SAP S/4HANA: First Steps Toward Real-Time Profitability Analysis

  • by Janet Salmon, Product Manager, SAP AG
  • Stefan Walz, Chief Business Process Architect, Financials Development, SAP
  • May 11, 2017
As many companies start to reflect on the difference between Profitability Analysis (CO-PA) within the universal journal and the more familiar costing-based CO-PA, it’s time to look at some of the new features that SAP added in the SAP S/4HANA 1610 edition.
Learning Objectives
Reading this article, you will learn:
• How to derive characteristics for profitability reporting for the line items of a project
• How to create revenue recognition postings for commercial projects at the same time as the work time is recorded
• Which activities continue to take place at period close
• How to configure the system to trigger such postings

Key Concept
With SAP S/4HANA the familiar concept of real-time postings has been extended in that such postings can trigger follow-on postings that anticipate the period close postings normally needed in a project environment. With SAP S/4HANA 1610 a time confirmation can trigger a second revenue recognition journal entry that supports fixed price projects, time and expense projects, and projects with periodic billing.

Several articles in Financials Expert have already outlined the shifts in profitability reporting and the move toward real-time finance processes. We briefly recap the basics of profitability reporting in SAP S/4HANA and then show you what changes. We explain how a time recording to a project can trigger a revenue recognition posting that in previous releases required you first to run results analysis and then to settle the project.

Profitability Reporting and Characteristic Derivation

Let’s start by looking at profitability reporting in SAP S/4HANA in general.

The Financials Expert article “SAP Simple Finance: New Options in Profitability Analysis,” published in December 2014, explained how the revenue and cost of goods sold postings are automatically linked with the relevant profitability characteristics for reporting purposes. You find a detailed description of the implications for a conversion project in SAP Note 2349278 (S4TWL - Profitability Analysis) and SAP Note 2349297 (S4TWL - Reporting/Analytics in Controlling). What this means is that Profitability Analysis (CO-PA), which was previously a separate application, becomes part of the universal journal.

Activating account-based CO-PA ensures that table fields are created in the universal journal for all the profitability characteristics in your operating concern. During migration your existing account-based CO-PA data is moved to the universal journal and the cost elements are merged with the accounts to give you a single profitability document that can provide the basis for both internal and external reporting. When the universal journal was introduced with the SAP S/4HANA Finance 1503 edition, the controlling processes were still needed to move costs to CO-PA at period close. In the case of projects this meant that settlement was needed to transfer the costs from the projects to CO-PA at period close. With the new approach, delivered with 1610, companies’ projects no longer need to be settled because there is now a new approach that immediately calculates the revenue to be recognized and generates the appropriate posting without waiting for period close.

Another Financials Expert article, “You Are Now a Step Closer to Real-Time Profitability in SAP S/4HANA Finance with Fewer Settlements,” published in January 2017, showed how profitability reporting works for internal orders and explained how expense postings made to cost centers, orders, and projects could be extended to update the associated profitability characteristics. This article explained how to set up derivation functions to read the profitability characteristics for an internal order from the settlement rule instead of waiting for the settlement process to credit the order (sender) and debit profitability analysis (receiver).

The same approach can be taken for customer or billable projects so that expenses charged to the work breakdown structure (WBS) show as cost postings to the project, but also as an assignment to the profitability characteristics. Where the WBS element is a billable item, the revenue postings are handled the same way and also assigned to profitability characteristics using the information in the settlement rule, using the mechanisms described in “You Are Now a Step Closer to Real-Time Profitability in SAP S/4HANA Finance with Fewer Settlements.

Since there is now no need to settle, the settlement rule becomes redundant and deriving the characteristics from the settlement rule makes no sense. As an alternative, you can configure the system to read the profitability characteristics for the assigned sales order item. This only works if there is a one-to-one relationship between the WBS billing element and sales order item. With this approach, the CO-PA characteristics are effectively extending the posting line, giving you a real cost assignment to the WBS element and an additional statistical cost assignment to the CO-PA characteristics. If at the time of posting there are no profitability attributes, as might be the case at the start of the project where there is neither a settlement rule nor an assigned sales order item, then you can use the new CO-PA realignment function to update the CO-PA assignments in the relevant journal entries posted for the WBS element, once the detail is available.

Janet Salmon

Janet Salmon joined SAP in 1992. After six months of training on R/2, she began work as a translator, becoming a technical writer for the Product Costing area in 1993. As English speakers with a grasp of German costing methodologies were rare in the early 1990s, she began to hold classes and became a product manager for the Product Costing area in 1996, helping numerous international organizations set up Product Costing. More recently, she has worked on CO content for SAP NetWeaver Business Warehouse, Financial Analytics, and role-based portals. She is currently chief product owner for management accounting. She lives in Speyer, Germany, with her husband and two children.

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Stefan Walz

Stefan Walz joined SAP in 1991. He started as consultant for the Controlling (CO) module. After seven years he moved to the development organization where he had several roles all within the topics of Controlling (CO) and Financial Accounting (FI). He was involved in concept and development for the new Universal Journal and is responsible for the new project accounting in SAP S/4HANA Cloud.

He is currently chief business process architect in the area of financials development.

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