Calculating Results Analysis for Internal Orders

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Dear reader,

The purpose of this blog post is to share the detailed configuration steps required to perform Results Analysis as well as Work in Process calculation for an Internal Order in SAP S/4 HANA or SAP ECC.

Results Analysis is performed in business scenarios where you have a project/internal order/service order/sales order which is open for a few months, and you want to show the capitalized costs, unrealized profit/unrealized costs of that project/order on your Financial statements.

But, why would you bother to show the Capitalized costs(WIP), unrealized profit/loss on your Financial statements at all?
Because if you don't, then for the periods in which there was no actual revenue generated, the P/L statement will only show the expenses incurred in that project/order, leading to the wrong impression that there is no profit, just expenses.

An example real-time business scenario where RA is performed is as follows :

In a manufacturing company, Internal Orders are used to manage License costs, so that these costs can be easily separated from Research costs and other general expenses. Internal Orders of a certain order type are being used to manage the profit/loss incurred on account of buying/selling licenses. For example, a license is managed for a period of 10 years, and the corresponding profit or loss recorded on a piecework payment basis is settled to CO-PA periodically. WBS elements are not involved in this business scenario.

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A short note on the various Results Analysis Methods provided by SAP:

SAP provides 15 methods for results analysis. You might wonder which method to use for your business requirement, but it purely depends on 'what' you want to calculate & show on your Financial statements.

These methods differ in the amounts which can be calculated using them. For example, the method "(01) Revenue-Based Method with Profit Realization" lets you calculate 'Capitalized costs (WIP)' and 'Reserves for unrealized costs', but it can't calculate 'Revenue in excess of billings' and 'Revenue Surplus'. So for example, if you want to report a profit before any revenue has actually been received, you need to use "(03) Cost-Based POC Method".

The whole list of the RA methods available in SAP and there pros & cons are available in the SAP help link Results Analysis Methods.

A 'Revenue-Based' method means, Percentage of completion (PoC) = Actual Rev./Plan Rev.

A 'Cost-Based' method means, Percentage of completion (PoC) = Actual Costs/Plan Costs

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Returning back to the example business scenario of this blog post, the business requirement here is to calculate Capitalized costs (WIP), so we choose the method "(01) Revenue-Based Method with Profit Realization".

So, first, let's look into the step by step configuration required for calculating RA.

Step 1. Create Results Analysis Key.

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Create Results Analysis Keys

You can copy the SAP delivered RA Key 000001 to create a custom RA key.

Step 2. Create Cost Elements.

Just for the sake of simplicity, I am creating only 3 Cost Elements of Category 31 here.

In S/4 HANA, Cost elements of category 31(Order/project results analysis) cannot have a Company Code view.

9311001 (Fixed Costs)

9311001 (Variable Costs)

9311003 (Technical RA Cost Element)

 

Step 3. Define Results Analysis Versions

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Define Results Analysis Versions

The checkbox "Transfer to Financial Accounting" has to be selected only after all the configuration has been done.

 

Step  4. Define Valuation Methods for Results Analysis

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Define Valuation Methods for Results Analysis

 

Step 5. Define Line IDs

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Define Line IDs

Line ID is nothing but something to which the G/L accounts to which contain the costs/revenue are mapped.

 

Step 6. Define Assignment for Results Analysis

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Define Assignment for Results Analysis

In this step, the line IDs created above are mapped to the cost elements which will be used for making actual postings on the Internal Order.

 

Step 7. Define Update for Results Analysis

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Define Update for Results Analysis

In this step, the line IDs created above are mapped to category 31 cost elements. These category 31 cost elements will be used to write the results analysis data.

 

Step 8. Define Posting Rules for Settlement to Financial Accounting

IMG Path - Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order>Period-End Closing>Results Analysis>Define Posting Rules for Settlement to Financial Accounting

The detailing explanation on this node has been copied from the SAP IMG documentation of this node, and pasted here just for the readers' quick reference. This explanation can also be found at the below SAP help link:

https://help.sap.com/doc/saphelp_46c/4.6C/en-US/be/f42c7dd435d1118b3f0060b03ca329/content.htm

Here you specify the G/L accounts in Financial Accounting to which the results analysis data is settled. You assign a results analysis cost element or a group of results analysis cost elements to two G/L accounts.

On the basis of the settlement of the results analysis data, a posting document is generated in Financial Accounting.

•Data is written to the balance sheet.

•Data is written to the profit and loss statement.

On the basis of this posting, an additional document is generated in Profit Center Accounting if the order is assigned to a Profit Center.

Settlement is made by period on the basis of

•The allocation structure in the settlement rule of the internal order

•The posting rules that you define in this step

All cost elements under which results analysis data to be settled are written (such as reserves for unrealized costs, work in process, cost of sales) must be listed in the allocation structure. They must also be assigned to G/L accounts by the posting rules.

Settlement of data to Profitability Analysis is controlled by a PA allocation structure. In the PA transfer structure you list the results analysis cost elements for the revenues, reserves for imminent loss and cost of sales. Then you assign these cost element groups to value fields (see Create PA transfer structure).

You can assign the results analysis data to the G/L accounts at the following levels:

•For each results analysis category

The following results analysis categories are created on the basis of the assignment of the costs to line IDs:

◦WIPR - work in process with requirement to capitalize costs

◦WIPO - work in process with option to capitalize costs

◦WIPP - work in process with prohibition to capitalize costs

The above configuration steps are enough for performing Results Analysis, and calculating WIP for an Internal Order.

Let us now see using an example how, based on the above configuration, WIP is calculated for an Internal Order.

Below are the steps involved in testing the above configuration:

1. Create an Internal order and assign the RA Key created above to it. I have created an I.O. 400760 and assigned RA Key ZRKY01 to it.

2. Using transaction code KPF6, post plan costs to the Internal Order.

3. Using transaction code KPF6, post plan revenues to the Internal Order. If actual revenue is posted, but plan revenue is not posted, then the system throws an error while executing Results Analysis for the order.



4. Post actual costs to the Internal Order using transaction FB01.

5. Post actual revenue to the Internal Order using transaction FB01.

6. Execute Results Analysis using transaction code KKAI or KKA1.

KKAI ⇒ For Multiple Internal Orders. Results analysis is updated in table COSB automatically.

KKA1 ⇒ For a single Internal Order. Results analysis is not updated in table COSB automatically.





Double-clicking on the above line gives the below detailed screen. (same as t-code KKA1)





(Earlier we had posted USD 8,000 as planned costs, but in the above RA analysis, Planned costs turn out to be USD 10,000. This is because, if Actual costs > Planned costs, then Planned costs are overwritten by Actual costs.)

Costs Affecting Net Income = (Actual Cost * Actual Revenue) / Plan revenue

= (10000*30000)/35000 = 8571.43 USD

Costs Affecting Net Income can be posted to CO-PA.

WIP = Actual Costs - Costs Affecting Net Income =  10000-8571.43 = 1428.57 USD

WIP can be posted to FI and EC-PCA.

Below SAP help link contains more detailed documentation on the formulas:

(01) Revenue-Based Method with Profit Realization

After an update run using t-code KKAI, table COSB is updated with RA values.

Key points to remember about WIP Amount:

• WIP will be calculated only when the Order status is not DLV or TECO.


• WIP will get canceled if you set the Order's status to DLV or TECO, and then run RA Analysis again.


• During the life of the Order, period by period, Costs & Revenues are posted to the order, WIP is calculated & posted to FI, Cost of Sales & Revenue is reported to CO-PA.


• Once the Order is complete (i.e. no further cost/revenue is going to be posted anymore to the order), you change the Order status to TECO, perform RA Analysis, and finally, execute order settlement.


• At the time of the final order settlement, the WIP amount posted till now to FI is canceled (previous FI postings are reversed).

I hope the above blog post helps in clarifying the steps involved and the prerequisites of Results Analysis & Work in Process calculation for Internal Orders with Planned Costs & Revenues.

In my next blog post, A guide to Internal Order settlement – Transfer Cost-of-Sales, Revenue, to CO-PA ; WIP to FI I have explained in detail about posting WIP amount to FI, as well as the settlement of an Internal Order to CO-PA.