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FI the Financials module can be thought as the 'core' of any integrated SAP System because
everything that has a monetary impact in the other modules (where the 'real' business operates)
flows through to FI - usually in real time and automatically through the configuration. Usually
there is pressure to get going with the prototyping asap. When the other modules start
prototyping their transactions, the SAP system is going to want to post the financial impact to FI.
Thus the sooner that you (the FI/CO configurer) can get some core FI/CO configuration going the
better for all.
Remember all SAP configuration is essentially maintaining entries in a variety of linked tables.
Usually you need to maintain each little link or entry step by step. Some new SAP configurers
expect the transactions to be as 'complete' as a user transaction - configuration is different. In
R/2 days we had to just know what tables to maintain - count yourself lucky that you have the
IMG now!
Following are some guidelines (in increasing levels of functionality) to the FI minimum
configuration or master data setup for a new company code. Follow the logical path in the IMG.
(The assumption is that you do not want to copy either the standard SAP company or an existing
company code because it will copy across too much that is not similar or not required and
therefore too much cleanup will be required).
Step Comment
Define the company code IMG
Define the name for a chart IMG
of accounts
Maintain the global IMG - Use standard SAP variants for the parameters to start with &
parameters update later
Define the default amount IMG - Define for a blank group - so any new test user can post
tolerances during prototyping
Define document number IMG - Copy from the standard ranges
ranges
Create some of the minimum GL Master data:
accounts needed to start off A/R and A/P control a/cs, a petty cash or suspense a/c to hold sundry
with. offset postings while debugging, a revenue account, some expense
accounts. This list will expand as you go - see the section on
account determination.
Suggest you create with reference from the standard chart and
company code and use those specifications (account groups, fields
status groups etc) for now, so that these accounts will be
reasonably appropriately setup.
Now you should at least be able to post a GL journal. To test I suggest you use
balance sheet accounts only, since you will not have setup the cost elements for the
expense accounts. All projects would at least be using the Cost centre and Cost
Element functionality of CO as a minimum. So - on to the next step.
Configuration steps:
Step Comment
Define the controlling area IMG, not very visible to users, if you are only going to have one, you
could default it later
Assign the company code to IMG
the controlling area
Create the beginnings of the CO - Cost Centre Master data
standard cost centre hierarchy
Create a representative set of CO - Cost Centre Master data
cost centres, assigning them
to the appropriate node in the
cost centre hierarchy
Create all the expense Either in the IMG - for all GL accounts in a specific range, or
accounts as primary cost individually in the CO - Cost Centre Master data
elements
Now you should be able to post a GL document (journal) to an expense account and
code it to the cost centre. The posting should then be viewable via Cost Centre
reporting and GL Account line Item Display.
Configuration steps:
Step Comment
Create the AP and AR Control see account creation comments above
accounts in the GL
Create a couple of customer If using SD and MM too, inform the SD and MM analysts so that they
and vendor accounts can complete the account creation on the SD/MM side for the
customer and vendor respectively.
Now you should be able to post a FI-AR customer invoice and an FI-AP vendor invoice.
4. Minimum configuration to post from logistics modules to FI/CO (similar concept for
other modules)
So far it was relatively easy going, now it starts getting a little more difficult.
Following are the very broad steps - for more detail see the sections on Organisation
structure and Integration.
Configuration steps:
Step Comment
Assign the SD and MM IMG; to get prototyping going you need at least 1 set of working
organisation elements to the relationships that the whole team can work with (EG: 1 Sales Area, 1
FI/CO elements Purchasing Organisation, 1 Plant etc)
Maintain the basic automatic IMG; For example : Revenue Account Determination for SD. As the
account determination for modules test or prototype expanded functionality, the SAP will look
each module for the accounts to which it should post. You could maintain on an
as needed basis. The SAP documentation and configuration does not
always explain clearly which piece of account determination is used
for which type of functionality, so it is sometimes difficult to be pro-
active. being reactive has the benefit that hopefully each side (eg:
MM and FI) can develop an understanding of what the business
transaction is and therefore where it should be posting. Otherwise
the MM person may not even be aware that he has generated a
certain type of posting ! (You'd be amazed at some of the lack of
ownership from a logistics consultant for the financial postings that
they generate).
Now the other modules will be able to process a thin 'path' using agreed organisation
elements and base functionality, all the way through to FI.
Congratulations - you now have enough absolutely mandatory FI configured for the
start of prototyping!
Period Based Accounting versus Cost of Sales Accounting
These terms come up in the SAP documentation fairly often and I frequently get
asked what the difference is. There are a number of ways of explaining the
differences.
For the accountants it is usually enough to say the 'Period Based Accounting' is
Accrual Accounting and 'Cost of Sales' is 'Cost of Goods Sold' Accounting. In CO-PA
one has the option to choose or use either Account based or Costing Based CO-PA.
This choice impacts the level of detail and the frequency (monthly, weekly or real-
time) of reporting.
What does this mean effectively to us non-accountants and practically in the SAP
system?
"Period based" means that during the month or period, all and only actual events /
transactions are posted in the appropriate period. At the end of the period estimated
accruals and deferrals are made and posted to that posting period to give a more
accurate view of profit. IE any expected revenues and expenditures that should
relate to the current period are accrued for and equally any prepaid expenses or
revenues are deferred to the next period. (Accruals and Deferrals are posted
temporarily, usually to special accounts, and reversed prior to the next period end.)
These accruals and deferrals are usually done at a fairly high level of summarisation
(eg: at company or business area). The FI Ledgers and financial statements etc are
always period based.
Cost of Sales in SAP means that we attempt to record or rather report the "costs of
sales" against the actual sale at as low a level as possible and during the period. (In
CO-PA this is down to a transaction level.) This enables the company to get a
reasonably accurate view of profitability on a real time basis.
This is done by using either standards or estimates for many of the components that
make up the "cost of goods sold". Any variations from the standards are usually
posted through to the cost of sales system either at month end or when they occur.
For example: A product cost estimate might be used to calculate and post a
manufactured cost through to CO-PA when every sale goes through. The actual
production orders variances from the product cost estimate can then be settled to a
separate line in CO-PA. This has the benefits that a reasonably accurate gross profit
could be reported in real time at a transaction level and of course therefore at all the
characteristic levels in CO-PA.
The impact of any abnormal variances in production can quite clearly be seen and
analysed separately from the normal profitability of a product.
Table comparison
Following are some random items that were 'news' to some of my clients and
occasionally even to me! Sometimes due to the setup of the system you are working
on, fields or possibilities have been hidden to simplify screens or are enterable due to
a combination of configuration. Thus you may not be aware that there is additional
or alternative functionality there. It pays to explore if you have the access and the
time, especially if it makes sense to you that such functionality should be available -
often it is.
To edit / view the texts from the master record (both in general or
company code (accounting) section, follow menu
"Extras/texts". First line of each will be displayed. Double click
to get into wordprocessing mode to enter more text.
FI Standard line item Define under IMG / FI Global settings / Document / Line
texts or formats for the Item / Define Text for line items (transaction OB56). The 4
line item text field can digit abbreviation (abbr) can then be used when entering a
be defined journal line item either by typing "=abbr" or clicking on the
dropdown arrow in the text field.
FI Long text for FI Useful for detailed explanations of reasons for documents or
documents can also be adjustment postings etc. Define under IMG / FI Global settings
used / Document / Document Header / Define Text ID's for
documents. See also for master records above.
FI Remove document Your document entry screens can be simplified for you
entry fields for personally, by eliminating fields used for functionality you do not
functionality that you use (special GL, inter company, foreign currency etc).
do not need
FI 'Automatic' Worklists If your users would like to use worklists but maintenance when
new customers or vendors are added, is a pain or forgotten, you
could setup automatic worklists. These are updated
automatically when a new master record with the appropriate
criteria is added. Unfortunately this only works on the 'group key'
or 'alternate payer' fields, but could nonetheless be useful.
• ABC identifies the relationship between a business activity and all the
resources needed to conduct it by assigning costs to each of those resources,
thus presenting the true total expense of the entire activity.
• ABC can account for so-called "soft" or indirect operating costs, and thus
produce a more revealing, and perhaps startlingly different, financial picture
than other accounting methodologies such as standard costing might offer.
• Used properly, ABC helps management better to distinguish operations that
add value from those that do not, permitting more informed decisions about
such matters as pricing, product mix, capital investments, and organizational
change.
• In turn, ABC's advocates praise it as a more effective tool to identify and
control costs, improve productivity, and increase profits.
ABC came of age in the 1980s amid manufacturers' furious efforts to raise the quality
of their products while simultaneously eliminating every unnecessary cost from their
operations. The dramatic improvements realized by manufacturers have led to ABC
becoming a widely used tool, especially in the manufacturing industry.
First, ABC can gauge virtually any activity, be it a manufacturing process, a business
process, the performance of a service, or an administrative operation. Second, it
considers a much wider variety of resources and materials than more traditional
accounting methodologies, and can thus present a more complete picture.
Without gaining and maintaining the enduring commitment of all individuals, even a
modestly detailed initiative will probably fail. It's also best to start with pilot projects
to demonstrate success.
First, an organization must understand its activities and the resources that these
require. Second, it must understand thoroughly the amount of information required,
and the expense of generating that information. It must also determine what level of
accuracy will be acceptable.
What To Do
Banks and financial services firms, for example, have long used ABC-like methods to
confirm that investments in automated teller machines would be both cheaper than
continuing to rely on tellers and clerks and in their customers' best interests.
Railroad companies have used the methodology to determine the cost of processing
bills of lading by hand, fax, and the Internet. Studying such costs confirmed the
wisdom of using e-commerce, generating annual savings of up to $1 million.
Law firms are better positioned to confirm that the hourly fees they charge-no matter
how princely they may at first appear-do, in fact, enable them to provide their
services profitably.
Finally, healthcare providers use ABC to measure profitability, eliminate unnecessary
costs, and plan for change. A medical practice that knows the actual cost of providing
a specific service, for example, can make far better decisions about the price of
managed health care.
For instance, let's say the Apple-a-Day Medical Clinic includes three physicians, Drs.
Peel, Core, and Stem. Their clinic has an in-house laboratory and a radiology
department. All direct revenues and expenses are allocated to the physician who
performs the service and incurs the expense. Indirect variable overhead costs are
allocated to each physician based on the proportion of total revenues that each
generates in a given period. Fixed overhead costs are divided equally among
physicians. Because of their respective incomes and expense allocations, each
physician would represent a separate cost center.
Additional cost centers for this medical practice could be laboratory, radiology, and
administration. As cost centers are defined, they could further be classified as, say,
"patient service centers" or "support centers." In this example, laboratory, radiology,
and each individual physician's activity would be patient service centers, while
administration would be a support center.
Once cost centers are identified, management teams can begin studying the
activities each one engages in and allocating the expenses each one incurs, including
the cost of employee services. In this healthcare scenario, activities would range
from actual treatment by physicians and nurses, X-rays, medical tests and
assessments of their results, plus such administrative support services as personnel,
bookkeeping, rent, utilities, property insurance, office supplies, advertising,
telecommunications expenses, and equipment costs related to the administrative
function. Rent, utilities, and property insurance are usually allocated on the basis of
the square footage that the particular activity covers.
Tracking and allocating the detailed costs of individual activities and procedures can
be accomplished by different methods, with various degrees of accuracy. The more
detailed the cost analysis, of course, the greater the accuracy of the data. Then
again, as the detail increases, so does the time and expense.
The most appropriate method is developed from time studies and direct expense
allocation. Management teams that choose this method will need to devote several
months to data collection in order to generate sufficient information to establish the
personnel components of each activity's total cost. The cost of this exercise itself can
be significant, but also worthwhile. Proponents say ABC has resulted in cost savings
worth as much as 14 times the cost of the exercise. More importantly, the exercise
has provided solid documentation for decisions that "seemed correct," as a Chrysler
Corporation team once reported, "but could not be supported with hard evidence."
Time studies establish the average amount of time required to complete each task,
plus best- and worst-case performances. Only those resources actually used are
factored into the cost computation; unused resources are reported separately. These
studies can also advise management how best to monitor and allocate expenses
which might otherwise be expressed as part of general overhead, or go undetected
altogether.
Notwithstanding its successes, ABC remains a tool, not an end in itself. Organizations
can lose sight of that fact, if they are not careful, and end up allowing it to dominate
their working lives.
The enormity and complexity of such a project should never be underestimated. The
data requirements alone are daunting. It is all too easy to get caught up in ABC's
details and mechanics. In turn, estimating some costs is often recommended, to
minimize the level of detail.
At the same time, however, some details are important prerequisites of objectivity
and success. For example, if time studies are not used, some other measure must be
used to allocate personnel and related costs, as well as indirect costs such as
percentage of revenues or income, or the number of customer calls. These methods
require far less time for compiling data and are less costly, but drawbacks abound.
For one thing, accuracy suffers, and they are almost always subjective, potentially to
the point of compromising the entire initiative. Being far less precise, these
alternative methods also do not differentiate between used and unused personnel
resources, and will not provide information on unused capacity or trends in procedure
costs.
Without the aid of computer software that has been developed to automate the
process, ABC can be hopelessly time-consuming. Indeed, unaided by technology, ABC
might well be hoist with its own petard and exposed as an outrageous waste of time.
Like any cost accounting system, activity based costing is not static. Once
established, it needs to be maintained and updated as business conditions and
organizations change.
Finally, in delivering its crystal-clear pictures, activity based costing also has the
potential to make individual champions of particular products or services squirm,
because it may reveal them to be far more expensive than they might otherwise
appear. All the more reason for advocating caution: "Watch out what you wish for!"
If a management team is to reduce and eliminate costs, it must first identify them
and grasp their impact on specific processes or products. Because activity based
costing can paint a single picture that reveals all the individual direct and indirect
costs a business incurs in a given operation, it can be a powerful tool for both
assessing current operations and guiding prompt and intelligent reactions as
circumstances change. In fact, it's also known as activity based management (ABM).
Where To Learn More
Books:
Burk, Karen B., and Douglas W. Webster. Activity Based Costing and Performance.
Fairfax, VA: American Management Systems, Inc., 1994.
Livingstone, John Leslie. The Portable MBA in Finance and Accounting. 3rd ed. New
York: Wiley, 2001.
Journal:
Ness, Joseph A., and Thomas G. Cucuzza. "Tapping the full potential of ABC." Harvard
Business Review, July/August, 1995.
Web Site:
A company's operating profit or loss as a percentage of total sales for a given period,
typically a year.
Why It Is Important
ROS shows how efficiently management uses the sales dollar, thus reflecting its
ability to manage costs and overhead and operate efficiently. It also indicates a
company's ability to withstand adverse conditions such as falling prices, rising costs,
or declining sales. The higher the figure, the better a company is able to endure price
wars and falling prices. Return on sales can be useful in assessing the annual
performances of cyclical companies that may have no earnings during particular
months, and of companies whose business requires a huge capital investment and
thus incurs substantial amounts of depreciation.
The calculation is very basic: operating profit / total sales x 100 = percentage
return on sales So, if a company earns $30 on sales of $400, its return on sales is:
30 / 400 = 0.075 x 100 = 7.5%
• While easy to grasp, return on sales has its limits, since it sheds no light on
the overall cost of sales or the four factors that contribute to it: materials,
labor, production overhead, and administrative and selling overhead.
• Some calculations use operating profit before subtracting interest and taxes;
others use after-tax income. Either figure is acceptable as long as ROS
comparisons are consistent. Obviously, using income before interest and
taxes will produce a higher ratio.
• The ratio's operating profit figure may also include special allowances and
extraordinary non-recurring items, which, in turn, can inflate the percentage
and be misleading.
The ratio varies widely by industry. The supermarket business, for example, is
heavily dependent on volume and usually has a low return on sales.
The essence of the SWOT analysis is to discover what you do well; how you could
improve; whether you are making the most of the opportunities around you; and
whether there are any changes in your market—such as technological developments,
mergers of businesses, or unreliability of suppliers—that may require corresponding
changes in your business. This actionlist will introduce you to the ideas behind the
SWOT analysis, and give suggestions as to how you might carry out one of your own.
The SWOT process focuses on the internal strengths and weaknesses of you, your
staff, your products, and your business. At the same time, it looks at the external
opportunities and threats that may have an impact on your business, such as market
and consumer trends, changes in technology, legislation, and financial issues.
Completing a SWOT analysis will enable you to pinpoint your core activities and
identify what you do well, and why. It will also point you towards where your greatest
opportunities lie, and highlight areas where changes need to be made to make the
most of your business.
What To Do
Take some time to consider what you believe are the strengths of your business.
These could be seen in terms of your staff, products, customer loyalty, processes, or
location. Evaluate what your business does well; it could be your marketing
expertise, your environmentally-friendly packaging, or your excellent customer
service. It's important to try to evaluate your strengths in terms of how they compare
to those of your competitors. For example, if you and your competitors provide the
same prompt delivery time, then this cannot be listed as a strength. However, if your
delivery staff is extremely polite and helpful, and your competitor's staff has very few
customer-friendly attributes, then you should consider listing your delivery staff's
attitude as a strength. It is very important to be totally honest and realistic. Try to
include some personal strengths and characteristics of your staff as individuals, and
the management team as individuals. Whatever you do, you must be totally honest
and realistic: there's no point creating a useless work of fiction!
Try to take an objective look at every aspect of your business. Ask yourself whether
your products and services could be improved. Think about how reliable your
customer service is, or whether your supplier always delivers exactly what you want,
when you want it. Try to identify any area of expertise that is lacking in the business.
as you can then take steps to improve that aspect. For example, you might realize
that you need some more sales staff, or financial help and guidance. Don't forget to
think about your business's location and whether it really does suit your purpose. Is
there enough parking, or enough opportunities to attract passing trade?
Your main objective during this exercise is to be as honest as you can in listing
weaknesses. Don't just make a list of mistakes that have been made, such as an
occasion when a customer was not called back promptly. Try to see the broader
picture instead and learn from what happened. It may be that your systems or
processes could be improved so that customers are contacted at the right time, so
work on boosting your systems and making that change happen rather than looking
about for someone to blame.
It's a good idea to get an outside viewpoint on what your weaknesses are as your
own perceptions may not always marry up to reality. You may strongly believe that
your years of experience in a sector reflect your business's thorough grounding and
knowledge of all of your customers' needs. Your customers, on the other hand, may
perceive this wealth of experience as an old-fashioned approach that shows an
unwillingness to change and work with new ideas. Be prepared to hear things you
may not like, but which, ultimately, may be extremely helpful.
Completing a SWOT analysis will enable you to pinpoint your core activities and
identify what you do well, and why. It will also point you towards where your greatest
opportunities lie, and highlight areas where changes need to be made to make the
most of your business.
The next step is to analyze your opportunities, and this can be tackled in several
ways.
External opportunities can include the misfortune of competitors who are not
performing well, providing you with the opportunity to do better. There may be
technological developments that you could benefit from, such as broadband arriving
in your area, or a new process enhancing your products. There may be some
legislative changes affecting your customers, offering you an opportunity to provide
advice, support, or added services. Changes in market trends and consumer buying
habits may provide the development of a niche market, of which you could take
advantage before your competitors, if you are quick enough to take action.
Another good idea is to consider your weaknesses more carefully, and work out ways
of addressing the problems, turning them around in order to create an opportunity.
For example, the pressing issue of a supplier who continually lets you down could be
turned into an opportunity by sourcing another supplier who is more reliable and who
may even offer you a better deal. If a member of staff leaves, you have an
opportunity to re- evaluate duties more efficiently or to recruit a new member of staff
who brings additional experience and skills with them.
Analyzing the threats to your business requires some guesswork, and this is where
your analysis can be overly subjective. Some threats are tangible, such as a new
competitor moving into your area, but others may be only intuitive guesses that
result in nothing. Having said that, it's much better to be vigilant because if potential
threat does become a real one, you'll be able to react much quicker: you'll have
considered your options already and hopefully also put some contingency planning
into place.
Think about the worst things that could realistically happen, such as losing your
customers to your major competitor, or the development of a new product far
superior to your own. Listing your threats in your SWOT analysis will provide ways for
you to plan to deal with the threats, if they ever actually start to affect your business.
After completing your SWOT analysis, it's vital that you learn from the information
you have gathered. You should now plan to build on your strengths, using them to
their full potential, and also plan to reduce your weaknesses, either by minimizing
the risk they represent, or making changes to overcome them. Now that you
understand where your opportunities lie, make the most of them and aim to
capitalize on every opportunity in front of you. Try to turn threats into opportunities.
Try to be proactive, and put plans into place to counter any threats as they arise.
To help you in planning ahead, you could combine some of the areas you have
highlighted in the boxes; for example, if you see an external opportunity of a new
market growing, you will be able to check whether your internal strengths will be able
to make the most of the opportunity. For example, do you have enough trained staff
in place, and can your phone system cope with extra customer orders? If you have a
weakness that undermines an opportunity, it provides a good insight as to how you
might develop your internal strengths and weaknesses to maximize your
opportunities and minimize your threats.
The basic SWOT process is to fill in the four boxes, but the real benefit is to take an
overview of everything in each box, in relation to all the other boxes. This
comparative analysis will then provide an evaluation that links external and internal
forces to help your business prosper.
What To Avoid
Don't just focus on the large, obvious issues, such as a major competitor encroaching
on your business. You need to consider all issues carefully, such as whether your
Internet system provides everything you need or whether your staffing levels are as
they should be.
Do take advantage of other people's contribution when you're completing your SWOT
analysis; don't try and do it alone. Other people's perspectives can be very useful,
particularly as they may not be as close to the business as you are. This distance can
often help them see answers to thorny questions more easily, or to be more
innovative: we all get stuck in a rut at points.
Don't do a SWOT analysis once and then never repeat the exercise. Your business
environment will be constantly changing, so use SWOT as an ongoing business
analysis practice.
Use SWOT as part of an overall strategy to analyze your business and its potential. It
is a useful guide, not a major decision-making tool so doesn’t base major decisions
on this analysis and nothing else.