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Positioning of Profitability Analysis in the

Universal Journal

SAP S/4HANA Finance

November 2016

Nelli Lang und Stefan Walz, November 2016

SAP Proprietary
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Table of Contents
DISCLAIMER .................................................................................................................................................... 3
1. INTRODUCTION......................................................................................................................................... 4

1.1. Target Group ....................................................................................................................................... 4

1.2. Definition ............................................................................................................................................. 4

2. PROFITABILITY ANALYSIS IN THE UNIVERSAL JOURNAL ................................................................ 5

2.1. Account-based CO-PA as foundation for Profitability Analysis in the Universal Journal ................... 6

2.2. Innovations for Profitability Analysis in the Universal Journal ............................................................ 6

2.3. Benefits of Profitability Analysis in the Universal Journal in a nutshell ............................................. 10

3. POSITIONING OF PROFITABILITY ANALYSIS SOLUTIONS ............................................................... 12

3.1. Comparison of Profitability Analysis Solutions.................................................................................. 12

3.2. Availability of Profitability Analysis Solutions in Cloud and On-Premise .......................................... 14

4. ACTIVATING PROFITABILITY ANALYSIS IN THE UNIVERSAL JOURNAL ....................................... 16

4.1. Customizing and System Settings .................................................................................................... 16

4.2. Migration Paths for existing SAP ERP CO-PA customers................................................................ 16

4.3. Parallel use of Profitability Analysis in the Universal Journal and Costing-based CO-PA ............... 17

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DISCLAIMER

This presentation outlines our general product direction and should not be relied upon in making
a purchase decision. This presentation is not subject to your license agreement or any other
agreement with SAP. SAP has no obligation to pursue any course of business outlined in this
presentation or to develop or release any functionality mentioned in this presentation. This
presentation and SAP’s strategy and possible future developments are subject to change and
may be changed by SAP at any time for any reason without notice. This document is provided
without a warranty of any kind, either express or implied, including, but not limited to, the implied
warranties of merchantability, fitness for a particular purpose, or noninfringement. SAP assumes
no responsibility for errors or omissions in this document, except if such damages were caused
by SAP intentionally or grossly negligent.
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1. Introduction

This document provides a basic introduction to the new Profitability Analysis in SAP S/4HANA
and S/4HANA Finance. Unless stated otherwise, the introduced functionalities are available in
both SAP solutions. For reasons of simplification, we will always refer to SAP S/4HANA Finance,
meaning both SAP solutions – SAP S/4HANA and SAP S/4HANA Finance.

First, we will look at the overall concept for the new Profitability Analysis (section 2), also gaining
insight on the technical foundation and innovations for Profitability Analysis in the Universal
Journal (2.1 and 2.2). Historically, SAP provides two different options for profitability analysis:
Costing-based CO-PA and Account-based CO-PA. In comparing these two solutions with the
new Profitability Analysis in the Universal Journal (3.1), the similarities as well as the differences
between the solutions are pointed out and their positioning on the market are addressed. This
leads to the question of what factors customers need to consider when migrating to SAP
S/4HANA Finance, and which migration paths are available (4.2).

1.1. Target Group

The target groups of this document are:

- Solution Experts and Consultants, supporting customer projects with CO-PA
- Customers interested in profitability analysis in SAP S/4HANA Finance

1.2. Definition

We will distinguish between the following solutions:

1. Costing-based CO-PA refers to the form of profitability analysis that groups costs and
revenues according to value fields and costing-based valuation approaches in a separate
persistence. This solution has been available for many years and is widely used by customers.
Costing-based CO-PA is available in SAP ERP Financials and SAP S/4HANA Finance.

2. Account-based CO-PA refers to the form of profitability analysis in which all costs and
revenues are stored in accounts. This solution also has been available for many years.
Account-based CO-PA is available only in SAP ERP Financials.

3. Profitability Analysis in the Universal Journal refers to the new form of profitability analysis
which is part of the new SAP S/4HANA Finance product. This form of profitability analysis is
also called Simplified Profitability Analysis. It is technically based on the Account-based CO-
PA.

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2. Profitability Analysis in the Universal Journal

With SAP S/4HANA Finance, the Universal Journal provides customers with one common,
consistent view of all financial information. Therefore, profitability analysis has also been
integrated into the Universal Journal (table ACDOCA). The journal entries in this table contain
all relevant data of the business transactions posted in the past in one of the following application
components:
- General Ledger
- Asset Accounting
- Controlling
- Material Ledger
- Account-based CO-PA

While Account-based CO-PA data is an integral part of the Universal Journal, Costing-based
CO-PA data is still stored in the corresponding table CE1xxxx, where xxxx denotes the operating
concern.

The Universal Journal table represents the single source of truth for both legal and management
accounting. Since profitability analysis is supported by the Universal Journal, its financial
information is always consistent. Reconciliation and other processes to keep different tables
synchronized, as was required in classic SAP ERP Financials, have become unnecessary. SAP
S/4HANA Finance enables a reconciled view of all financial information at the most granular level
of detail: the line item. Enhancements in Profitability Analysis in the Universal Journal provide
profitability data that in many cases is already available at the time of the primary posting, which
permits real-time reporting on operational data.

Fig. 1. Composition of the Universal Journal with field examples

From a reporting perspective, the Universal Journal allows you to explore organizational,
customer, or product profitability in the same report used for financial reporting, based on any
available dimension that has been posted to. In financial reports such as the income statement,
it is possible to analyze revenue as well as costs by different profitability characteristics. In
addition, manufacturing enterprises can review multilevel cross-margin analyses in their income
statement.

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2.1. Account-based CO-PA as foundation for Profitability Analysis in the

Universal Journal

Account-based CO-PA lays the foundation for Profitability Analysis in the Universal Journal. We
have reused the profitability master data definition: the operating concern and the definition of
the characteristics, the posting logic on the profitability segment, and the powerful derivation
tool. These functionalities remain unchanged so that customers can keep their logic as before.

2.2. Innovations for Profitability Analysis in the Universal Journal

The following innovations are now available in Profitability Analysis in the Universal Journal:

1. An important new feature in the Universal Journal concept is that profitability

characteristics are stored directly in the line item. In principle, this allows profitability
characteristics to be persisted for every income statement item with the primary posting
– assuming that the attributes are available at time of posting.

Fig. 2. Profitability attributes for Travel Expense income statement items derived with primary
posting

2. You can activate additional derivation of profitability characteristics for income

statement items which do not carry an account assignment to a profitability segment. Such
income statement items are assigned to so-called “attributed” profitability segments, which
serve solely for reporting purposes (in opposition to income statement items with “real”
account assignment to profitability segment that can take part in closing processes like
settlement or top-down-distribution).

The derivation of characteristics is activated per account assignment with selecting related
type or category:
- cost centers
- sales orders
- internal order

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- production orders
- projects
The activation is set in the IMG under Controlling  Profitability Analysis  Master Data
 Activate Derivation for Items without Profitability Segment.

Fig. 3. Activating profitability derivation in IMG with example Internal Order

These new derivations enable real-time reporting in profitability analysis and speed up the
period-end process, since you do not need to execute settlements during period-end.

Several steps are processed during the derivation. We can roughly divide these steps into
two groups:

1. Automated derivation of profitability characteristics – example customer project

In a customer project scenario, first the derivation logic searches for settlement rules to
profitability segment contained in the account assignment of the billing WBS element. If
no settlement rule is found, the derivation logic looks for an assigned sales order item to
derive profitability attributes – either from a settlement rule on the sales order item or
directly by reading certain sales order item attributes. The derived attributes are stored in
every posting to the WBS element, including revenue recognition data.

This logic applies in a similar way to internal orders and sales orders.

Fig. 4. Profitability reporting on customer project - S/4HANA Professional Services Cloud

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2. Derivation of profitability characteristics based on configuration

You can maintain derivation rules in the CO-PA derivation tool, which is called during the
derivation. Profitability characteristics are derived accordingly. The derivation rules can be
maintained in the IMG under Controlling  Profitability Analysis  Master Data  Define
Characteristics Derivation.

Fig. 5. Maintenance of derivation rules in the CO-PA derivation tool

In the example in figure 5, the CO-PA derivation tool works as an additional master data
attribute for cost center 4260. For every posting on this cost center, material group 00101
is derived, stored in the ACDOCA line item, and is available for profitability reporting.

The automated derivation steps (step 1) are processed first for income statement items
with account assignment to sales order, internal order, project and production order. As
an additional step, the derivation logic calls the CO-PA derivation tool if no data has been
found in step 1. For income statement items with account assignment to cost center, only
the CO-PA derivation tool is called.

3. The functionality to derive profitability characteristics for some balance sheet items
is now available for specific scenarios in SAP S/4HANA. Within a customer project
scenario, balance sheet items which result from the settlement of revenue recognition get
the information on the project and the related profitability attributes and can be reported
in the Project Actuals and Market Segment - Actuals reports. This functionality is available
in S/4HANA, but not in S/4HANA Finance.

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Fig. 6. Market segment actuals report with revenue recognition Balance Sheet Items

4. The realignment functionality for profitability characteristics enables you to update

and adjust your posted profitability reporting dimensions without affecting your financial
data. Organizational changes such as restructuring of sales regions may require
profitability data to be adjusted to reflect the new organizational structure. Adjustments
may also be required after corrections have been made to master data or when
information was missing at the time of the original posting.

The Realignment functionality adjusts profitability characteristics only. All other

information, most importantly GL-relevant information (Profit Center, Account and all other
fields), cannot be changed with the Realignment functionality. You can use realignment
runs to update profitability characteristics in the income statement and if applicable also
for balance sheet line items directly. The original profitability characteristics are stored for
traceability purposes.

This functionality is available in S/4HANA as well as in S/4HANA Finance.

5. It is now possible to report cost of goods sold at a detailed, cost component split level
(such as raw material, production costs and others) rather than only summarized
information on a single GL account as was the case in account-based CO-PA. With
Profitability Analysis in the Universal Journal, customers can link cost components with
GL accounts in order to split the costs of goods sold.

In an additional customizing activity, cost components are assigned to the GL accounts

on which these postings will be visible in Universal Journal. The configuration path in the
IMG is Financial Accounting (New)  General Ledger Accounting (New)  Periodic

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Processing  Integration  Materials Management  Define Accounts for Splitting the

Cost of Goods Sold.

During goods issues, the stock value is determined and posted according to following
logic:
- A debit posting is entered for stock change.
- With the same value, the same account for stock change is credited.
- As last step, for every assigned cost component a separate line item is posted to the
assigned account.

Fig. 7. Posting of detailed cost of goods sold information for product P-100

6. Similarly, it is now possible to report details for production variances by defining GL

accounts for splitting price differences, whereas only the total production variance was
recorded in Account-based CO-PA.

Production variances are assigned to GL accounts in an additional Customizing setting.

The configuration path in the IMG is Financial Accounting (New)  General Ledger
Accounting (New)  Periodic Processing  Integration  Materials Management 
Define Accounts for Splitting Price Differences.

2.3. Benefits of Profitability Analysis in the Universal Journal in a nutshell

The enhancements mentioned above provide many benefits in Profitability Analysis in the
Universal Journal:

1. Additional and customizable derivation rules for profitability characteristics (e.g. from cost
centers, internal orders, or projects) strengthen the flexibility to derive necessary
information on the source documents at the time of posting. More information is available
earlier, and settlements during period close become unnecessary.

2. Profitability Analysis in the Universal Journal enhances reporting by derived

characteristics. For example, a drilldown on profitability segment characteristics is
possible for primary postings in the trial balance. Furthermore, it is possible to drill down

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on some balance sheet items by characteristic. This applies currently to Work in Progress
Revenue Recognition accounts.

3. Since profitability characteristics are stored in the Universal Journal, performance-

intensive joins of line items with market segment characteristics are not required, which
enables fast reporting on transactional data. Here, all characteristics are available
because line items and not aggregates are read for reporting.

4. Since production variances are posted to different G/L accounts with different functional
areas, product costs are enhanced with the responsibility area.

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3. Positioning of Profitability Analysis solutions

Profitability Analysis in the Universal Journal, which is technically based on Account-based CO-
PA, follows the paradigm of the single source of truth. It is permanently integrated with financial
accounting. Since profitability analysis is now part of accounting, entirely new analysis methods
have become available, such as assigning profitability characteristics to primary income
statement postings.

Costing-based CO-PA has a separate, parallel, and independent persistence, and is thus in some
respects more flexible since it does not need to take legal requirements such as GAAP (Generally
Accepted Accounting Principles) into account. There are several options on how calculatory costs
can be represented: multiple parallel valuation approaches for one transaction, parallel cost
component splits and quantities.

Thanks to this independence, Costing-based CO-PA is functionally more flexible than Profitability
Analysis in the Universal Journal. Based on recent developments, it is obvious that the gaps
between Costing-based CO-PA and Profitability Analysis in the Universal Journal have become
smaller. However, the new profitability analysis will never achieve full parity with Costing-based
CO-PA because the architectural foundation with the Universal Journal leads to some natural
differences. For instance, FI-relevant information, such as the profit center and functional area,
cannot be derived differently for profitability analysis than for the income statement. Highly flexible
key figures (such as Meals per Flight), which can be configured in Costing-based CO-PA, do not
fit to a Universal Journal that is based on G/L accounts.

On the other hand, Profitability Analysis in the Universal Journal gains powerful functionalities
with recent innovations such as the additional characteristic derivation with primary postings or
for balance sheet items. These additional functionalities cannot be offered by the costing-based
solution. Furthermore, the price for the flexibility of Costing-based CO-PA is its higher
reconciliation effort, which also does not apply to the new profitability analysis.

To summarize, SAP S/4HANA Finance supports two forms of Profitability Analysis: Costing-
based CO-PA and a new Profitability Analysis based on Account-based CO-PA. The two types
of profitability analysis are separate products with individual strengths. Some guidelines
on which solution better meets particular requirements are provided by the functional comparison
in the next section.

3.1. Comparison of Profitability Analysis Solutions

Below is a side-by-side comparison of the Profitability Analysis solutions and their functionalities.
In a system set-up with SAP S/4HANA Finance, Profitability Analysis in the Universal Journal and
Costing-based CO-PA are available. However, it is not possible to use Account-based CO-PA
next to SAP S/4HANA Finance. Customers need to decide if they require Costing-based CO-PA
next to the functionalities provided by the Universal Journal.

Account-based CO-PA has been integrated into the ACDOCA concept. It is listed in the side-by-
side comparison below for reasons of completeness. Furthermore, the comparison of Account-

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based CO-PA with Profitability Analysis in the Universal Journal is a good illustration of the new
functionalities in the new solution in SAP S/4HANA Finance. As recent innovations show, the
enhancements for Profitability Analysis in the Universal Journal follow the concepts and
approaches of Costing-based CO-PA, which have proven themselves in the past. Future
innovations point in a similar direction and will shrink gaps between Costing-based CO-PA and
Profitability Analysis in the Universal Journal.

Functionality Example Profitability Costing-based Account-based

Analysis in the CO-PA CO-PA (SAP ERP
Universal Financials)
Journal
Reconciliation Reconciliation of legal and Available Not in scope Partial
management accounting and No need for High effort related E.g. difficult to
profitability, for example by reconciliation (by with reconciliation of reconcile GL and
profit center design of value fields and G/L Account-based CO-
Universal Journal) accounts PA for secondary
cost elements

Drilldown by Drilldown by product and Available Not available Partial

characteristics customer-related In general Due to value fields, Only possible for sell
from income characteristics in COGS and possible for all no drilldown on G/L from stock scenario
statement revenues within income income statement accounts possible not for Cost Object
statement items, depending Controlling scenario
on availability at
time of posting
Cost Breakdown of COGS into fixed Partial Available Not available
component and variable, as well as Possible to split E.g. possible to COGS posted to a
split/COGS different kind of costs such as COGS based on define COGS by single account,
split material, administration and standard cost parallel cost therefore no split
overhead costs estimate component splits –
with deviating values

Production Distinguish variances in costs Available Available Not available

variance split of producing materials by Possible to split E.g. assignment to Production variance
price, quantity or scrap production value fields is posted to a single
variances variances to account, therefore no
different income split
statement
accounts.
Sales Sales conditions can be used Not available Available Not available
conditions to calculate contribution SD conditions can be
margin level, such as sales assigned to value
commissions, calculated fields
freight or discounts, which are
not posted in G/L

General Calculatory costs not reflected Partial Available Not available

costing in G/L – additional costs or Such as cost Additional CO-PA
approaches different valuation component split documents can be
Special case: periodic posted. Prima nota
revaluation can be transferred to
CO-PA with different
values.
There is the
functionality of
revaluation available

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Functionality Example Profitability Costing-based Account-based

Analysis in the CO-PA CO-PA (SAP ERP
Universal Financials)
Journal
Realignment After organizational changes Available Available Available
such as restructuring of sales E.g. For E.g. New product E.g. New product
regions, it is possible to adjust Profitability group in product group in product
profitability data to reflect the Characteristics master data, product master data, product
new organizational structure. such as Product group is updated for group is updated for
Group or Sales historical data historical data
Office

Order entry Creation of a sales order item Not available Available Not available
generates expected revenue Transfer incoming
and COGS entry in profitability sales orders to CO-
PA to obtain an early
estimate of
anticipated profits
Top-down Distribute high-level costs to Available Available Available
distribution the relevant market segments E.g. Distribution of E.g. Distribution of E.g. Distribution of
to allow profitability analysis marketing costs marketing costs by marketing costs by
by product product product
Material ledger As an (additional) valuation Not available Available Not available
settlement/ method for COGS, customer Remark: Price Customer values the Remark: Price differences

Transfer actual values the COGS quantity with differences can be

COGS quantity with can be posted on
posted on profitability profitability segment
cost actual cost component split segment plan or actual cost
and actual value component split
component
split
Planning Available Available Available
Integrated Flexible, CO-PA CO planning
Business Planning based planning functionality with
for Finance, assessment
accessed via Fiori available
and Microsoft
Excel, enables
P&L planning with
drill-down by CO-
PA characteristics
provided in
ACDOCA. Based
on embedded BI.
Profitability For unbilled revenues or WIP, Available Not available Not available
characteristics customer wants to see the Currently result Due to concept not
on balance project, region, customer analysis possible
sheet items category settlement

3.2. Availability of Profitability Analysis Solutions in Cloud and On-Premise

For reasons of simplicity and ease of use, in the S/4HANA Cloud solution we provide only
Profitability Analysis in the Universal Journal. There are no plans to provide costing-based CO-
PA in the cloud.

In the S/4HANA On-Premise solution, the default content is Profitability Analysis in the Universal
Journal. However, it is possible for the customer to activate costing-based CO-PA in addition.

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In SAP Business Suite with S/4HANA Finance, Profitability Analysis in the Universal Journal can
be activated. Costing-based CO-PA is supported as before.

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4. Activating Profitability Analysis in the Universal Journal

4.1. Customizing and System Settings

During migration or system set-up, the profitability characteristics are taken from the customer’s
operating concern and generated into the ACDOCA structure. For customers who were not using
Account-based CO-PA, several steps need to be considered as described in the next section.

With Profitability Analysis in the Universal Journal, we run the profitability segment determination
potentially for all income statement items. Therefore, the derivation processes need to be
checked. Some G/L accounts need to be maintained as cost elements so that profitability
segments can be considered as real account assignments for these postings, for example COGS
and price difference G/L accounts.

4.2. Migration Paths for existing SAP ERP CO-PA customers

For customers migrating their data to Profitability Analysis in SAP S/4HANA Finance, we
distinguish two cases:

Customers using Costing-based CO-PA only:

As we have seen in the previous sections, Costing-based CO-PA offers a number of flexible
processes which are not necessarily reconciled with general ledger accounts. Therefore, for some
processes in Costing-based CO-PA, migration of historical data to the Universal Journal in SAP
S/4HANA Finance is not possible, while for others it does not make sense to do so.
Hence we do not offer a migration. The reconciliation objects from Costing-based CO-PA are not
unpacked during migration. Only the customer field is migrated and updated.
It is recommendable that customers proceed with the new SAP S/4HANA Finance solution
alongside their current system of Costing-based CO-PA. Parallel usage of both solutions enables
customers to build up historical data for comparison and to smoothly adopt the new profitability
analysis solution. After some time, customers can decide if they want to continue only with the
new solution.
For analyzing processes in Costing-based CO-PA, the following aspects should be taken into
account:
- Prepare and analyze the mapping of values fields to accounts and decide if additional
accounts need to be defined and created (such as for COGS or production variances).
- Some G/L accounts need to be maintained as cost elements, for example COGS and price
difference G/L accounts.
- Customers may want to redesign and adjust some processes to the new features in
Profitability Analysis, such as the real-time derivation of characteristics by posting to cost
objects.

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Customers using Account-based CO-PA:

For the migration from Account-based CO-PA to SAP S/4HANA Finance, programs are available
that read and migrate profitability segments to the Universal Journal table ACDOCA. Since
Profitability Analysis in the Universal Journal offers new possibilities, it is recommended to review
and adapt the derivation rules:
- When Account-based CO-PA is active, profitability segments are available in the relevant
Account-based CO-PA postings as real cost assignments. They are read and migrated to
ACDOCA. In particular, all customer-specific characteristics are migrated.
- For postings on cost objects, such as sales orders or projects, no profitability segment was
derived before. For these postings, no profitability segment is derived, no derivation takes
place, and no characteristics are transferred.
- It needs to be kept in mind that a split of COGS or production variances cannot be provided
for COGS and variance documents that have already been posted. This is due to auditability
concerns, since we now post journal entries and not in a separate persistence like Costing-
based CO-PA.

4.3. Parallel use of Profitability Analysis in the Universal Journal and Costing-
based CO-PA

Costing-based CO-PA and Profitability Analysis in the Universal Journal can run in parallel:

- Parallel usage provides different approaches for different sets of reporting (legal versus
management), with each optimized to best meet internal or external requirements.

- In a transition phase aimed to prepare an eventual move from Costing-based CO-PA to

Profitability Analysis in the Universal Journal, identify differences based on the actual
implementation, Customizing and applicable business processes.

When both solutions run in parallel, the realignment functionality is currently unavailable in
either solution.

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