The Controlling (CO) module is often underutilized or misunderstood – particularly when it comes to Controlling Area structures. How can you plan your Controlling Area structures to make the most of the SAP Financials functionality you already have?
SAP Financials expert, Financials 2013 speaker and SAPexperts author Rohana Gunawardena took questions from our members on CO and Controlling Areas during a one-hour online forum March 5 with Allison Martin.
Review the full discussion thread or read the edited transcript here:
Allison Martin, Financials 2013: Thank you for joining us today in today’s Financial Forum on CO and managing controlling areas.
I’m very happy to be joined by Rohana Gunawardena of Quality Systems & Software (QS&S), here to take your questions today! Rohana is an SAPexperts author and a speaker at our SAPinsider Financials conferences.
Rohana will be at this year’s Financials show in just a few weeks, presenting a number of sessions, including one devoted to CO. (If you registered for today’s Q&A, you’ve received a download link to a portion of that presentation.)
Rohana recently published tips on fixing Controlling Areas on SAPexperts.com, and we’ll be sharing tips from that article today as well.
Thanks to all of you who have joined us and, Rohana, welcome, and thanks for joining us!
Rohana Gunawardena, Quality Systems & Software: Allison, Thank you for inviting me to this webinar and organizing it. Welcome to all of the ILN members and guests who have joined this Q&A Session.
goldie288: Hello Rohana,
‘Til now our understanding is that a non-leading ledger in New GL cannot be integrated with Controlling. But EHP5 in ECC6 is supposed to provide that ability.
However while reading through the release notes, I could not find any convincing documentation mentioning that. Can you shed some light on this? Thank you!
Rohana Gunawardena: Goldie, Congratulations on posting the first question.
Many customers have question about SAP "teasers" of this type -- functionality that customers I have worked at have talked about and would like to have, but is not considered critical.
Unfortunately this functionality is not listed in the EhP 5 notes. It may be coming in EhP 6 or later, or never - only SAP can tell.
SAP has many areas to spread it resources and many requests for new functionality; a lot depends on what other customers are asking for.
sonticrystal: Hi Rohana
- How is cost allocation made for a service industry?
- Why do we do both cost center planning and profit center planning?
Rohana Gunawardena: Suresh,
A great two-part question addressing some common customer concerns. Let me answer in two parts as well.
1. How is cost allocation made for a service industry?
Cost allocation for the service industry is quite an expansive area, which depends greatly on each customer's specific setup.
I am hesitant to give a standard answer as businesses just vary so much and have their own emphasis on what are the critical processes that give them a competitive edge.
At the same time, many aspects of Cost Allocation are the same across many companies and a general understanding of these processes will put you in good standing for the Service Industry.
A great place to start is Janet Salmon's book "Controlling with SAP - Practical Guide". It is an area I have worked on before and can give you some advice off line once you share your customer set up with me.
Mariska: I am particularly interested in the example question: How do I change my CO currency and valuation profile to support transfer pricing when implementing the material ledger?
Rohana Gunawardena: Thanks for your question.
This can be a complex area and ties in neatly with the Controlling Area Reorganization article I just published with SAPexperts.
At SAPinsider Financials Europe 2012, I presented the session "Make Your Material Ledger Activation Hassle-Free". If you are already productive with SAP this will most likely require a system conversion to activate the required currency type and valuation, e.g. Group Currency with Profit Center Valuation, as it’s most likely the currency type has not been configured in CO and/or FI at go-live.
Essentially, once you go-live the valuation profile cannot be changed. You need SAP or a specialist consulting firm like ours to come and perform a conversion on your system.
The conversion process is relatively quick for an SAP project with this level of impact. Remember, it hits typically 12 – 16 weeks with on-site resources to help guide you through the project. The key aspect is the testing of all financial processes to ensure there are no custom processes which have not been converted.
Typically, there are three test conversions: Sandbox, Dev, and QA, prior to the production conversion.
This is an area which I have worked on before and can provided a detailed analysis to you. The actual complexity and requirement for a conversion depends on your current system configuration.
Allison Martin: Once a system is productive, what are your first steps to recognize that you need to be fixing relationships between company code and Controlling Area structures?
Rohana Gunawardena: Thanks for your question and helping getting things started. This is a good point I think many ILN members would want to know.
There are several ways this could occur:
1. The company is trying to implement a cross-company controlling process, e.g. Service Order settlement to a cost center in a different company code, and the users realize the process is not possible due to the current controlling area design
2. While reviewing system settings -- e.g. configuration for controlling area, tables TKA01 & TKA02 -- the user realizes that a multiple Controlling Area design has been implemented that may hold back the operation of cross-company code controlling processes or cross-company controlling reporting.
3. The company is implementing a new module, e.g. Material Ledger, and realize that for optimal functionality they need to consolidate controlling areas
4. A company goes through a major organizational change, e.g. merger, acquisition, divesture, de-merger, etc. that results in a major change in the legal structure of the entity and requires a corresponding change in Company Codes and Controlling Areas
sonticrystal: Hi Rohana,
1. How is cost allocation made for a service industry?
2. Why do we do cost center planning AND profit center planning?
Rohana Gunawardena: Suresh,
Good to see you are still hanging in there, I will continue and answer part 2 of your question, Why do we do cost center planning and profit center planning?
This is an area where many users get confused. Is this really duplicate functionality?
First let me start with the differences between cost center and profit centers:
• Cost Center: Records expenses only, assigned at the department/manager level
• Profit Center: Records revenue and expenses, usually assigned at a higher level than cost center, e.g. product line, business unit, etc.
The above comparison gives you some insight on how the planning is different, e.g., if you need revenue planning, you need to work with Profit Center planning. However, the two types of planning need to align -- e.g. total planned expenses for a Profit Center should match the total planned expenses of all the Cost Centers assigned to the Profit Center.
As CO provides a range of plan vs. actual reports at both the Profit Center and Cost Center level, it is good to have the plan data available at both levels to allow better management of expenses.
To ensure consistency between the two types of plans it can be easier to plan in a tool outside SAP ECC -- e.g. Excel, Hyperion, Business Objects -- and then load the data into SAP ECC.
Allison Martin: And if CO area settings are changed, do FI settings need to be changed as well?
Rohana Gunawardena: This is quite a common question I get, so I am glad you brought it up in this forum.
This does not have to be the case, but most times I have been involved in Controlling Area Reorganizations it has made sense to change FI as well.
As an example a company decides to merge Controlling Areas, when they do this they look to select a controlling area currency, SAP recommends Group Currency as the best choice.
At this point they may discover that Group Currency is not active for all of the company codes in FI, this is not a show stopper, but will cause currency conversion issues later on, e.g., unable to clear open items.
As a result the customer decides it's best to make the changes in FI at the same time as CO to ensure alignment of the two modules and to save on conversion cost and testing time, compared to two separate conversions.
Another example would be post-go-live activation of Material Ledger to support transfer pricing, which nearly always results in a new currency type being activated in FI and the CO valuation profile being updated.
The CO conversions often have an element of currency conversion as well as organizational unit renumbering, e.g. two Controlling Areas with different CO Currency (USD and EUR) are merged, data from one Controlling Area in the CO Currency bucket will have to be converted to the new CO Currency (EUR -> USD).
dcraddock: If there are material master to profit center assignment changes after the first day of the new fiscal year, how does this affect the future cost of the material? Will the future cost of the material be in effect on the 2nd period of the year?
Rohana Gunawardena: Welcome to the Q&A session.
In standard SAP, the profit center assignment in the material master can be changed at any time. However changing it does not adjust the inventory balances in the G/L to move to the new profit center.
When changing profit center on a material there are two approaches to getting it right:
1. Issue out all of the stock, change the profit center, then receive back in all of the stock, e.g. movement type 562 & 561.
2. With ECC 6.0 EhP 5, new business function FIN_GL_REORG1 allows reorganization of materials by profit center -- a much better choice than option 1 for mass change of materials. This functionality automatically adjusts the G/L inventory balances.
Specifically, looking at the future cost field in the material master there is no specific impact from changing the profit center. What matters is the configuration of the cost roll: Does it make use of the future cost field (not compulsory), the timing of the cost roll and actual dates of mark and release?
M.S. Hein: Rohana, thanks for taking questions today.
Reading your SAPexperts article, I have a question on merging Controlling Areas. If they're merged, what's the change or significant impact that end users need to be prepared for?
Rohana Gunawardena: I am glad you are thinking about end users, all too often they get forgotten about during the more exciting technical discussions of a project. However end users are key to the success of any project, as they finally decide if it is, indeed, successful!
If the Controlling Area merger is done correctly, the impact to the end users should be minimal. They go home on Friday come in on Monday and keep working with not much difference.
As I explain in the article, the biggest visible change is cost center renumbering, if the original Controlling Areas have duplicate cost center numbers or the company takes the opportunity to reorganize cost center numbering.
Most of the changes are in configuration and other areas that should not impact the end user if handled correctly.
Some end users groups will be impacted more than others, e.g. cost accountant vs. order entry admin, but if the conversion project is well run you will identify the higher impact users early and have them engaged in testing and change management.
hreganti: Hi Rohana,
In SAP, do we have a standard process that would allow us to defer COGS along with deferred revenue for both intercompany and commercial invoices?
Rohana Gunawardena: Hemanth,
Good to see you are thinking about Revenue Recognition. It’s an important part of financial reporting and GAAP compliance.
The question is a little bit outside the scope of the Q&A which focuses on CO, but Revenue Recognition is an area where I have worked on multiple projects with clients, who wanted to meet Revenue Recognition standards such as SAB 101, SAB 104, IAS 11, IAS 18, EITF 08-01, etc.
Configuring the standard Revenue Recognition functionality is quite complex. So much so that you need SAP approval at the start to get access to the configuration and at the end to move the configuration to production -- the reason being incorrect configuration can cause major inaccuracies in your G/L postings, e.g. double posting of revenue. However with the assistance of an experienced consultant in this area it is a medium-level complexity project that simplifies a complex business process.
The main transaction code is VF44 and the configuration sits within SD; a lot of the configuration is dependent on SD item category.
If you do start a project in this area, it's important to have a cross-functional team who has resources from SD, CO & FI.
ogalvezm: Hi Rohana:
We don´t use Functional Area field for Cost Center, but know we would like to use it. Is it possible?
Rohana Gunawardena: Oscar,
Good to hear you are looking at Functional Area, as it is a very useful piece of SAP functionality. At SAP Financials Europe 2012 I presented the session "Expert Guidance to Improve Cost of Sales Accounting," which was all about Functional Area.
Frodm your question I assume you are looking at activating Functional Area in the G/L. The good news is Functional Area can be switched on at any time, and does not need a special conversion, but data is go forward only.
One of the best ways of populating Functional Area is deriving it from the cost center category, which is assigned to a Functional Area. You could have a design that makes use of the individual Functional Area field in the cost center master, but this increases the data maintenance overhead.
Rohana Gunawardena: Thank you to all of the ILN members who joined the Q&A Session today. The selection of challenging questions from you made this a very interesting session for me.
Thanks again to Allison. I look forward to meeting you in person at SAP Financials 2012 in Las Vegas.
Director - SAP Practice | Quality Systems & Software | E-mail Rohana@QSandS.com | Web www.QSandS.com
Allison: Thanks again for joining us today!
Although today's Q&A is closed, you'll find full transcript of all questions available on Thursday. We look forward to future Q&As here in the Financials Forum.
Finally, thanks to Rohana Gunawardena of Quality Systems & Software for taking these questions today. Some great discussion & great advice!
And I hope you'll join me - and Rohana - in Las Vegas March 19 for more Financials advice, live and in person!
Allison: Thanks to all who posted questions and followed the discussion!
Rohana, will be finishing up the remaining questions and then a full summary of all the questions will be available here in the Financials Forum. I encourage you to read Rohana’s articles on SAPexperts – especially his most recent one on today’s topic.
I also invite you to meet Rohana in person at Financials 2013, coming March 19-22 in Las Vegas, where he’ll be presenting sessions on CO, as well as MM-FI, currency valuation and translation. We hope to see you there!
For more details, simply visit the SAPinsider Financials conference website and follow us at #financials2013 for the latest updates.
And Rohana, again, thank you for joining us today. I’m looking forward to seeing you in Vegas!