Navigate the Complexities of Currency Conversion for More Accurate Management Reporting

  • by Jens Koerner, Product Manager, Mobile Platform, SAP Labs
  • February 15, 2009
Since dealing with multiple currencies has become commonplace in a global economy, it’s no surprise that currency conversion is needed everywhere in global organizations that implement and run SAP software solutions. While currency conversion was mainly the purview of the ERP system in the past, ERP systems no longer carry that burden alone. Today’s managers want reports on aggregated data in various currencies. Uncover the hidden complexities of currency conversion in management reporting, and discover easy-to-understand examples that help you communicate these complexities to project stakeholders to ensure that your solution will meet all multi-currency reporting requirements.
Key Concept

The currency conversion equation is: source amount × exchange rate = target amount. On the surface, it looks very simple, but the complexities of currency conversion lie primarily in the exchange rate, which changes over time, and in the level of aggregation of your data. Neither one are usually specified explicitly in high-level business requirements documents. The source and target currencies are easy to identify, but the ever-changing exchange rate causes problems. You have to consider the different exchange-rate types, including spot rates (the exchange rate on the period-ending date), monthly average exchange rates (the average rate across a month), constant exchange currencies (frozen or fixed currency exchange rates), and combinations of the various types of currencies in your aggregated data. They all increase your conversion’s level of complexity.

Today, software architects face the challenge of designing solutions across system boundaries, as well as across geographical and monetary boundaries. Their IT organizations urge them to use standard tools, rather than custom development, to design flexible solutions with a lower total cost of ownership (TCO). In this context, I focus on designing the currency conversions across different applications for management reporting purposes. Although the mathematics behind currency conversion appear simple, many companies struggle to find a way to implement a cohesive currency-conversion software framework within their applications.

To this end, I provide some concrete examples of the complexity in currency conversion and how it can negatively influence project timelines, resources, and budgets. I explore the communication gap that can occur between business and IT in currency conversion using examples and challenges in sample tables that business users will find easy to understand. Along the way, I relate these examples and challenges back to various functionalities in SAP ERP and SAP NetWeaver Business Warehouse (SAP NetWeaver BW). One goal is to raise the awareness of potential gaps in the requirements stage and to give IT staff members the tools they need to address those gaps early in the project.

Jens Koerner

Jens Koerner is product manager, Mobile Platform, at SAP Labs. Previously, he was senior director, leading the SAP Enterprise Performance Management (EPM) and Business Intelligence (BI) Customer Solution Adoption team. He also was a senior director-level SAP enterprise architect and project manager focused on the development of SAP solutions such as SAP Business Warehouse (SAP BW) or SAP Business Planning and Consolidation (SAP BPC). He has led global implementations with various customers in the US, the UK, and Germany and was a member of the Inforte BI leadership team.

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