Project Profitability:

Using Results Analysis to Get the Most Out of

the PS Module

by Sam Stinnett, Senior PS Consultant

Editor’s Note: SAP Managers face tough ROI questions on each project initiative. When there's
an unused piece of R/3 functionality that can offer an immediate cost savings, it deserves some
serious attention. PS expert Sam Stinnett has uncovered one such piece of functionality. In this
well-illustrated white paper, Sam guides us through use of the PS and CO modules for "Results
Analysis." Appropriately used, Results Analysis allows SAP users to calculate Revenue and Cost
of Sales for customer projects and automate the month-end closing cycle, providing a quick
return on investment sure to please even the most budget-conscious CIO.

How are most Engineer-to-Order or Customer Projects’ revenue recognition and cost of sales
calculated? More often than not, they are in spreadsheets or in legacy systems. Wouldn't it be
preferable to calculate these numbers from within the SAP® system? Wouldn't it be ideal if this
time-consuming accounting process could be automated to help reduce the month end closing
cycle?

SAP has continually enhanced the Project System (PS) module so that Revenue and Cost of
Sales for customer-oriented projects can be calculated consistently and automatically—all by
accessing the data that is accumulated throughout the period in PS. Financial accounting helps
increase a company’s success by improving information flow and supporting strategic decisions.
Thus, fast accounting closes are of the highest priority in today’s global economy. By reducing
and automating the closing cycle, this SAP functionality has an immediate return on investment.

SAP Results Analysis (RA) is functionality within the Controlling (CO) module that calculates
Work in Process, Cost of Sales, and Calculated Revenue. Results Analysis has been prevalent
in SAP manufacturing environments for several years, but now the same functionality is being
utilized for more and more PS implementations. RA is one more example of existing SAP
functionality that is “ready and waiting” for SAP users who want to get more analytical power out
of their existing SAP infrastructure.

In this white paper, we'll take a detailed look at how companies can use the PS module to
leverage Results Analysis functionality. For our case study, we'll focus on a specific type of
Results Analysis: the Cost-Based Percentage of Completion Method for SAP Projects. After we
finish the “Period 4” case study, we'll touch on the highlights of configuring PS to utilize Results
Analysis functionality. One nice aspect of the 4.x RA configuration is the pre-configured RA
methods. There are a couple of User Exits that may need to be utilized, but the use of these will
ensure that all customer specific programming will be retained during the next SAP upgrade. This
case study utilizes generic SAP configuration without any user exits involved. Although the
screen shots used in this white paper are from a 4.6C environment, SAP users running 3.1 and
higher can also benefit from much of the same Results Analysis functionality.

Result Analysis valuates long-term customer projects for the following purposes:

Controlling (CO-PC)

• the planning values in summarized form (that is, the planned costs, planned revenue,
planned profit, planned loss)
• the actual costs incurred and actual revenue earned up to the current period
• changes to the actual costs incurred and the actual revenue earned for each period

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 Project Profitability:
Using Results Analysis to Get the Most Out of
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The data calculated in Results Analysis is updated in the project systems module under
secondary cost elements (cost element type 31) and can be analyzed in the information system
at any time. You can also summarize the calculated data over all projects that meet certain
search criteria.

Profitability Analysis (CO-PA)

• Results Analysis can calculate the following values for every billing element by
period, regardless of the valuation method:

o calculated revenue, that is, the revenue calculated by RA that corresponds to the
actual costs posted on the billing element
o reserves for unrealized losses, revenue surpluses and unbilled receivables
o cost of sales, that is, the costs that can be considered expenditure in accordance
with the revenue earned for the billing element

For companies that use the PS module to manage customer projects, this data can be passed
from the WBS Billing Element in PS through settlement to Profitability Analysis Profitability
Segments (another CO Object), so that CO-PA allows you to examine revenue and expenses
from multiple modules in a single report. Each WBS element must have a settlement rule to a
profitability segment, which is the settlement receiver whose PA settlement structure contains the
Results Analysis cost elements for the relevant data. Please note that there is a user exit that will
allow certain CO-PA characteristics to be automatically derived. In the following period, Results
Analysis calculates the changes to this calculated data and creates delta entries to update
financial accounting. No accruals are posted to the general ledger until the settlement process
passes the changes on to FI and CO-PA.

The objective for calculating RA is to determine the value of manufacturing activity or services
provided at the end of a financial period and to properly reflect this value on the financial
statements.

2 SAP Tips before we begin

• If you aren’t utilizing the SAP Notes Assistant with transaction SNOTE, then immediately
start having the individuals applying OSS notes examine this functionality.

• Transaction Code “SEARCH_SAP_MENU” allows you to type in text like “BUILDER”—

this will show the menu path and transaction code for the Project Builder (SAP
transaction code CJ20N).

Detailed Example: The Cost-Based POC Method for Projects

This white paper will focus on just one of the many Results Analysis methods available from
standard, out-of-the-box SAP, the ’03 Cost-Based POC Method’. (POC means Percentage of
Completion).

Other Results Analysis methods that are available include:

• 01 Revenue-Based Method with Profit Realization
• 02 Revenue-Based Method without Profit Realization
• 07 POC Method Using Progress Version
• 09 Completed Contract Method

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There are currently 15 standard valuation methods, and several user exits within these methods
to accommodate most specific business requirements. For example, RA Customer Enhancement
1 allows the customer to modify the standard Results Analysis functions. This is appropriate when
the customer method deviates only slightly from the standard methods. The corresponding
method is selected in Customizing. The program reads the data, calculates the values according
to the selected standard method, branches to the customer enhancement, performs the individual
calculations programmed by the customer, returns, and saves the data. This is a user exit, so all
customer programming will remain intact during a SAP upgrade.

The Cost-Based POC Method for Projects allows you to calculate revenues affecting net income,
based on the percentage of costs incurred on the project. This method assists with the matching
principle of accounting: to match revenue recognized with costs incurred. This method will also
calculate ‘Unbilled Revenues,’ or, as SAP refers to them, ‘Revenue in Excess of Billings.’ It will
also calculate ‘Revenue Surplus’ when the project has billed more revenue than it has actually
earned based on the Cost-Based POC method.

The SAP Modules used within this example are: Project System (PS), Profitability Analysis (CO-
PA), integration with Finance and Controlling (FI/CO), and Sales and Distribution (SD).

CALCULATION of POC = Actual Cost / Planned Cost

Cost of Sales always equals the actual cost incurred.

Calculated Revenue = POC * Planned Revenue

This scenario we're examining assumes that the Sales Order is assigned to the top level WBS
Billing Element, and that all costs are planned and charged at the PS Network level.

If the actual revenue billed to the customer is less than the calculated revenue determined by RA,
then the system will create an accounting entry for “Unbilled Revenues.” If the actual revenue
billed to the customer is greater than the RA calculated revenue, then the system will create an
accounting entry for “Revenue Surplus,” debit the income statement, and credit the balance
sheet with this revenue reserve.

White paper Example Data:

This is a Simple Project (Project #

A-000052) with a single Billing
WBS element and one Network
with four activities. There are
milestones included in the project
for Milestone Billing purposes for
the integration between SD and
PS. The billing WBS has a
Results Analysis key defined on
it, and a settlement rule to
Profitability Analysis. Please note
that the Network Activities do not
settle up the hierarchy because they have a settlement profile that doesn’t allow settlement. The
only settlement and Results Analysis calculations occur on the billing WBS element. All charges
from lower levels in the PS structure are determined during the RA calculation. This settlement

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 Project Profitability:
Using Results Analysis to Get the Most Out of
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scenario can be automated with the transaction CJB2 “Generate Settlement Rules: WBS
Elements” which will create the settlement rules for the WBS and Network, and also place the RA
Key on the WBS element. There is configuration required to achieve this result, but this periodic
process will definitely simplify month end settlement. Note that in this white paper, I perform
“individual transactions,” but most SAP transactions also have a counterpart “collective
transaction” that will execute multiple projects at a time.

In our example, the SD Sales Order has Planned Revenue of $200,000 and the network activities
have Planned Cost of $120,000.

There is a Planned Contribution Margin of $80,000 or 40%.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Period 1
In period one, the project incurs $20,000 of costs for
travel expenses on the network activity. The project
has just gotten under way, so there are no billings to
the customer yet.

These are the SAP RA Transactions: KKA2 for RA

Individual Processing or KKAJ for Collective
Processing.

Planned Rev = $200,000

Planned Cost = $120,000
Planned Profit = $80,000

Actual Rev = $0
Actual Cost = $20,000

Cost of Sales = Actual Charges

incurred or $20,000.

Results Analysis Calculations

POC = 20,000 / 120,000 = 16.67%

complete

Planned Rev $200,000 * 16.67%

POC equals the calculated revenue
of $33,333.33

Calculated Profit = $33,333.33 less

20,000 = $13,333.33. You can
verify these numbers by calculating
the Planned Contribution Margin of $80,000 * 16.67% complete to equal 13,333.33.

Please note that no financial entries are recorded until the project is settled.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Settlement Cost Elements are entered on the WBS element as DR and CR’s (CE #’s 772053 and
772054 established in RA Config. of the Update of RA Calculation) and the Receiver Profitability
Segment (Profitability Analysis details) get the Cost Elements established in PS to PA Settlement
(CE#’s 772060 and 772061).

Accrued
Values in FI:

•DR Balance Sheet

Account 72012 (Rev in
Excess of Billings or
Unbilled
Revenue/Receivables)
and CR P&L Acct
601612 (to add the
revenue into the P&L)
•Costs affecting net
income in the amount
of the actual costs
$20,000
•Rev affecting net
income arising from the formula Calc Rev
= Act Cost/Planned Cost * Planned Rev =
$33,333.33
•Rev in Excess of Billings with the formula
Rev in Excess of Billings = Rev Affecting
Net Income – Actual Rev = $33,333.33
•You settle the Calculated Revenue with the actual costs to Profitability Analysis.
•You settle the Revenue in Excess of Billings (Unbilled Revenue) to FI.

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Using Results Analysis to Get the Most Out of
the PS Module

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Project Actual Line Items:

note that Report CJI3 shows a
Net Profit of $13,333.33,
matching the calculations
from RA.

This is the PS Cost

Element Report for Project
Results. This shows
Unbilled Rev of $33k and
COS of $20k.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Period 2

In Period 2, the project incurs $60,000 more expenses on the network activity, and the first
milestone is completed, so $100,000 is billed to the customer. Thus, we have billed $100,000
and incurred $80,000 in expenses. So far, the project is looking profitable. But what does
Results Analysis have to say about that?

Calculation of Results Analysis:

POC = $80,000 / $120,000, or 66.67%

complete

Cost of Sales = Actual charges or $80,000

Planned Rev $200k * 66.67% equals the

Calculated Revenue of $133,333.33

Calculated Profit equals $133,333 minus

$80,000 = $53,333

The system is telling us that we should have

$133,333 of recognized revenue, but only
$100,000 has been billed. Thus, we have
unbilled revenue. Revenue in Excess of
Billings = Calculated Revenue minus billed
revenue = $33,333.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

In Settlement Period 2, we now have $40,000 more in Profitability Analysis. This totals $53,333,
which comprises $13,333 from Period 1 and $40,000 from Period 2 and equals the RA calculation
of Profit.

There are no accrued values in FI for

Period 2.

Calculation:
Rev in Excess of Billings = Calculated Rev
$133,333 minus actual billed revenue of
$100,000, which equals $33,333. This
was the amount calculated in Period 1, so
no adjustment needs to be made in Period
2 because there is already $33,333 on the
Balance Sheet of Unbilled Receivables.

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Using Results Analysis to Get the Most Out of
the PS Module

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Period 3
During Period 3, the project incurs $10,000 more of expenses on the network activity. A second
billing occurs when milestone #2 is completed, so $90,000 is billed to the customer. Thus, we
have billed $190,000 and incurred $90,000 in expenses. This is the way that you hope all
projects go: “More billed than costs incurred.”

Calculations:
POC = 90,000/120,000 = 75% complete

Planned Rev $200k * 75% equals the

Calculated Rev of $150,000
COS goes to $90,000. This is the actual
cost incurred to date.
Calc. Profit = 150,000-90,000=60,000
Rz = Rev in Excess of Billings
Goes to 0 because we have billed more
than we have earned. Thus, we now
have a $40,000 Revenue Surplus, which
is R(r).

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

PS Actual Line Items Report

This report shows $90,000 of costs

charged to Cost Element 1410 and
$190,000 of revenue billed to
Revenue Element 500101. The Cost
Elements 772060 and 772061 are
used in the settlement from PS to
CO-PA (Profitability Analysis). Note
that the $40,000 Revenue Surplus is
the net result of all of these entries.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Therefore, our key numbers through Period 3 are:

• Calculated Revenue of $150,000

• Revenue Surplus of $40,000
• Cost of Sales of $90,000

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Period 4

The project is now in its final phase. There is an actual cost increase to $130,000, so there are
additional charges of $40,000 in this period. The final delivery to the customer occurs and
another milestone billing of $10,000 closes out the final bill, for a total of $200,000 that was billed.
The Project Status is set to Technically Complete (TECO).

POC Calculation: Ignored

because of TECO Status.

All accruals and reserves are set

to 0. Actual data is recognized in
the system for all of the
calculations.

Realized Profit = 200,000-

130,000=70,000.

Rz = Rev in Excess of Billings

Goes to 0 and the Rev Surplus
goes to 0. COS goes to
$130,000 which is the amount
spent on the project.

Please note that no RA

calculations are posted to FI
until settlement occurs. This is
the settlement from the WBS
Billing Element to PA
(specifically the profitability
segment). This passes an
additional $40,000 of cost over
to PA and $50,000 more of
revenue. The Period 3 RA
Calculated Revenue was only
$150,000 so $50,000 more
needs to go to PA. Period 3 COS was only $90,000 so an additional $40,000 of cost needs to be
settled in Period 4.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

PS Actual Line Items Report

This report shows that there are no values on the

project anymore. There are no FI accrued values
because of the TECO status, and all values have
been settled to PA.

Total Revenue = $200,000

Cost of Sales = $130,000

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 Project Profitability:
Using Results Analysis to Get the Most Out of
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Simple Profitability
Analysis Report

Results Analysis Calculation for a Loss (either from the beginning of a project or during the
course of a project):

If the planned costs are greater than the planned revenue, Results Analysis calculates a
loss for the same amount as the difference, just like it calculates an expected profit when
planned project revenue is greater than the planned cost. This loss is passed on to
Financial Accounting. If the planned values change, a portion of the loss can be reversed,
or more loss can be created.

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Using Results Analysis to Get the Most Out of
the PS Module

SAP Configuration for Results Analysis

RA Method: “03” Cost Based POC Method

Transaction Code OKG3

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Transaction Code OKG8

Note that the POC Method

utilizes RA Category POCI and
POCS, which stand for Revenue
In Excess of Billings and
Revenue Surplus respectively.

The detailed configuration for

Controlling Area “US01” is:
Profit &Loss account 601612 “P&L RA POC Method Account”
Balance Sheet account 72012 “B/S RA POC Method Account”

Above are screen prints of the main RA configuration, but you also need to configure the
following in the IMG (Menu Path: Reference IMG Main Page > Project System > Revenues and
Earnings > Automatic and Periodic Allocations > Results Analysis):
• Maintain Results Analysis Key (Transaction Code OKG1)
• Maintain Results Analysis Versions (OKG2)
• Define Valuation Methods for Results Analysis (OKG3)
• Define Line Ids
• Define Assignments for Results Analysis (OKG5)
• Define Update for Results Analysis (OKG4)
• Define Posting Rules for Settlement to Accounting (OKG8)

You can use the system and user statuses to divide the life cycle of a PROJECT into specific
stages, which provide different calculations in results analysis:
PS differentiates between the following five main statuses for Customer Projects:
• Released
As soon as a project has the status Released, you can post actual costs and revenue
to it. From this point onwards, Results Analysis can valuate the project on the basis of
the actual revenue and actual costs.
• Final billing
Once the status for the project is set to Final Billing, you cannot enter any subsequent
invoices. You can specify that from this point onwards, all inventories and reserves for
imminent loss, for example, are canceled.
• Technically completed
Once the status for the project is set to Technically Complete, all reserves, unbilled
receivables, WIP, etc., are completely reversed. The actual costs and actual revenues
determine the RA calculations, and the project result is the actual revenue minus the
actual costs.
• Closed
Once the status for the project is set to Closed, you can no longer execute Results
Analysis, perform settlement, invoice the customer, or make any other financial entries
to the project.
• User Statuses
Please note that in the RA Expert mode, you can configure RA to perform certain
calculations based on a specific customer defined project user status.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module

Summary
Results Analysis is a periodic process which determines the costs and revenues for a period,
based on planned costs and revenues and the percentage of completion (POC).
Comparison of the period-related values with the actual values allows correction or delta accrual
postings in financial accounting (COS, WIP, reserves, revenue surpluses, etc.).

RA is a sophisticated tool within the Controlling module that computes and analyzes the value of
cost of goods sold, calculated revenue, unrealized losses, unbilled receivables, etc. The
objective for calculating RA is to determine the value of manufacturing activity or services
provided at the end of a financial period and to properly reflect this value on the financial
statements.

Results Analysis valuates long-term projects by period for the following purposes:

• to calculate the cost of sales or a calculated revenue for Profitability Analysis

• to calculate work in process for Financial Accounting
• to calculate unbilled receivables, revenue surpluses, and unrealized costs for Financial
Accounting

This data can be passed on to Financial Accounting and Profitability Analysis when settlement is
carried out.

For more information:

SAP Online Help http://help.sap.com/

Specifically, SAP Library > Financials > Controlling > Product Cost Controlling > Cost Object
Controlling > Product Cost by Sales Order > Period End Closing in Product Cost by Sales Order
> Results Analysis

Please note that there is RA documentation in the PS section of the help files, but there are more
details in the above section.

Sam Stinnett has over eight years of experience in the SAP Project Systems Module and has
been involved with over 25 implementations and upgrades. He is a Certified Public Accountant
and is a certified FI/CO consultant. He is a regular speaker at the Project System ASUG
conferences. He can be contacted at Sam_Stinnett@msn.com or Cell #404.229.8004.

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 Project Profitability:
Using Results Analysis to Get the Most Out of
the PS Module
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