Profitability and Cost Management

What is Profitability and Cost Management Profitability and Cost Management is a unique part of the SAP BusinessObjects solution portfolio that can be run either as a standalone application or through the SAP BusinessObjects Business Intelligence platform. It allows you to model the infrastructure and finances of your business in order to reveal the costs of the operational activities you perform and the costs of what you produce. Consolidation and drill down features break these costs down through departmental levels providing accountability and control. The resources you use and the measures of your sales activity act as cost drivers in a unique Calculation Engine that redistributes your basic costs across the activities you perform and what you produce. These calculations can be run at a level of frequency that provides a dynamic response to changing costs as markets fluctuate. The operations of the Calculation Engine are enhanced by the use of scripting rules to provide specific logic in your modeling. This introduces the ability to create forecasting models to improve your forward planning. Another innovative feature is “Driver Analysis”, which allows you to set new business targets and automatically generates the changes required in your resources and basic costs to meet your targets. The operational data in your model can be entered and displayed in multidimensional grids that you can design to show various views. Consolidation and drill down are just some of the features that can be naturally integrated into these grids. They can also be viewed over the web where they can be used for data input, data display, and reporting. As an alternative to these grids, you can also display relational views of your data as a set of data records. You can design the web pages that contain these views of your data. Known as “Books”, these can contain several different features in addition to data views, including text, graphics, buttons, and logical control elements that allow you to dynamically select different sets of data. Basic reporting is available through PDF output of books, which is significantly extended by report management using the Report Manager utility and by an MDX interface that provides data transfer into Microsoft Excel (see SAP Business Objects Profitability and Cost Management MDX Connector Guide). You can use the Work Manager utility to organize some of your operational processes. By designing books that record individual activities you can manage the different tasks your staff must perform to complete your working processes. These features are supported in a multi-user, multilanguage, multicurrency environment with a full range of security options and Accessibility compliance. Related Topics • Activity Based Costing Overview • Activity Reassignment 23 2013-11-30 What is Profitability and Cost Management

• Costing Calculations Overview

• Driver Analysis Overview • Rules

2.1 Integrated Cost Analysis Profitability and Cost Management provides structures to represent the operational costs and business drivers of an organization. It also provides the means to assign these drivers between input costs and output costs in a manner that models the projection of costs through the organization. With these relationships in place, any change in the values of the input costs or drivers causes consequential changes in the output costs. This occurs because Profitability and Cost Management has a built-in calculation engine that detects changes and recalculates costs as required. Related Topics • Building a Cost Analysis Model

2.1.1 Costing Calculations Overview Profitability and Cost Management has a built-in Calculation Engine that starts up at regular intervals to recalculate costs in your model according to the basic principles of Activity Based Costing. It uses the structure, assignments, rules and basic input values in your model to calculate its results. The basic costs of your business are applied across the activities performed in your business and across the products you provide to reveal how much they have cost. A simplified picture of the calculation path shows which structures influence the calculation that is performed. Note that the path can avoid the calculation of Activity Costs if necessary. Resource Drivers are assigned to basic costs (Line items and Services), allowing these costs to be recalculated across the Activities performed throughout your business according to the resource required for each Activity (Resource Driver Splits). 24 2013-11-30 What is Profitability and Cost Management

Additionally (or alternatively), Activity Drivers can be assigned, which allows you to view these costs across the product set (Cost Objects) of your business. Driver assignments are shown in italics in the diagram and calculated results are in bold. The calculation engine can be invoked to varying degrees and even avoided by models that make limited use of the available structures and relationships. The traditional budgeting model that is concerned with purely fiscal details might ignore Activity and Cost Object Costs completely and achieve its aims by using Line Items and Services in conjunction with Revenue items. Rules can be defined for any of these items that will increase the intelligence of the model and the web-enabled Books feature will enable sophisticated display, reporting, and control features. Many aspects of the Calculation Engine still need to be covered: • How does the Calculation Engine work? • How are results stored? • What are the Model Calculation Options? • What other factors influence calculation?

• How do I create a simple Cost Analysis model? You may not need to know the answers to all of these questions but if you do, the related topics will help. Related Topics • Building a Cost Analysis Model • Calculated Results • Calculation of Rules • Model Calculation Options • The Calculation Engine and Model Performance

2.1.2 Driver Analysis Overview “Driver Analysis” allows new business targets to be set for an existing model. These are set using the drivers of the model and because of the interrelationships that exist because of assignments, changes in one may influence the values of others. The new driver values have a consequent effect on the base costs of the model that can in turn produce a new set of results. The simplified diagram that follows depicts the path followed when a Driver Analysis is performed. It also outlines the relationships between drivers in the calculation engine. 25 2013-11-30 What is Profitability and Cost Management

This route operates in reverse to the normal Cost Analysis calculation path. Activity Driver values determine how Cost Object Costs are calculated in a normal model and these are the means used to control those costs. Driver Analysis starts from the point where new Activity Driver Targets are set. Cost Object Assignments define the source of the costs that contribute to Cost Object Costs through Activity Drivers. These can be Line Item, Service, or Activity costs. The specification of Activities and where they are used is optional. Where they are used, Resource Driver values, and Resource Driver Split values define how Activity Costs are derived from basic Line Item and Service costs. Driver Analysis calculates new values for all of these costs based on the new Driver Targets. Related Topics • Driver Analysis

2.1.3 Activity Based Costing Overview The Calculation Engine fully supports Activity Based Costing, but the degree to which this is used depends on the structure of your model. It calculates Activity Costs and Cost Object Costs automatically when changes are made to the base costs or drivers that are linked to these through the Assignment functions. In addition to the structures and relationships required by the Calculation Engine, an activity-based model also needs to be populated with base costs and values. These can either be entered using the Profitability and Cost Management application Data Bridge, or by creating views that include all the dimensions that are associated with a particular set of costs or values. Some of the costs and values

involved in Activity Costing are listed with their associated dimensions: • Line Item costs – defined according to Period, Version, and Responsibility Center • Resource Driver values – defined according to Period, Version, and Responsibility Center • Resource Driver Split values - defined according to Period, Version, Responsibility Center, and Activity. Line Items costs are usually obtained from General Ledger data. Service Costs can also be collected in the same way. Values need to be collected on a period basis, by whatever means are deemed appropriate. When any of the above values are not available by Responsibility Center they should be assigned to the built-in item in the structure called . This predefined item is relevant for all grid values that are associated with Responsibility Centers, Resource Drivers, Activities, and Cost Objects1– 5. 26 2013-11-30 What is Profitability and Cost Management

Note: Activities and Cost Objects have no rules associated with them that can override the operations of the Calculation Engine. Related Topics • A Simple Activities Costing Model • Assignments • Costing Calculations Overview

2.1.4 Cost Object Analysis Overview A “Cost Object” is an item that helps identify a cost that you want to report on, for example a Product, Customer, Distribution Channel, Region, or any combination of some of these. An “Activity Driver” is an item used to distribute Activity Costs and Cost Object Type Line Item/Service costs across combinations of Cost Objects. This association is achieved using Cost Object Assignments. By building up a full set of relationships between Activity Drivers and Cost Objects, the costs associated with each Cost Object combination can be determined. So the costs and values involved in Cost Object Costing include those used in Activity Costing along with Activity Driver Values, which are defined according to Period, Version, Responsibility Center, Resource Driver, and Activities. Related Topics • A Simple Cost Objects Costing Model • Activity Based Costing Overview • Cost Object Assignment

2.1.5 Profits The Revenue Types dimension provides the means to record different types of Revenue. Revenue values are supported against a particular revenue type for any combination of Costs Objects in any Version, Period, and Responsibility Center. Revenue values can be input or calculated and this depends

on whether you operate a fixed Unit Price for your Cost Objects. With a fixed price strategy, your Revenue for an item will be calculated on the basis of how many units you sell. On the other hand, if you choose to input a Revenue value against an item, its Unit Price will be calculated automatically on the same basis. 27 2013-11-30 What is Profitability and Cost Management

This allows the profitability of each Cost Object to be established, providing answers to questions such as the following: • Was the sale of that Product through that Channel to that Customer profitable? • Based on the discounts given to that Customer, is the Customer account still profitable? By changing the parameters, you can also assess the effects of any changes that are planned. The “Grid Values” that support measures of profitability such as Contribution and Gross Contribution are listed in the SAP BusinessObjects Profitability and Cost Management Modeling Reference Guide available through F1 Help. Related Topics • Gross Contribution

2.2 Benefits The benefits of the Profitability and Cost Management approach to strategic planning in the enterprise are described in greater detail in the following topics.

2.2.1 Enhanced Data Access Modeling applications have a natural division into two basic phases of operation: that of building a model and then using it to produce results. Both phases have an obligation to the user to provide views of the model and its data that display areas of interest in a specific and uncluttered manner. Profitability and Cost Management achieves this by providing a feature that supports the construction of views of model data through an intelligent grid. These views can then be incorporated into customizable workbooks through a feature known as “Books”. Books are unavailable to others during their design phase, but on completion can be published for general use, subject to security provisions. Web users can be assigned access to Books according to their security privileges, which also govern access to specific items incorporated in the Books. This opens the model for use in many different ways across the enterprise, for example, data input, model analysis, driving a model, running budgets, and producing reports. Profitability and Cost Management brings a new theme to budgeting with the inclusion of a calculation engine that can be used to support a strong costs-based approach to modeling. Related Topics • Costing Calculations Overview 28 2013-11-30 What is Profitability and Cost Management

2.2.2 Budgeting and Planning Traditional Budgeting and Planning applications tend to concentrate on the purely financial aspects of

a business—that is, producing sets of Profit and Loss and Balance Sheet accounts from General Ledger data. These can often function at a fairly high level of financial detail that overlooks the operational aspects of a business. But operational costs can be a major influence in any budget because they can change dramatically at any time. If these are fully incorporated into a budget or planning model, results are more accurate and dynamically reactive to change. Profitability and Cost Management provides these features at all levels of an enterprise environment and combines this with a web interface that gives ready access to results and reports. In Profitability and Cost Management, operational details are implemented by linking the cost outputs of the model (combinations of Cost Objects) to its resources (Headcount, Square Meters, and so on ) and cost drivers such as Number of Sales, Visits, and Invoices. Once these relationships have been set up, a built-in calculation engine recalculates cost outputs whenever there is a change in resources or a relevant cost driver. These costs are automatically integrated into the budget, providing a dynamic response to change. Profitability and Cost Management also incorporates a “Driver Analysis” feature that allows cost drivers to be assigned target values that are used to recalculate the resources and line item costs required to meet these targets. These changes can be manipulated as required to produce a final budget or forecast that contains all the updated targets and costs.

2.2.3 Traditional Budgeting Those who wish to run a traditional financial budget without operational detail will find a number of innovative features in Profitability and Cost Management from which they can benefit. For example, scripting rules provide the means to compute values within a model, which can be useful when there is interdependence between items, as in the case of salary or taxation. Specialized spreading functions allow annual costs to be spread across multiple periods. But most significant is the web-enabled “Books” feature with views of the model data that are easily accessible with sophisticated reporting features.

2.3 Users 29 2013-11-30 What is Profitability and Cost Management

Several different types of user are involved in setting up and running a Profitability and Cost Management environment to support the modeling requirements of an enterprise organization. An Administrator will have to define the roles of each user and their security details. Some users will operate as Windows clients and others will login over the web. Profitability and Cost Management applications can operate independently or alternatively through an SAP BusinessObjects Business Intelligence platform environment. Other forms of user environment are also supported.

2.3.1 User Access Initially only one user is provided, called Administrator, who has unrestricted access to all aspects of Profitability and Cost Management. Adminstrator can create new users and organize them into groups

with different roles and security privileges to support specific operational uses of the system. Each attempt to log in to Profitability and Cost Management is verified using this information by a server dedicated to that task. This method of controlling logins is appropriate for a standalone version of Profitability and Cost Management, but some clients may prefer to integrate their Profitability and Cost Management system into an existing user environment to simplify their user login procedure. A number of “Single Sign On” options are provided in configuration as an alternative to the default. These include: • Windows NT Security • Windows Active Directory Security • LDAP Security • Web security • Enterprise Profitability and Cost Management users must have the same username defined in both systems, but to login they only need to specify the username and password in the selected system. To support a “Single Sign On” environment, a user synchronization tool is available to synchronize user names between Profitability and Cost Management and the SAP BusinessObjects Business Intelligence platform software. This tool is available in the "User and Group Maintenance" screen when “Single Sign On” security is configured in the Configuration Wizard. For further details about how to use this tool, refer to the SAP BusinessObjects Profitability and Cost Management Integration Guide.

2.3.2 Operational Roles Five basic user groups are predefined in Profitability Cost Management to support the different operational aspects of the application. • Administrators – are responsible for User/Group security including model security (see the SAP BusinessObjects Profitability and Cost Management Security Guide) but have no access to models. • Model Builders – have access to the full Model Building interface. They also have web access rights. 30 2013-11-30 What is Profitability and Cost Management

• Book Builders – have partial access to the Model Building interface (restricted to those features required for “Book” design) and they are also able to set security for Group/Default Book Assignments. Book Builders also have web access rights. • End Users – these can be web users or client users with access to “Books”. • Everyone – All users are assigned to this group. It provides a minimum basic level of access until the user is assigned to a User Group by an Administrator (see the SAP BusinessObjects Profitability and Cost Management Security Guide). Related Topics • Multiple Application Interfaces

2.3.3 Operational Use Before a model can be built, a design process should specify a clear vision of the intended objectives,

the data involved in the model, and the control logic that determines its results. An Administrator should firstly set up the security privileges for at least some of the Groups and Users that are to be involved with the model. Model Builders can then create a model using “Dimensions”, “Assignments”, and “Rules” to represent the infrastructure and control logic in the design. Book Builders can next design views of the data and incorporate these views into “Books”. When complete, they use a “Publish” function to make these Books available to End Users. “Books” can be designed for a multiplicity of tasks including data input, running modeling projections, and obtaining reports.The End Users of these books can range through all levels of management and design to those involved in data input. Having a straightforward interface of this type provides prompt turnaround on rolling forecasts and single-click reforecasts. The spreadsheets used in the past to collect data for forward planning are replaced by a direct front-end interface that can be designed to suit your own requirements. The same design facility allows data display and reporting to be customized in a similar manner. Related Topics • Operational Roles

2.3.4 Multiple Application Interfaces 31 2013-11-30 What is Profitability and Cost Management

Three different application interfaces are provided for working with all types of Profitability and Cost Management models. Each interface supports the tasks performed by users assigned to particular operational roles. • Model Builder – this is provided for Administrators, Model Builders and Book Builders. It is the principal application interface for Profitability and Cost Management. Administrators have the full functionality of the application, but Model Builders are restricted to Model Building functions. Model Builders have no access to Security functions and their access to models and model dimensions is controlled by an Administrator. This allows different Model Builders to work on separate aspects of the same model as well as different models. Book Builders are presented with a limited version of the interface, strictly for “Book” design purposes. This includes access to the dimension hierarchies for grid design and incorporation into “Books”. An Administrator will assign access to the models and “Books” that a Book Builder has to work on. End Users do not have access to the Model Builder application. • Book Viewer – this is another client interface that gives access to “Books”. It offers an alternative method of access to the facilities provided to Web Users that communicates directly with your Application Server, avoiding the use of a web server. • Web access – this is the web interface to Profitability and Cost Management applications. Web Users will be unaware that several different methods of web access are supported, and will connect using a URL obtained from an Administrator. Note:

Profitability and Cost Management can be integrated into the SAP BusinessObjects Business Intelligence (BI) platform environment where it can be accessed in different ways. BI launch pad can be used to operate like a web client interacting dynamically with current model data, and Web Intelligence can access snapshots of Profitability and Cost Management data through “universes” for reporting and further analysis. SAP BusinessObjects Profitability and Cost Management 10.0 also supports integration with the previous release of SAP BusinessObjects BI platform, SAP BusinessObjects Enterprise XI 3.1. In this case, you can interact with model data using InfoView (BI launch pad). For more information on integration scenarios, see the SAP BusinessObjects Profitability and Cost Management Master Guide and the SAP BusinessObjects Profitability and Cost Management Integration Guide. Related Topics • Operational Roles • Viewing Books as an End User • Using the Profitability and Cost Management application

2.3.5 Data Input 32 2013-11-30 What is Profitability and Cost Management

“Books” can be created that act as web-based forms for manual data input. While this is a useful means for input of small amounts of data, large quantities require a more automated approach. An application in Profitability and Cost Management called Data Bridge acts as a bulk data input tool. This provides data input techniques that are easy to operate and will support a range of data collection methods. Data can be collected as a series of Comma Separated Values (CSV) files which can be input using a wizard that provides intelligent data validation techniques. It is also possible to load data directly into the Profitability and Cost Management database, and to collect data directly from it, but this should be handled by your Database Administrator.

2.4 Profitability and Cost Management utilities SAP BusinessObjects Profitability and Cost Management has been assembled to provide for all aspects of activity based costing and forecasting. It includes the following additional component applications that contribute to an overall solution to your enterprise requirements: • Work Manager – for workflow control (see SAP Business Objects Profitability and Cost Management Work Manager User Guide) • Report Manager – for producing reports (see SAP Business Objects Profitability and Cost Management Report Manager User Guide) • Data Bridge – an intelligent data input tool (see SAP Business Objects Profitability and Cost Management Data Bridge User Guide) See appendix “More Information” for instructions on downloading additional documents from the SAP Help Portal.

2.5 Profitability and Cost Management modeling framework

SAP BusinessObjects Profitability and Cost Management contains a powerful modeling framework that uses the latest technology to make your operational management and forward planning both responsive and simple to control. Profitability and Cost Management supports a number of different types of modeling application that share a similar modeling environment. • Profitability and Costing - supports various forms of financial analysis modeling • Bill of Materials - an extension of a Profitability and Costing model that calculates costs at a lower level than the finished product by determining the cost of manufacturing the components that make up finished goods. • Objectives and Metrics - provides a new approach to Performance Management. • Transactional Costing - supports large volumes of data at the database transactional level. 33 2013-11-30 What is Profitability and Cost Management

Related Topics • Modeling Techniques in Profitability and Costing • Bill of Materials Modeling • Objectives and Metrics Modeling • Transactional Costing Modeling

2.5.1 Model Infrastructure All types of Profitability and Cost Management models consist of: • Structures - these are the “Dimensions” in your model and they represent the basic costs, resources, activities, and product lines of your business. • “Assignments” - these define the cost relationships in your model. They specify how resources and measures of sales activities are applied to Dimensions to support the redistribution of your basic costs across the activities you perform and your product lines. • “Views” – you can design multidimensional views of specific model data using the “View Builder” or “Data Explorer” features. A huge range of different values is provided through “Grid Values” that expose views for data input, display, and reporting. These can be saved as layouts that can be designed into web books. • “Books” – you can design these using the "Book Editor" to display any aspect of your model. You can display grids containing layouts that you have designed previously. A range of additional book objects allow you to customize each book to your preference as well as providing dynamic control of the datasets that your grids display. You can also control the exposure of your books to End Users through a publishing feature. • “Rules” – you can write scripting rules (VB Script) against dimension items to exert specific control over these items in your model. You can also write script against specific book events to control their functions. Related Topics • Dimensions

• Assignments • Displaying your Data • Books • Rules

2.5.2 Creating Views 34 2013-11-30 What is Profitability and Cost Management

Once the basic structures of a model have been defined, a Book Builder or Model Builder can make use of an intelligent grid to create specific views of the model data. But what is this data, where is it held and how easy is it to locate? All Dimensions support structural hierarchies and in theory data could be entered against any intersection of any combination of these. In practice, Profitability and Cost Management uses a set of predefined key fields that are each associated with a specific group of dimensions. These are referred to as “Grid Values”. There are currently almost 50 of these, each associated with a specific set of dimensions. To display multiple dimensions in a two-dimensional grid may seem impossible at first, but several elegant features of the grid allow this to be accomplished in a comprehensive manner. Related Topics • Building Grids

2.5.3 Building Books A large range of features is provided for the Book Builder that include many of the facilities available in a standard word processor. Text can be added to pages and formatted with the usual options of Font, Size, Color, and so on. Paragraph formatting is also provided and properties for the “Book” can also be set. But most significant is the Toolbox that allows an assortment of useful objects to be planted on the page, including grids that hold preconstructed views of the model data, charts that provide graphical displays of these views, dimension trees that allow selection of specific dimensions, and hyperlinks to other books. Related Topics • Books

2.5.4 Time Sequences Profitability and Cost Management contains Version and Period dimensions to allow for variations of your model both in the nature of the recorded data and the time period it relates to. These dimensions can also be used to set up time sequences that record the order in which separate time periods occur. By these means it is possible to determine the prior combination for any specific Version and Period combination. This is particularly useful in comparing current data with figures achieved previously. 35 2013-11-30 What is Profitability and Cost Management

A “Timeline” Editor is provided to create the time series you want in your model.

Related Topics • Time series definition