Capital Planning during AuC

[Former Member]

Hello All,

I am looking for a process in SAP for planning capital expenditures. Given below is an example of the requirement:

An asset worth $1,000,000 is being built and is expected to be put into service on June 01, 2012.

Assume that cost worth $600,000 has already been incurred, posted to the WBS element and settled to the AuC.

Using investment profile and depreciation simulation functionality we could simulate future depreciation expense w.e.f. June 01, 2012 of the $600,000 that has been incurred so far .

We would like to forecast and plan the remaining $400,00 over the next two years (June 2010 to May 2012).

We want to compare and report variances between the plan and actual expenditures that we are going to incur in the next two years.

We want to do monthly planning exercise in different planning versions so that we could capture what was planned and how much did we actually incur month-over-month for the next 24 months.

As and when the actual costs are incurred, we post to the WBS element and settle to the AuC at the end of each month.

I hope I have expressed my requirement clearly. How do we achieve this requirement in SAP? What are the different alternatives that could be used?

Your input, help and guidance is greatly appreicated. Please let me know if you need any additional information.

Thanks

Rama

Edited by: Virendra Pal on May 19, 2010 1:41 PM

no bold and capitals please

[former_member203108]

It seems you want to have Plan Vs actual cost analysis on WBSE and want to plan period wise cost on WBS Element, if this is your requirement, then use proper cost planning method. You can read SAP HELP for uderstanding those cost planning method .

[Former Member]

Thanks for your suggestion and pointing in a direction. I will search for planning methods.

Meanwhile, I want to provide more clarity on our issue. We have capitalizable expenses and non-capitalizable expenses. We have no issues with non-capitalizable expenses. Our issue is with capitalizable expenses.

SAP allows settlement of plan values to a cost center or WBS element. With this feature, we are able to settle non-capitalizable plan values to the cost center and then run reports against the cost center which has both the actual settlement as well as plan settlement. This gives us what we want.

But in case of capitalizable expenditure, how do we use plan settlements. We have actual settlement values sitting in an asset under construction. This asset will not be put to use until a date in future. During its construction phase, we want to monitor how we are spending the money for its construction. We are not yet concerned about the planned depreciation expense if it were active.

First of all, are we heading and thinking in the right direction or have we missed something. Please provide some guidance on the above.

Meanwhile, I will explore other options of cost planning methods.

Thanks.

[NathanGenez]

This can all be done as part of Project Systems and Investment Management. What you describe is very typical for this area... no real surprises there.

-nathan

[Former Member]

Hello Nathan,

Thank you very much for your reply and it is very reassuring to know that this is a normal requirement.

My client has only PS but no IM implemented. With this scenario, is it still achievable, or should IM be configured.

Right now, the client is uploading plan values to a WBS in PS for both capital and expense. They do not separate capital & expense by cost elements or cost element groups. They plan both types of expenditures against the same WBS element against the same cost elements. The only way they differentiate between capital and expense is by means of the settlement receiver (FXA or CTR). This works fine for actual costs. But the problem is with plan values.

They settle plan values related to expenses to a cost center and settle plan values related to capital to another WBS element. (Because only CTR and WBS are the receiver categories for plan values).

When they run profit center reports, they find that the capital portion of plan expenditure which is settled to the other WBS element sits in the same cost elements and reported against the same profit center. The issue is they now argue that the cost elements are all expense cost elements and why is the plan capital expenditure appearing in the profit center report when it is not there in the cost center report. Thus throwing a reconciliation issue between CCA and PCA.

I would be very grateful to you if you could please let us know if there is any inherent design/configuration problem and if the business process is incorrect.

I am trying to convince the client that if they are able to separate capital & expense by cost elements at the time of upload, then it could be handled, but the client does not want to divert the responsibility to project managers of deciding between capital vs. expense as it is an accounting requirement. I am in a fix. Any help/advice is greatly appreciated.

Thank you & regards.

Rama

[NathanGenez]

I don't see how that solution works even for actuals since there doesn't seem to be a way to record the expenses by cap or exp. And if it doesn't work for actuals than plan/actual reporting is obviously not going to work.

There are some ways to design this in PS but the real solution to report, plan and budget on capital vs. expense is in IM.

-nathan

[Former Member]

Hello Nathan

It is very kind of you to devote your time in responding to my questions. I will try to give an example in numbers to express my issue.

(1) Let there be a project which has two WBS elements WBS1 and WBS2.

(2) Both WBS elements are assigned to the same profit center PC1.

(3) Cost center CC1 is assigned to the same profit center PC1.

(4) Let us assume that cost are posted against a single cost element CE-A.

(5) Plan values are uploaded into plan version P1 into these two WBS elements against cost element CE-A for $200 for WBS1 and $300 for WBS2.

(6) Profit center report KE5Y for PC1 shows $500 for both WBS elements against cost element CE-A.

(7) The following vendor invoice has been received and posted.

Cr. Vendor = $250

Dr. WBS1 / CE-A = $100

Dr. WBS2 / CE-A = $150

(8) Profit center PC1 has a debit of $250

(9) Business now decides that $100 on WBS1 is expense and $150 on WBS2 is capital

(10) Therefore they create settlement rules in actual version 0, wherein WBS1 settles to cost center CC1 and WBS2 settles to fixed asset FXA1

(11) Actual values are settled from WBS1 to cost center CC1 and WBS2 is settled to fixed asset FXA1

Cr. WBS1 and Dr. CC1 for $100

Cr.WBS2 and Dr. FXA1 for $150

(12) Due to this $150 has moved from cost element CE-A to a balance sheet account related to FXA1; It is no longer reported in profit center PC1 against the cost element CE-A

(13) Similarly, they create settlement rules in plan version P1, wherein WBS1 settles to cost center CC1

(14) Business executes plan settlement in plan version P1, thereby plan values of $200 from WBS1 are settled to cost center CC1; Plan value $200 moves from WBS1 to CC1 within the same cost element CE-A and therefore is reported in the same profit center PC1

(15) Now the issue is that they cannot create a settlement rule in plan version P1 for WBS2 to settle to a fixed asset, as SAP has provision to settle plan values only to cost centers and/or WBS elements and not to fixed assets. They cannot settle plan values in WBS2 to any other cost center, as it is not an expense type expenditure. WBS2 is capturing capital type of expenditure whose actual values are settled to fixed asset FXA1.

(16) If we do not settle the plan values in version P1 out of WBS2, then profit center P1 has its values in cost element CE-A

(17) There is no problem with WBS1 because both the actual and plan values have been settled from WBS1 to cost center CC1. So all reports in PS, CCA and PCA reconcile with each other both for plan and actual values

(18) When profit center report is executed for PC1 with CE-A, $300 of plan values are being shown against WBS2, whereas there is no corresponding entry in any cost center report because it never went to a cost center. In addition, the actual values have been moved out to a balance sheet account.

(19) There are reconciliation issues with the above process; How do we plan and where do we settle plan values that are capital in nature; How do we eliminate the reconciliation issues?

(20) Currently to resolve the issue, client's accounting team makes a one-sided CO entry into the profit center PC1 to remove the effect of $300 from cost element CE-A

(21) Probably, there is some inherent flaw in the above design of the process. Client accounting group insists that from accounting point of view they are doing it right. Is there something wrong in the system design?

(22) Your guidance is greatly appreciated.

Thank you and regards.

Rama

Edited by: Rama Wunnava on May 22, 2010 2:52 AM