Flexible Multi-Dimensional Allocations powered by PaPM UM Profitability and Cost Management

[MilicaAntonovic]

Hello everyone, my name is Milica Antonovic, and I have been working as an SAP Profitability and Performance Management (SAP PaPM) Consultant for nearly seven years, contributing to a wide range of project implementation and use case development. A significant portion of my experience has been in the realm of Profitability and Cost Management (PCM), which made the recent opportunity to help design and develop our own PCM solution particularly exciting.

I am delighted to present the results of our intensive work over the past months and look forward to the continued development of our Profitability and Cost Management (PCM) content within the Universal Model of SAP Profitability and Performance Management (SAP PaPM) Cloud. To learn more about Universal Model, check out the SAP Community blog post: Unveiling the new functionality in 2024 of SAP PAP... - SAP Community.

You may already be familiar with our recently released SXP (Profitability and Cost Allocation) sample content (Profitability and Cost Allocation leveraging Dynam... - SAP Community), which introduced a simplified Activity-Based Costing (ABC) model based on industry best practices. In contrast, this new Profitability and Cost Management (PCM) content offers a broader and more flexible solution with the potential to support a variety of user-defined allocation models, details of which are available further in this article.

Overview

In today’s disruptive business environment, staying profitable requires more than just increasing revenue. Effective cost management plays a crucial role in optimizing operations and ensuring sustained profitability.

A Cost Allocation strategy, in which costs are assigned to different business objects, is often used to determine cost utilization. This helps enterprises to make informed decisions, determine profitability of each product or department, identify areas where costs can be reduced, balance the expenses across different departments and thus aid in budgeting and increasing overall operational efficiency.

The Profitability and Cost Management (PCM) content is designed to help businesses navigate this complex landscape by providing a powerful tool to manage, analyze, and optimize costs and profitability.

While Profitability and Cost Management may share a common definition, the approach can vary significantly between businesses. The key dimensions considered critical for profitability analysis can differ, sometimes subtly or substantially, depending on the organization's unique priorities and objectives. Therefore, we chose not to limit ourselves to Activity-Based Costing (ABC), but to use it as a foundation to develop a more versatile and comprehensive approach, offering a broader range of possibilities. A standout feature of this tool is its flexibility in allocation dimension selection and the multi-level allocation process, making it an essential solution for businesses seeking advanced control over their cost allocations.

Key Features of Profitability and Cost Management Content

Simplified but powerful Configuration, Lean Data Model

Excessive complexity does not always equate to effectiveness or strength. It can burden processing and complicate maintenance without contributing meaningful value to the overall solution. Our solution is created by focusing on a lean and user-friendly data model that can still cover the intricacies of the different cost allocation scenarios.

An easy-to-maintain Allocation Steering Table, together with Sender and Receiver Control Tables, is used to define the different allocation use cases in detail by defining the sequence of each allocation, driver information and different group dimensions to be included and excluded. A separate Allocation Drivers Table is used to store driver value information for each sender and receiver dimension, tracked across multiple periods and fiscal year. Execution Parameters are also stored in a table, and this approach allows for tailored allocation runs to suit specific business requirements. Multiple versions of Plan Data can be stored and leveraged for allocation, and there is also a possibility to retrieve data from S/4HANA Cloud system for your Actuals.  

Multi-Dimensional Cost Allocation Model

 

The Multi-Dimensional Cost Allocation Model enables users to allocate costs across 11 predefined and 3 custom dimensions, up to 7 allocation steps in user defined order. ​This provides complete flexibility to the users to define their allocation use cases. The 11 predefined dimensions include GL Account, Cost Center, Profit Center, Business Area, Functional Area, Company Code, Activity, Product, Customer, Segment and Channel.

The example below shows a snapshot of actual results of an allocation with 7 execution sequences, with each sequence allocating to a different dimension, and using custom dimensions in the last 2 sequences.

The custom dimensions can be renamed in the report for easier identification, as shown in the example below. This renaming functionality is possible for all available dimensions.

Parallel Execution of Multiple Use-cases

Multiple allocation models can be processed simultaneously by triggering a single execution.

All the use-cases are defined in the Allocation Steering Table and the execution parameter for each of the model is maintained separately in the Execution Parameter Table.

Reallocations and Transfers

With the flexibility in setting up allocation drivers, it is possible to transfer amounts from senders to receivers within the same dimension, up to 7 execution sequences. This reallocation functionality can be used for business requirements such as activity reallocations, cost center and profit center transfers, segment adjustments and intercompany recharges. ​

Using drivers and selection segments, amounts or balances can be included in the first execution sequence, and carried over in the same dimension key, such as a cost center, through each sequence, up until it reaches the sequence where it needs to be allocated to other cost centers. Tracing the allocation results for each execution sequence is easy because all dimensions can be easily pulled into row groups or columns.

Offset Entries

The PCM allocation model, by default, generates only one-sided entries. However, allocations can be configured to generate offset entries if that is a business requirement. All intermediate entries between the first and last sequence are cancelled out, and the business can decide whether to post entries from all the sequences or, in the interest of limiting the volume of entries, use only the offsetting entries of the first sequence and the allocation entries of the last sequence.

Handling of Unassigned Items

The PCM allocation model has a built-in functionality that handles Unassigned Items to ensure completeness of allocations before results are finalized and made available for reporting and profitability analysis. The user does not need to perform any specific configurations to track Unassigned Items. Assigned and Unassigned items are identified per Execution Sequence. For Assigned Items, the allocation dimension and allocation dimension key of the assignment are shown. For Unassigned Items, the allocation dimension and allocation dimension key that needs to be assigned are shown. 

Driver information in the columns helps to easily identify which drivers need to be created to complete the assignments. Unassigned Items can be easily identified, including which allocation dimension keys need to be assigned using which drivers. 

Since all the fields are kept and are made available in this report, further drilldown to other relevant dimensions is possible, depending on the granularity required for analysis. After the necessary drivers are updated, the Allocation Process can be executed once again, and the updated results reviewed.

Full Traceability

After running the execution activity, intermediate results can be reviewed at a very detailed level before the finalization of output. At this point, more information is available for audit trail analysis, including helper fields, which are later dropped when output is finalized and made ready for reporting and profitability analysis.

Process and Activity Execution

The PCM solution features a user-friendly interface that streamlines navigation through tasks and activities essential for executing the process. While certain tasks require manual confirmation and data adjustments, many others are automated to enhance efficiency and improve productivity by reducing the need for user intervention.

The activities are categorized into Master Data Maintenance processes and Periodic processes, both with and without S/4HANA Cloud integration, depending on the system setup. To learn more about S/4HANA Cloud integration, check this SAP Community blog post SAP PaPM Cloud Standard and Universal Model OData Integration with S/4HANA... - SAP Community.

The solution provides additional flexibility by assigning different user groups to specific activities, ensuring that users can only view and access the tasks relevant to them. This facilitates task delegation, minimizes errors, and enhances workflow accuracy.

 With the help of simplified navigation, users can easily confirm, reject, or execute activities, while staying informed of their status.

Reporting

The reporting page delivers valuable resource insights into your financial performance. At its core there is a straightforward dashboard that showcases account based KPIs, giving you an immediate view of profitability at a high level, while offering deep drilldown capability to explore specific data points for more detailed analysis. This is complemented by visual charts that effectively summarize important metrics in a clear and concise format. These charts make it easy to quickly identify trends and patterns, enhancing your ability to assess performance.

Additionally, the platform allows for customization, enabling you to tailor reports to suit your specific business needs and focus areas. With real-time data integration, you can monitor up-to-date financial health and spot emerging issues before they escalate. The intuitive layout ensures that even users with limited technical experience can navigate the tool with ease. Furthermore, the reporting page offers export options for sharing reports with stakeholders or integrating them into presentations. All in all, this feature-rich tool empowers you to make informed, data-driven decisions with confidence.

Conclusion

We’ve recognized that while common methodologies such as Activity-Based Costing (ABC) offer a solid foundation, they must be adapted and expanded to suit unique profitability dimensions across organizations. Our solution focuses on overcoming the limitations of traditional models by offering greater flexibility and deeper insights, ensuring both efficiency and sustainability in managing costs and driving profitability. This approach reflects the understanding that simplicity, when paired with adaptability, leads to a more powerful and maintainable system that truly enhances business performance. Our Profitability and Cost Management solution will empower your organization to efficiently control costs and drive enhanced profitability.