Use Tracing Factor Automation in Cost Allocation to Achieve Efficient and Faster Month-End Closing

  • by Ashim A. Nanda, Managing Consultant, Global Business Services, IBM
  • October 10, 2011
The rules for allocating the site support costs to the production and quality cost centers need to be revisited multiple times during the year owing to many changes in production floor operations. Learn how to use tracing factor automation to reduce the amount of time necessary for cost allocation.
Key Concept
Tracing factor automation, a functionality to handle changing rules used by an SAP system to perform periodic cost allocation, helps you consolidate and update directly into your SAP system a periodic Excel-based cost allocation plan obtained from site finance managers. Tracing factor is the criterion on the basis of which the periodic cost allocation is run. Typical criteria are plan or actual consumption, activity, or statistical key figure (SKF). This approach reduces the amount of time site finance managers spend on actual cost allocation.

Real-world manufacturing scenarios have large numbers of sender and receiver cost centers and cost elements. Moreover, there could be a complex matrix of cost flow between various cost centers, resulting in many dependent allocation cycles running one after the other. Thus, the cost planning for allocating actual costs during month end could be very tedious.

At a typical manufacturing site, it takes up to three days of a site finance manager’s time every period end to ensure that the costs are properly allocated so that they are ultimately reflected in the product. For a large corporation with 50 sites, this could mean 150 days of a site finance manager’s time during each period closing. Automation using statistical key figures (SKFs) as tracing factors saves the site finance manager’s time on the period closing.

Finance managers are experienced and comfortable in using Excel-based allocation formats to plan for the periodic cost allocation. After interviewing finance managers, I conclude that much productive time is wasted in ensuring the rules provided in Excel are captured correctly in the SAP system. This article presents a solution that uses SKFs as tracing factors to integrate SAP with Excel-based cost allocation rules, thereby automating time-consuming month-end activity such as keying data into a system.

Ashim A. Nanda

Ashim A. Nanda is a managing consultant in SAP FI/CO working with IBM Global Business Services. He has more than eight years of experience with implementation, global rollout, and maintenance projects for clients in the pharmaceutical, telecommunication, automotive, and high-tech industries. Ashim holds an MBA in finance and systems from Xavier Institute of Management, India, and a degree in electrical engineering from University College of Engineering, India.

 

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