sap budgeting

Orange County Convention CenterOrlando, Florida | June 3-5, 2014

Increase Efficiencies in your CAPEX Budgeting &OPEX PlanningSundeep Gupta - PwC

Section Topic Page No

Why is Planning & Budgeting Important

Finance Assessment Framework 4

Management Accounting Current StateChallenges

5

Management & Cost Accounting Today 6

Finance Effectiveness Benchmark SurveyLearnings

7 - 10

Process & Technology Challenges 12

Finance Reporting Target Architecture 13

Planning

Typical Planning Cycle 14

Key Planning Concepts in SAP 15

SAP Approach to Planning 16

Agenda

Agenda

Section Topic Page No

Budgeting

Typical Budgeting Cycle 18

Key Budgeting Concepts in SAP 19 – 20

SAP Approach to Budgeting 21

Key Benefits & QA 23 - 24

Finance Assessment Framework

Scorecards and dashboards used by executive management may not be able to explain

what is happening today or provide insight into tomorrow

Applying cost cutting programs do not effectively reduce costs across their value chain or

attain targeted sustainable cost reduction targets

Companies that apply overheads through apportionments or allocations are effectively

spreading indirect costs like peanut butter which may not accurately match actual cost

behaviors

Companies continue to have difficulty in modeling realistic assumptions or can explain the

relationships and behaviors of their complex cost structures

Spreadsheet modeling may lead to multiple versions of the truth or may be difficult to

reconcile against layered assumptions

Transactional systems are effective analysis tools for evaluating historical data, however,

may lack accurate predictive capabilities or manage assumption based planning

Management Accounting Current State Challenges

Management and Cost Accounting Today

Companies need to operate with agility responding tochanging KPIs

• Scorecards and Dashboards report key performancemeasures

• Reviewing performance against historical results,budgets enable management to target results

• Indicators alert management to what is happening

Consolidated Financial Results

• Provides organizations with the speed, processing power,agility and breadth of analysis needed to completefinancial consolidation.

• Gain full process control and data transparency, allowingto simulate unlimited what if scenarios.

• Helps to close book without sacrificing data quality,saving time & money.

Management and Cost Accounting

• Enables explanation of events that lead to actualresults

• Data modeling supports predictive costmanagement

• Contribution margin analysis enables predictiveimplementation of pricing strategies to attainprofitability goals

Annual Operating Plan & Forecasting

• Ability to develop timely and accurate plans andbudgets that are aligned with strategic goals.

• It ensures a fully documented audit trail andcompliance with strict guidelines in accordance withregulatory IFRS

• The application is finance owned and maintained.

• Helps reduce external audit costs, instilling confidenceand reducing business risk

A recent survey done collaboratively by PwC and CFOMagazine revealed several key findings

• Successful financial planning transformations require aclose partnership between the corporate office, functionalareas and business units

• Simplifying processes, iterations and level of detail requirea strong leader/change agent to drive the desiredoutcomes

• Rolling forecasts are no longer an emerging trend, butrather they are becoming an established leading practice

• But there does not appear to be a trend toward completelyeliminating the annual budget process once rollingforecasts are adopted, due to their use for overallmanagement control and linkage to incentivecompensation

• Historical weaknesses in the budgeting & planning processpersist, limiting the perceived value of the financialplanning process within the organization

• The process continues to be time consuming, iterative andinaccurate

• The call to fundamentally improve the financial planningprocess is taking priority over other competing finance andbusiness initiatives

• The optimal level of detail for financial budgeting &forecasting has surfaced as a passionate topic of debate formany organizations

• Extensive detail in account planning often extends cycletimes, making info dated by time outputs are finalized

LimitedPerceivedValueofFinancialPlanning

Process Improvements are Needed to Combat thePerceived Value Gap


Getting the Level ofDetail Right


Close Partnerships Requiredfor Transformations


Rolling Forecasts Have Become EstablishedLeading Practice

How long does it take for your company to dobudgeting ?

2 months

2 – 4 months

4 – 6 months

More than 6 months

How long does it take for your company to generate aForecast ?

Less than 2 business days

2 – 5 business days

6 – 10 business days

More than 10 business days

Let’s take a few minutes to ask some interactive questions.

The top finding from the survey - weaknesses in the FP&Aprocess, limits the perceived value of the financial planning

0% 20% 40% 60%

More than 6 months

4 to 6 months

2 to 4 months

Less than 2 months

9%

20%

54%

18%

0% 10% 20% 30% 40%

More than 10 businessdays

6 to 10 business days

2 to 5 business days

Fewer than 2 businessdays

32%

29%

31%

9%

Approximately how long does ittake your company to generate aforecast?

Approximately how much time does itcurrently take your company to prepareits budget?

The budgeting processes costs on average over $12 million annually fororganizations with $10 billion or more in revenue

Let’s look at what sets apart the leaders

What are the challenges you face in budgeting &forecasting ?

What technology you use in your budgeting &forecasting processes ?

Let’s take a few minutes to ask some interactive questions.

Complexity is often barriers to getting answers to questionsof what happened, is happing, and/or will happen?

Process Challenges - Overly complex planning models and interactions between finance& other functionslengthen planning cycles

Separate assumptions and classifications lead to disconnected plans and huge challenges for corporateFP&A to consolidate

Group planning efforts are not able to clearly show risks and opportunities in the business.

Planning process is not agile, lacking scenario analysis without lengthy cycle iterations

Large corporate teams dedicated to Excel work; Spending 90% of their time interpreting businessplanner submissions and consolidating; Limited time remaining to perform analysis

Technology Challenges - Today’s organizations have highly complex information environments, & often BI,EPM and Analytics initiatives overlap which leads to further confusion

Hundreds of source systems

Different functions use separate DWs to support planning

Multiple financial reporting environments

Bolt-on patchwork of point solutions

Multiple ‘Enterprise’ initiatives for EPM, BI, and data management

Some integration but lots of spreadsheets and manual data transfers

Data expanding by terabytes

Much data yet little confidence in finding the ‘one source of truth’

Target Architecture for Finance Reporting

Leading Practices in Forecasting

• Edit don’t build the forecast.

• Focus the forecast on key line items at a higher level than the annual budget.

• Consider a rolling monthly or quarterly forecast – typically covering 18months.

• Measure forecast accuracy

• Use driver-based forecasting models

Leading Practices inPerformance Management

• Link financial planning, consolidation, reporting andanalytics into a common framework.

• Align data models across the organization.

• Standardize budgeting, planning, consolidation andreporting tools across the enterprise- reducespreadsheets.

A Typical Planning Cycle

Key Planning Concepts in SAP

Planning

2013

Version 1Cost center and

Cost element


Cost element


cost element

2014 Version 1Cost center and

cost element

Planning Overview• In SAP Planning can be carried out at combinations of cost objects (Cost

Center/ Profit Center etc ) and cost elements.• SAP allows planning in multiple versions for the same period/fiscal year• Planning values can be copied from previous periods

Planning Versions• Versions is a collection of year dependent indicators (Different plan,

Exchange rate type) in controlling to store plan and actual data.• SAP supports planning in multiple versions, this helps business to manage

the changes to planning values in different versions• SAP provides a standard planning version of ‘000’ which can be used for

initial planning and supports 999 additional planning versions to store• Once the planned values are approved, the final version can be locked for

further changes or same plan version can be allowed for changes.• Same planning objects (profiles) can be used in multiple planning versions.• Versions are year dependent and needs to be activated for additional year.• Access to versions can be restricted.• Planning can be done in multiple currencies like controlling area currency,

group currency and object currency.• Plan can be uploaded month on month basis or yearly.• Plan data can be uploaded easily into SAP.• SAP can read a standard excel file from local system; if the excel file has a

prefixed format recorded in SAP.

Planner Profile

• Planner profiles contains the planning areas (cost center planning, profitcenter planning, internal order planning) for which planning needs to becarried out

• Planner profiles in SAP is used to group different planning layout• Planner profiles acts as a medium to restrict the planning areas to the users

Planning Layout• Planning layout defines how planning to be executed based on the characteristics and

key figures of a totals table• Planning layout designs the screen layout for executing planning

SAP Approach to Planning

Budgeting

SAP has multiple budgeting tools like internal order, project system & funds management

Budgets are approved planned values for a given period and for a particular organizational unit.

Approved budget values should be released/distributed, only the released budget can be utilized.

System will give notifications to user at various levels when the budget is being consumed and can

stop further postings after reaching the level.

SAP allows to provide additional/supplementary budget to cost objects in addition to original

budget.

Release of budgeting can be carried out periodically or annually.

Unutilized budgeted values can be carried forward to the next period or fiscal year

Internal orders can only be budgeted individually.

Budget can be carried out at the top level or at the individual level.

A Typical Budgeting Cycle

Key Budgeting concepts in SAP

Investment Management• It is a budgeting module in SAP• The investment program is linked to the investment measures (orders or

projects) by their integrated planning and budgeting functions.• Assigned funds resulting from purchase orders, invoices, in-house activity,

and so forth are collected on the investment measures. Reports can be runon these values from the investment program.

• Actual values from these assigned funds are settled periodically toreceivers in management accounting. Or, if the actuals requirecapitalization, they are settled to assets under construction. When theasset under construction is complete, it is settled to final fixed assets.

Investment Program• The structure of the investment program usually reflects the structure of

the enterprise. It therefore corresponds to a hierarchy of areas ofresponsibility, represented by cost centers or profit centers.

• The investment program is a hierarchy of program positions, which can begraphically maintained, within a framework defined by the programdefinition. Investment measures can be assigned to the lowest-levelprogram positions in the hierarchy.

• The following are maintained in the program definition: the personresponsible, the fiscal year variant and the investment program currency.You can also specify that you want budget categories or budgetdistribution, also for annual values.

Appropriation Requests

• An appropriation request is an idea or wish for carrying out a measure (suchas an investment or research and development) that has to be individuallyassessed and approved by one or more organizational units within anenterprise, primarily because of the high costs involved.

• Measures are not strictly limited to capital spending. They can alsorepresent projects that involve primarily expenses.

• Usually there is a relatively long time period between the initialapplication and fleshing out of the appropriation request and itsfinal approval or rejection.

Investment Measure• Investment measures are used primarily for planning and monitoring capital

investments that are not capitalized directly.• Investment measures are represented in the system as

• Internal orders• WBS elements of a project

• They have extra functions, in addition to the master data and values that are importantfor management accounting on the order or project. These functions include:

• They have the data of an asset under construction for showing the capitalizedportions of the measure in the balance sheet.

• The have depreciation terms for special depreciation and investment supportcalculations during the under-construction phase.

Budgeting Integration, Availability Control &Currencies

Investment Management - Integration• Investment Management is deeply integrated with standard ECC

components like MM/PS/PM/AA etc.• Integration with Asset Accounting which allows for easy capitalization of

costs from Internal Orders/ WBS.• Integration with Purchasing & FI makes sure that the Capex budgets are not

exceeded

Availability Control – decisions to be made• When Budget is exceeded - Hard Stop or Soft warning message ?• E-Mail Integration with Warning / Error messages ?

Currencies in Budgeting• Each budget line item is saved in the currency in which you entered it (budgeting currency). The system also saves the amount in the controlling area and object currencies if

they differ from the budgeting currency.• Controlling Area Currency - This is the currency used in the controlling area. If you are using the controlling area currency for budgeting, you can use this currency only for

entering budgeting items.• Object Currency - This is the currency used for the object (such as, WBS element), and is specified in the master data for the object (such as, WBS element). If you specify the

object currency for budgeting, you can only enter the budget items using their respective object currencies.• (Freely Definable) Transaction Currency - On the initial screen of each budgeting function, you can specify the currency in which budgeting items are to be entered. You can use

as many currencies as required for budgeting. If you do not specify a currency on the initial screen, the system uses either the object currency or controlling area currency asdefault, depending on whether or not you set the Object Currency as Default indicator in the budget profile.

SAP Approach to Budgeting

Shift in approach from people oriented to system and process oriented

Accelerates the planning & budgeting by making dependencies and bottle-necks in the

processes transparent.

Improves control over the process by providing a tool in which all parties involved can

monitor progress.

Extended access and ad hoc reporting capabilities with appropriate security and controls

to broader user groups ranging from executive management to regional line of business

users

Reduced dependency on IT/Consolidation team for reporting requirements

Key Benefits

Questions

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SESSION CODE: 1501

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sap budgeting

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