Discover key concepts and basic building blocks for an FP&A EPM solution in SAC Planning
Define a Conceptual Planning Process Diagram
One of the key elements in the Financial Planning and Analysis (FP&A) is forward-looking P&L statements. Reporting forward-looking information is a critical component of effective communication to the market. Forward-looking P&L statements integrate actual data for the past with the plan data for the future, combining both revenue and costs-related datasets together.
FP&A Plan to Optimize Financials cycle can be represented as follows:
In the conceptual model for forward-looking P&L statements, we should define KPIs for planning, plan input forms, relevant reports, planning processes, user groups, roles and responsibilities, etc. We need to identify what will be our sources for actuals, who and when will maintain budgets and forecasts, and what will be the review and approval cycles.
Below is an example of a planning process diagram for an international organization generating revenue by project, and planning costs by cost center and cost element group. The organization has an annual budget approval cycle, and multiple rolling forecasts during the year. Controllers at profit centers manage plans for their units and review them with controllers in Divisions and Groups. At the same time, OPEX cost center planning/forecasting is done both at Profit Centers and at Divisions/Groups.
This process diagram can serve as a starting point for the EPM application design and clarification of the business planning process building blocks.
EPM Design Components
· Input Forms – each planning process step may be associated with an input form to be used by clerks at Profit Centers, Divisions, or by Group
· Master data updates, new projects – it is important to specify which master data objects are loaded from the ERP or other system(s), which ones are to be uploaded via spreadsheets, which ones are to be maintained directly in the EPM application, and what will be the process for the new master data entries
· Budget/Forecast Versioning – it is important to clarify which plan versions will be available for planners (e.g. Annual Budget, Forecast, Rolling Estimate). At the same time, in addition to versions, users may want to plan by scenario (e.g. optimistic, pessimistic, etc.)
· Work Status - identify locking approach for approved plans or closed periods. This mechanism allows locking input cells according to certain criteria (e.g. approved annual budget)
· Published Plan via Snapshots – One of the options to expose approved budget to users is to publish plan datasets to a snapshot ADSO
· User Groups, Access Rights – each planning step may be associated with a user group (e.g. Profit Center controllers, Group managers, etc.). Access rights and user roles should be defined together with user groups
· Consolidation Steps – intercompany eliminations, allocations, and partial ownership ratios have to be applied in the consolidated view
· Reports – a set of intermediate validation reports that will be used in plan reviews and approval cycles. Also, a set of final reports to be used by end users with approved budgets/forecasts
Ways of Integrating Actuals to EPM
Financial Actuals are usually coming from an ERP application (e.g. SAP S/4HANA, SAP ECC). However, in many cases, large organizations may have multiple ERP systems with non-harmonized master data. In such cases, we may consider integrating actuals from those systems into an EDW solution. Or, alternatively, actuals may need to be inputted directly in the EPM application using special input forms with harmonized master data (chart of accounts, cost centers, etc.)
Another source for actuals may be a set of legacy data warehouses that may contain historical datasets needed for the consolidated results. Integrating this data may require a substantial master data harmonization effort as product/project codes, charts of accounts, cost centers and other master data has to be mapped to the target master data sets of codes.
Define Granularity for Planning
The following spider diagram can be essential in an EPM project to document levels of granularity used in planning. At the same time, we identify how planning values can be matched to actuals at a lower level of granularity coming from ERP systems:
The diagram outlines three levels of granularity:
1. Project Planning level (Turnover, Gross Margin by Project)
2. Overhead costs planning level by cost center
3. Level for Actuals derived from SAP ERP (cost center, WBS, cost element, posting date)
Define Input Forms Used in Planning
Input forms are key in the EPM planning process. The following input forms example assumes a three-step planning process:
1. Order Entry: it is a total value of an anticipated project. For each planned project we can specify Turnover and Gross Margin. Order entries may be adjusted for any project at a later stage with correction entries.
2. Project Distribution by Period: in this input form we allow planners to distribute total values from order entries by period, therefore specifying expected revenue recognition by fiscal period. Inputs can be done either in amounts or in percentages.
3. Overhead Costs: planning of overhead costs is not project related, and therefore is done via a separate input form by Cost Element Group, Cost Center combinations.
Technically each input form has an input-ready BW query behind it. Each query is exposed to SAC Planning via a SAC model. And models are consumed in SAC stories (input forms).
Role of Master Data Hierarchies
In order to ensure positive user experience master data hierarchies have to be prepared especially for the EPM process (input forms, reports). For example, original Cost Element hierarchies from SAP ERP may contain excessive details for EPM. We may want to use an aggregated hierarchy based on the Cost Element Group (a level up from Cost Element). Therefore, specific technical scripts should be used in SAP BW to transform source hierarchies into “EPM-friendly” aggregated versions.
Below is an example of a Cost input form with a breakdown by a transformed Cost Element Group hierarchy for a fixed Cost Center ‘Project Management:
Cost input form example by Cost Center for a fixed Cost Element Group "Consulting Services":
Actual cost numbers collected from SAP ERP will be available at the most granular level (Cost Element, Cost Center, posting date). A separate master data mapping exercise has to be done in order to map aggregated plan costs to actuals. In the form examples above the first five columns (January through May) are greyed out reflecting the fact that they are not input enabled as they contain actual costs.
Locking Plan Figures for Closed Periods Automatically
Greyed-out actuals is one example where the work status mechanism from SAP BPC can be super handy. Another example is from bottom-up planning, where clerks at Profit Centers are finished with plan entries and specific Period/Profit Centers can be locked for input. At the same time, Division or Group users can still introduce adjustments to the plan/forecasts until it is eventually approved by the Group.
Work status assignment (locking) can be done manually using AFO, or via a widget in SAC Planning that is launching a process chain in BW. Another option is to schedule the work status update process chain in BW to run daily or every few hours. Depending on a specific setup of the fiscal period closing process and plan approval cycle the process chain will execute a set of DTPs in BW that update a technical ADSO containing work status details: ‘/1BW/BWITV..’. This way users will only be able to input plan figures for the fiscal periods and Profit Centers that are permitted by the process at any given point in time.
Financial Consolidation Steps
EPM solutions usually include more than just financial planning and analysis. FP&A activities are closely linked with the financial consolidation steps. Consolidated financial statements show the aggregated financial position of a parent organization and all of its subsidiaries, including a balance sheet, income statement, and cash flow statement. The purpose of a consolidated financial statement is to formally recognize and report the position of the company as a whole.
In financial consolidation, there are specific calculations and consolidation adjustments made as the numbers are combined from the parent company and its subsidiaries. This includes the following:
· Foreign currency translations
· Elimination of intercompany transactions and balances
· Adjusting journal entries
· Allocations
· Accounting for partial ownership
Technology Behind the Solution
SAP Analytics Cloud (SAC Planning) can use its own modeling engine and capabilities, as well as a hybrid modeling approach leveraging SAP BPC/BW. There are certain pros and cons for either option. Native modeling in SAC Planning, for example, can use smart predict, AI capabilities of SAC, value driver tree, data point comments, and allocation rules. On the other hand, the hybrid approach allows leveraging the modeling power of SAP BPC and BW, ensuring good performance with complex business logic on large datasets together with powerful BW query capabilities.
Final Words
SAP Analytics Cloud for Planning is being continuously enhanced by SAP with new features and capabilities. In 2021 key figure based modelling features have been introduced in SAC, which made the product more powerful and competitive. In the hybrid scenario, SAC Planning can leverage a bunch of useful features available in SAP BPC/BW, at the same time providing user-friendliness, good response time, and performance on large datasets.
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