Controlling finances through budgeting
While creating budgets, generally we classify the costs according to the nature of expenses. The expenses frequency varies from expense to expense; some are recurring, some are adhoc. Regardless of the frequency, we set aside some amount from our income to pay for such expenses when they occur. From time to time we also compare the budgeted amount with actual and adjust the individual items accordingly. Sometime we analyze our budget with “what-if” scenarios to compare which of the scenario best suit our needs.
Budget for an Individual, a Family or an Enterprise:
Same Concept but Tools may vary
From an individual to a family level we follow almost similar practice to control / align our expenses with income. Corporate budgeting as well is not so different, in terms of basic concept. For an individual or a family budget, a simple spreadsheet classifying the expenses and providing a space for budget & actual amounts may suffice as the process is very simple and is relatively for smaller time. But when it comes to an Enterprise, the budgeting could be a daunting task depending on the size of organization and complexity of financial processes. In this case, need of having sophisticated tools is obvious; tools which allow you to define your costs to minute details, capture the actual costs for details cost planning and which gives flexible reporting options.
Personnel Budgets / Manpower Planning Tool – topic of the day!
One of those
tools is Personnel Cost Planning & Simulation – a component within SAP HR applications. The tool helps organizations in planning their manpower developments as well as simulating the costs associated with such scenarios. With the tool’s test-run concept you can simulate personnel costs based on different assumptions. In other words, you could simulate “What-If” scenarios i.e. in a given situation what will be the overall cost. Having the right statistics, your decisions on HR / Personnel Costs could be more accurate & sound.
In this article, I’ve briefly described the component with an example of a family budget hoping to explain the concept better.
An Example: Child Cost in a Family Budget
A child in a family budget has a cost, comprising of various cost items; milk, diaper &/or daycare costs. Assuming a family is expecting another child, it could estimate the future cost of maintaining two children based on existing cost of first child + similar cost for the expected one.
- The assumption here is the new child has to live in same circumstances.
- Another assumption could be relocation; If parents relocate to another city after having an additional child for a new job the costs may vary.
So 2 scenarios can be simulated to see which of the situations is more feasible.
Cost Plan Elements and Processes
- From the above example, we could determine various elements of a cost plan i.e. Planning Context (Children Cost), Planning Scenario (Having an additional child), Cost Items (Milk, Diapers)…
- Beside the elements of cost plan, there’s a process to actually calculate the anticipated costs comprising of various steps: Preparation
(Your assumptions such as parents switch the job for better salary), Data Collection (Cost of existing child), Cost Planning (Existing + Anticipated Cost Results based on different assumptions), Subsequent Activities (Applying the actual Plan)…
SAP Personnel Cost Planning and Simulation
Part of comprehensive HR solutions, PCP component enables organizations in performing Cost Planning for their employees. Generally there are many scenarios which organizations face with respect to employees’ development; changes in salaries or other payments, organizational restructuring, for instance, which have some costs. With Personnel Cost Planning & Simulation, you can NOT ONLY perform the planning BUT ALSO can simulate various cost scenarios to compare, decide & choose and ultimately apply the right scenario.
How it works?
- First you setup the tool according to your requirement including the planning procedure, items and roles.
- Secondly specify your assumptions / scenarios, collect the existing data to use it for planning, create cost plan & execute planning runs, compare the results and finally implement the best scenario.
“Knowing the impact of planned changes in organizational structure before the actual modifications is one of those advantages for which Personnel Cost Planning & Simulation tool is being used by many organizations today”.
Sounds interesting? Read more about the component
I described it at SDN at following address:
SAP Documentation for the component is here: