, assessment and activity allocation. These techniques have long been available in R/3 and are not new to ABC.In addition to these methods, the template is a new allocation tool. The new tool provides a more general capability than the other methods since it includes the use of formulas and functions.The use of templates results in a quantity and value flow. 

Determining Costing Sheet and Overhead Key

The link connecting the template to the cost object is created through a template assignment function in customizing.The template is assigned to a combination of overhead key and costing sheet.The costing sheet is linked to a valuation variant, which is linked to a costing variant, which is linked to the order type.The overhead group is material master data. The overhead group is assigned to an overhead key in customizing.For overhead that will not be modeled using business processes, the surcharge method of overhead application is still available.

Costing Control Data in Order Header

The costing sheet and overhead key assigned may be seen in the order master data control data screen.



Template Determination for Cost Objects

The same template is used for all objects using the same costing sheet and having the same overhead key within the same environment.This means that a template may be designed to apply to hundreds or thousands of cost objects.Basic environments are: 001 cost estimate/production orders; 002 reference and simulation costing;003 cost estimate without quantity structure; 004 network; 005 WBS element; 006 general cost objects; 007 internal order; 008 sales order; 010 product cost collector; 011 service order; SBP structured business process, and PAC costing-based profitability analysis.

Allocations from processes to profitability segments may be done using assessment and activity allocation. These techniques have long been available in R/3 and are not new to ABC In addition to these methods, the template is a new tool for allocation. The new tool provides a more general capability than the other methods since it includes the use of formulas and functions.The use of templates results in a quantity and value flow.

Characteristic Relevance for Template Selection

The derivation strategy to identify the appropriate Template for a specific Profitability Segment is defined by derivation rules in CO-PA. A combination of characteristic values points to a Template. You can define several rules for identifying a Template. The first derivation rule that finds a Process Template is used. No other rules will be evaluated. This ensures that no double -postings of processes
to CO-PA can occur.The Templates can be tied to just a few main characteristics making full use of the dynamics of the Template functions. Such a Template will contain generic methods and formulas that are able to deal with many of your company’s processes in one Template.

The Template can also be tied to a more detailed level of characteristics (more characteristics are used in the derivation rule). In this case the Template contains methods and formulas for processes that are specific for the profitability segments specified in the derivation rule and not relevant to other profitability segments.


Origin of Cost Driver Quantities

Cost drivers can originate from many diverse parts of the integrated R/3 system.As examples; bills of material can provide the number of components in a cost object, the router can provide the number of work centers through which the cost object must move.Product costing can provide the lot size of the material being produced.You may also create your own LIS library and structures to maintain the necessary transactional statistics if the delivered structures do not capture them.

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Planning in SAP Controlling

To fully integrate ABC into the corporate planning cycle, several new customizing activities should be performed.In order to identify ABC costs in the cost component view of product cost, new cost components for processes may be needed.New value fields may be needed for processes in CO-PA based on the new cost components.New value fields may be needed for processes in CO-PA, which are not product related.Activity Based Costing is also fully integrated into the corporate planning cycle when business processes are service oriented.The results of Sales Planning in CO-PA will also "back flush” (pull) a properly calculated amount of process quantities and finally of indirect resources (cost center/activity types) required to support the sales plan. To do this, business processes are assigned through the template directly to profitability segments (customers, divisions, distribution channels).

The back flushing of sales plan requirements results in the sales plan process quantity requirements being transferred to business process planning as scheduled quantities, where they may be compared to the original planned quantities.Once the plan and scheduled quantities have been reconciled the plan reconciliation program may be run which will replace the original plan quantities with the scheduled quantities. Alternatively, the scheduled quantities may selectively replace the original plan quantities through manual adjustments.Executing the process price calculation values the CO-PA plan. This means that the process costs will be transferred to Profitability Analysis (CO-PA).





Transfer of planned process consumption

The planning concept has been expanded to include process requirements. This achieves the same precision for indirect resources as has been available previously for direct resources.SOP supports both the high-level planning of complex planning hierarchies and the detailed planning of finished products.LTP is used to simulate the future stock and requirements for materials. It uses operative bills of material, routings, and work centers.Each of these two sales planning methods can transfer scheduled quantities to integrated ABC.The template is the tool that will transfer quantity requirements from either SOP or LTP to ABC.

Scheduled quantities can also be transferred from business processes, which are assigned to work centers used in routings.If this work center is assigned to a routing operation, the corresponding process is pulled. The standard values of the routing are used to calculate the process quantity based on PP formulas.Allocations to processes may be done using distribution, assessment and activity allocation. These techniques have long been available in R/3 and are not new to ABC.In addition to these methods, the template is a new tool for allocation. The new tool provides a more general capability than the other methods since it includes the use of formulas and functions. The use of templates results in a quantity and value flow.

Planning of Process Quantity Inputs

There are two approaches that may be used to plan process input quantities: activity allocation and template allocation.There are several activity allocation methods in R/3: direct, indirect and target = actual.The structured business process is a method of automating quantity allocations from both cost center/activity types and from other processes to a higher level process.Assessment or distribution methods may also be used to allocate costs from cost centers to processes but we then lose any ability to know the quantity of the indirect resources consumed by the processes.

Planning with Structured Processes

A structured process is described by a Template created in environment SBP.Planning starts with the output from the process, then calculates the required inputs to achieve the output. You can think of this as “ARP” - activity requirements planning, which is analogous to MRP - material requirements planning.In the structured template above, Process 1 is the top process in the resource allocation chain. For every output from Process 1, the template will automatically plan outputs from Process 21 and 22,based on the quantities found in Template 1. Then, resources will be allocated to Process 22 from the two cost center/activity types.Process 1 will pull a variable quantity of Process 22 based on Formula -2 and pull 20 fixed quantities of Process 22.

For every Process 22 output planned, Process 22 will pull 2 variable quantities from CC2/AT2, a fixed quantity from CC2/AT2 determined by “Formula -3” and 10 variable quantities of CC1/AT1. Note that cost center/activity types must be linked before they can be used in the structured process template. Linking is done whenever the combination of cost center/activity type is planned.The quantities which result from the structured process allocation are considered scheduled quantities.



Planning Statistical Key Figures

Statistical key figures can be planned on a business process in the same way as they can be planned on cost centers.Planned statistical key figures can serve as a tracing factor for an indirect activity allocation.They can also be used as the basis for resource allocation in the formula of a structured business process template.

Planning of Process Outputs

Output quantities of a process may be planned manually without identifying a specific cost object.Output quantities may also be planned in SOP / Long Range Planning which will integrate the process output with the sales and production plan.SOP/LTP will create “scheduled quantities” for the process. The plan reconciliation program will show you any discrepancies between the planned quantity and the scheduled quantity. It may also be used to automatically adjust the planned quantity to the scheduled quantity to eliminate any inconsistencies occurring from the planning effort.n Process outputs may also be planned with cost centers as receivers. An example might be the allocation of centralized administrative processes back to cost centers.When a Template is used for cost objects, the process type must be set to “manual entry manual allocation” (type 1).The planned process output is the basis for price determination of the process.

Plan Process Output Reconciliation

Before the plan is finalized, the planned relationships should be reconciled. This will show if any planned output quantities are unequal to scheduled input quantities.Any discrepancies in planned quantity may either be ignored, manually adjusted, or automatically adjusted through the reconciliation program.Each process carries its own unique price with fixed and variable components.
n The process pric e calculation is executed after planning the resource input to the process and the quantity output from the process.Only if one of the quantity planning methods have been used in providing indirect resources to the process will the system calculate a variable process price component.


The value of the variable quantity of resource inputs divided by the total quantity of the process output results in the variable process price. If fixed resource quantities have also been planned as process inputs, the value is divided by the total quantity of the process outputs to calculate the fixed process price.

Product Costing with Templates

Product cost planning includes the quantities and prices from the planned consumption of process quantities.The cost component view can be maintained in customizing to include processes in an aggregated view of process costs and quantities.In cost component customization, each component may be assigned as valuation relevant if the process costs should be included in inventory.The itemization view of the product cost estimate identifies process values with a code of "X." Overhead values calculated using a costing sheet are identified with a code of “G.” 


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SAP R/3 Working Style with Business Continued

There are different tools available in SAP for doing the business in the better way to get the profits.

 Tools for Resource Cost Assignment

“Resource Cost Assignment” means allocating costs from cost centers to processes.
R/3 includes several methods to accomplish these allocations.
Any combination of these allocation methods may be used.

Tools for Process Cost Assignment

“Process Cost Assignment” means allocating costs from processes to cost objects or profitability segments.R/3 includes several methods to accomplish this allocation.Any combination of these allocation methods may be used.

The Template: a Tool for Cost Assignment

Allocations from and to processes may be done using distribution, assessment and activity allocation.These techniques have long been available in R/3 and are not new to ABC.In addition to these methods, the template is a new tool for allocation. The new tool provides a more general capability than the other methods since it includes the use of formulas and functions.The use of templates results in a quantity and value flow.




Origin of Process Driver Quantities

A process driver is the quantity measures of the process that is being assigned to (consumed by) cost objects and profitability segments.Process driver quantities may be found from almost anywhere within R/3 or in external systems.Often the cost object itself contains process driver relevant information. Such structures as the BOM, Material Master record, and router provides a wealth of potential process driver information.For process drivers based on transactions, information on quantities can be retrieved from the Logistics Information System (LIS).The template is the tool which can dynamically calculate the quantities consumed by cost objects and by profitability segments . Processes may also be manually allocated to cost objects and to profitability segments.

A template is created within a certain environment, which is determined by the cost object that will consume the process quantities. For instance, a process that will be consumed by a PP production order will be controlled by a template created in environment 001, while a process (and it may be the same process) that will be consumed by a sales order will be controlled by a process template created in environment 008.A template consists of pre-defined columns. Each of these columns is looking for information - that is asking a question. The answer may be “hard coded” by the user, or found dynamically by the system.The real power of ABC in R/3 is realized when the system answers these questions dynamically.

Template for cost objects
Each environment contains a specific set of functions for the user to select from to customize how to answer the questions shown above. You create a template by using the functions in a row across each of the columns. Each template can contain as many rows as are necessary.There are 3 different types of rows that can be created and these can be combined on one template.Each type of row serves a different purpose. A Comment row is used for documentation. A Business Process row is used for process consumption by a cost object. A Sub-template row is used to link templates for a nested template structure. A calculation row can be used when multiple Business Process rows use the results of a single calculation (on the same template only). If the template is created in the SBP (Structured Business Process) environment then an additional row type of TASK is available to allow the Object column to use a cost center/activity type.

Functions are assigned to Sub-Environments

Each cost object in the system has its own environment pre-assigned to it in the delivered system.These assignments cannot be changed.Each environment contains pre-assigned sub-environments. This assignment is also fixed and cannot be changed.Each sub-environment contains a collection of specific functions which is designed to work with the data in that particular sub-environment. For instance, a function designed to read the material characteristics assigned to a material in the material master will be found in the material sub environment in the environment defined by the consuming cost object.

The template, which is assigned to a specific environment when it is created, has access to all of the functions and the corresponding data that they can resolve, found in the different sub-environments. A sub-environment may be assigned to more than one environment, making the functions within the sub-environment available to more than one type of cost object. For instance, the sub-environment containing the functions involving routers is available to the sales order and the production order but is not available when using cost estimates without a quantity structure.

New user defined functions may be created and assigned either to a sub-environment or directly to an environment. Assignment to a sub-environment provides for more flexibility because more than one type of cost object can use the function.In customizing, you can restrict the use of each new function to a single template cell. Inside each cell, the specific purposes of each function may be further defined for such things as parameters, whether a value is entered or defaulted, what the default value will be, etc. The purpose of these restrictions is to assure that the function hierarchy only allows the template to use a function where and how it makes sense. For instance, when a function requires a material number as a parameter, only material number functions are made available.

Delivered Environments for Processes

These environments are delivered and fixed in the system
The sub-environments are also delivered and fixed in the system.
This means you cannot create new environments or sub-environments.
However, you can move functions to different environments, and you can create new functions.

Functions

There are two different kinds of functions, table -field and ABAP functions.A table-field function allows for a function to use fields from tables that have been allowed in the specific, delivered environments.An ABAP function is required if you need access to a field in a table which has not been included in the specific, delivered environments.If new functions are created they must be maintained within the template environment area in customizing.

If new functions are created the 3 level naming convention must be followed which provides for an external name, internal name and a logical function name.Functions can be copied, changed, and/or re-named.


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