Flexibility and Innovation in Indicator Systems – Controlling Profitability Analysis in SAP BW

The Controlling Profitability Analysis provides indicators that traditionally have been utilised for business management. Since companies are in this area also exposed to huge dynamics and an onslaught of information that has to be faced flexibly, traditional methods are increasingly reaching their limits. The question is, what could alternatives look like.

The objective of Controlling Profitability Analysis is to assess business services based on market segments, specifically, based on products, customers, orders or any choice of aggregation of these characteristics, or even based on business units such as subsidiaries, sales organisations or areas of business, etc.. In the Controlling Profitability Analysis, now indicators are determined that determine the contribution these objects are making towards the profits. The indicators necessary for this are presented in the form of a contribution margin scheme which, starting with the achieved revenues, gradually identifies the generated contribution all the way to the contribution margin (CM) IV or V. The objective is, to support the different business areas such as sales, corporate planning, etc. with information from a market point of view for controlling and decision-making.  

The Controlling Profitability Analysis is performed by the controlling department and typically takes place in the SAP/ERP module CO-PA. In this context, it has been observed time and again that CO-PA, within the ERP, has huge problems in terms of speed and flexibility which nowadays are gaining more and more importance. This is also illustrated by the fact that SAP is offering the utilisation of In-Memory-Technologies in the form of HANA to address these problems which, however, is technologically still at a very early stage and also quite expensive, so that is not a solution for all companies. The following considerations are intended to illustrate that a Controlling Profitability Analysis is possible in SAP BW and thereby represents an efficient variant of the SAP/ERP solution that allows for completely skipping CO-PA.

SAP BW Architecture

The basis for such an approach is a well thought out SAP BW architecture.  The following illustration shows a reference architecture that is based on the Layered Scalable Architecture model and is also proposed by SAP as standard architecture. This architecture represents a multi-layer model in which the Core Warehouse layer is of particular significance. In this layer, the data from the different source system and also from SAP modules is combined into an integrated and harmonised pool of data. For the further considerations, it is important that the data here is not stored in analytical structures, such as star or snowflake schemes, but rather initially in a completely neutral form. Analytical structures are only built in the next layer. Another essential aspect is that the data is present at highest possible granularity, at minimum at a document level.

The objective, as previously mentioned, is to gradually determine the different contribution margins, starting with the gross revenue, as illustrated in the diagram.

As illustrated by the coloured markings, basically three areas of determining indicators can be differentiated.
Starting with the gross revenue, the direct and indirect sales deductions are deducted gradually, so that the calculations lead to the net proceeds in the green area.

The further calculations take into consideration the proportional costs which gradually determine the CM1 in the area marked yellow.

In the last, blue area, the indirect costs are taken into consideration. These costs now have to be offset across individual customers and articles in a suitable fashion.

Step 1: Integration of SD billing documents

The basis of all calculations is the integration of the SD billing documents at the Core Warehouse layer. As previously mentioned, the data is available at the highest possible granularity, particularly at the level of individual conditions for each billing document position. As illustrated by the diagram, this information is transferred into analytical structures for pure SD reporting and provided to sales department users. This data already contains all indicators that represent the result up to net proceeds. For the CO-relevant direct costing, this presentation is too granular, here, generally a monthly view based on customer/article is necessary. As shown in the diagram of Step 2, for this, an aggregation simply has to take place that produces the CO view of the indicators up to the net proceeds which may still have to be adjusted for a few special considerations, where applicable.

Step 2: Calculation of CM1

In the next step, the CM1 is calculated. To simplify this example, only the variable material and products costs as well as the production deviations will be taken into consideration. These indicators are determined in the product costs calculation CO-PC in the ERP and are integrated into the data warehouse as assessment factors via standard mechanisms. In this, a versioning of these factors can already be built into the DWH which will be helpful later when you want to perform various CM calculations runs with different variations of the manufacturing costs.

The diagram shows the integration of the costing rates from the CO calculation into the DWH. Since these costing rates are article-based, the previously determined and aggregated quantities or values can now be assessed with the corresponding costing rates to determine the CM1.

Step 3: Offsetting the indirect costs

The third block is the offsetting of the indirect costs. This is clearly the most laborious part and deviates considerably from the approach within CO-PA. But it is also the part in which, in comparison to the CO-PA solution, a major advantage in speed and therefore also in flexibility can be gained.  Contrary to CO-PA, the indirect costs are not allocated across the individual customer/article combinations, rather, costing rates are created through which values or quantities aggregated by customer, article, month are assessed. The steps, one-by-one:

Indirect costs are accumulated on cost centres in the cost centre accounting CO-OM-CCA . When closing the period, the balances are deducted via corresponding extractors and are integrated into the DWH layer via standard mechanisms. All this is illustrated in the following example through the indirect costs „Overhead“, „Indirect sales & distribution costs“ and „Product development“.

The next step is to determine the assessment factors. For this, the techniques of the BW-integrated planning can be used which in the standard is offering distribution methods e.g. based on reference values. To do this, infocubes are created in the BW that are plannable, meaning they allow for the writing back of values for each type of indirect costs. The distribution within these cubes does not take place on the customer/article level but rather you can specify an aggregation level for each type of indirect cost based on which the distribution of the indirect costs is to take place. This aggregation level corresponds to the level on which the factors are to be built that will later help in the assessment. This way, the assessment factors of the indirect costs of sales and distribution could e.g. be built on the sales organisation, product segment and customer group level, or the product development costs only on the sales organisation and product segment level since the costs for the product development are not influenced by the customer groups. In this way, the suitable distribution level can be defined for each type of indirect cost. This increases both the flexibility and accuracy of the offsetting of the indirect costs. The following diagram illustrates this process.

The next step is to determine the assessment factors. For this, the techniques of the BW-integrated planning can be used which in the standard is offering distribution methods e.g. based on reference values. To do this, infocubes are created in the BW that are plannable, meaning they allow for the writing back of values for each type of indirect costs. The distribution within these cubes does not take place on the customer/article level but rather you can specify an aggregation level for each type of indirect cost based on which the distribution of the indirect costs is to take place. This aggregation level corresponds to the level on which the factors are to be built that will later help in the assessment. This way, the assessment factors of the indirect costs of sales and distribution could e.g. be built on the sales organisation, product segment and customer group level, or the product development costs only on the sales organisation and product segment level since the costs for the product development are not influenced by the customer groups.

In this way, the suitable distribution level can be defined for each type of indirect cost. This increases both the flexibility and accuracy of the offsetting of the indirect costs. The following diagram illustrates this process.

Of course, a core issue is that after distribution, building of assessment factors on a higher aggregation level and subsequent assessment, exactly those amounts that originally were transferred from CO-PA are also listed again in BW. Due to inaccuracies in the master data, there are occasional problems, but those can be taken care of by eliminating the inaccuracies so that as a result, the correct figures are produced.

The BW-integrated Controlling Profitability Analysis is an innovative procedure. Its advantages are:

• High data quality
• Short running times
• Therefore high flexibility
  • Multiple assessment runs are possible per period
  • Quick integration of new divisions
  • Flexible method of offsetting indirect costs
• Large range of information
• Optional versioning of assessment factors and assessment runs
• Therefore high transparency of the data
• Same procedure for plan / target / actual / simulation
• Configuration of different reporting environments
• Easy configuration of quality assurance mechanisms

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