In SAP Plant Maintenance implementation projects, there are always points of integration with FICO. Though the cost structuring, capturing and reporting is the work of FICO consultants, I am trying to cover here some basic concepts and terminologies which a PM consultant should be aware of:
Let’s first differentiate between FI and CO i.e. finance and controlling modules. I try to make it very simple here. FI is used for external legal reporting say balance sheet reporting, profit and loss statements etc. whereas CO is used for internal managerial reporting for decision making. Note the term legal in FI i.e. a company is bound by country laws while defining anything in FI, there is nothing legal as such while working in CO as it is intrinsic to company.
Key element in FI which a PM consultant should be aware of isG/L account or general ledger account. This is the most basic element to collect financial information about a business. A G/L account is an item within a general ledger. This is created by SAP transaction FS00. When a company creates a financial report such as balance sheet, most of the data is derived from the General Ledger. G/L accounts can be broadly classified into 4 categories: assets, liabilities, expenses and revenues. The G/L account most relevant to PM is expense G/L accounts, for example utilities expense, maintenance expense, wages expense etc.
Now let’s talk about CO module. CO module has 5 sub-modules. The sub-module most relevant to PM is Cost Center Accounting. Key elements in Cost Center Accounting are cost center; cost elements, activity types etc.
Cost element acts as a link between FI and CO modules. How? Cost elements are corresponding revenue and expense elements in G/L account. But this depends upon business requirements. Where COPA (Profitability Analysis which is another sub-module in CO) is active, then both expense and revenue
accounts (GL) are cost elements but where COPA is not active, then revenue account should not be made as cost element. Example of primary cost lements are material costs, personnel cost, energy cost etc. There are secondary cost elements also but let’s not go into that detail. Whenever a cost element is created, it needs to give a cost object to it. Cost object can be cost center, internal order, production order etc.
Hence cost elements are nothing but cost carriers. They carry the cost from FI G/L account and transfer to cost objects such as cost element. So cost element will answer: What is the cost? And cost center will answer: Where is the cost going?
Let’s relate the above concepts with Work Order costing. In work order configuration for costing we assign cost elements to value categories. Value categories are nothing but classification of costs in a work order example labor cost, material cost, and external services cost etc. So whenever we issue any material against a work order or say somebody charges time against a work order, a G/L account gets hit which simultaneously hits the corresponding
cost element and cost stays in the cost element temporarily. Now, when we do the settlement of the work order, all the costs are moved from cost elements to
settlement object which may be a cost center or WBS element or an internal order etc.
These are some basics of cost flow concepts which a PM consultant must be aware of. I will try to cover some more similar concepts in my next blog.