6.

3 Optimized Contract Management

OCM was introduced in SAP Revenue Accounting and Reporting with the rollout of SAP
S/4HANA 1909. When SAP S/4HANA and SAP Revenue Accounting and Reporting
merged in the 1909 version, SAP optimized few features within the RAR functionality to
add a different flavor of contract management for their end users. While the core
functionality of contract management remains the same, there are few key
enhancements in OCM, which we’ll look at in this section.

Note
SAP refers to OCM as just contract management and refers to the SAP S/4HANA
1809 version of contract management as classic contract management (CCM). In this
book, for the ease of understanding, we’ll clearly refer to them as OCM and CCM
wherever needed. The previous section was based on CCM, and this section is based
on OCM.
In this section, we’ll look at the following:
How OCM can be activated in SAP S/4HANA using contract categories
Changes introduced in OCM and the resulting system impacts
Benefits of newly introduced changes within OCM
CCM features that are discontinued in OCM

6.3.1 Activation Using Contract Categories

OCM is an optional feature in the RAR functionality in SAP S/4HANA and can be
activated by using contract categories. Activation of OCM is a two-step process:
1. Define the contract category.
2. Select contract management for contract categories.

To define contract categories, follow IMG menu path Financial Accounting • Revenue
Accounting • Revenue Accounting Contracts • Define Contract Categories. You’ll
arrive at the screen shown in Figure 6.92.

Figure 6.92 OCM Contract Category

As shown in Figure 6.92, the Customizing of Contract Category screen has three
fields:
Contr. Cat
This field represents the unique code of the contract category in the RAR functionality
in SAP S/4HANA.
Description
This field describes the contract category in just a few words.
No. Range
This field represents the number range code associated with a contract category.
Number range codes assist with the numbering convention for contract categories.
After filling in the relevant fields, click the Save button or press (Ctrl)+(S) to finish
setting up the contract category.
To select contract management for contract categories, follow IMG menu path Financial
Accounting • Revenue Accounting • Revenue Accounting Contracts • Select
Contract Management for Contract Categories. You’ll arrive at the screen shown in
Figure 6.93.

Figure 6.93 Contract Management for Contract Categories

As shown in Figure 6.93, the Select Contract Management for Contract Categories
screen has the following fields:
CoCd
This field represents the company code for which you want to assign a contract
category.
Company Name
This field represents the company name for which you want to assign a contract
category.
Contr. Cat
This field represents the unique code of contract category in the RAR functionality in
SAP S/4HANA.
Contract Category Description
This field describes the contract category in just a few words.
Contract With CM Instead of CM Classic
This checkbox is checked when you want the system to use OCM instead of CCM for
a company code/contract category combination.
After filling in the relevant fields, click the Save button or press (Ctrl)+(S) to finish
setting up contract management for contract categories.
Simple, isn’t it? OCM is now ready to be used within your RAR system.

6.3.2 Enhanced Functionality and System Impact

In this section, we’ll look at the system impact of OCM enhancements in the RAR
functionality in SAP S/4HANA. Table 6.5 lists the key features and objects enhanced in
OCM. It also highlights the impact of those enhancements on system behavior and if
there are any configurations involved to leverage the enhancements. (Data within
Table 6.5 holds true per SAP Note 3075187 version 7, released on 08/04/2022.)

Enhanced Enhanced System Impact Configuration/ Development

Functionality Objects

Contract and POB attributes Compound group Additional configuration steps

POBs Leading/linked and BOM needed to support compound
management POBs functionality groups and BOMs
possible in OCM
POB with
hierarchies
POB with cost
Enhanced Enhanced System Impact Configuration/ Development
Functionality Objects

Account Accounts to Account No additional configuration or

determination support SAP redetermination development needed
Revenue with POB change
Accounting and in CCM; explicit
Reporting 1.3 use of the account
derivation rules redetermination
functionality
required for OCM

Allocation SSP Consistent BAdI introduced:

determination allocation from
FARR_BADI_PRICE_ALLOCATION
Exclude from leading POBs with
allocation linked and BAdIs discontinued:
nonlinked POBs in FARR_BADI_ALLOCATION_ENGINE
SSP tolerance OCM
FARR_BADI_ALLOCATION_METHOD
Residual
allocation
Manual price
allocation

Fulfillment Event-based Fractions used BAdI introduced:

fulfillment with to represent FARR_BADI_DEFERRAL_METHOD_V2
quantity fulfillment
fulfillment quantity in CCM, BAdI discontinued
Time-based but not in OCM FARR_BADI_DEFERRAL_METHOD
POB with start Days used as
date type 1 and UoM for period
2 in OCM
Deferral In OCM, for start
methods 1, 2, S, date 3, customer
F and L invoice only able
Value-based to be the
fulfillments from triggering event,
and duration
customer
invoice, release only used as the
order, or selection
consumption parameter; for
date 1 and 2,
Manual start and end
percentage of dates allowed to
completion- be specified
based
fulfillments
Freeze/unfreeze
for time-based
POBs
Enhanced Enhanced System Impact Configuration/ Development
Functionality Objects

Contract Contract Day-based BAdI introduced:

modification modification contract FARR_BADI_CHANGE_TYPE_DETN
change type management
Contract available to be BAdIs discontinued:
modification used in OCM FARR_CHANGE_MODE_DETERMINATION
change reason Manual POB FARR_BADI_TM_REMAINING_PERC
Manual contract reassignment
modification possible in OCM

Manual Changes
termination tracked in table
FARR_D_CHG_TYPE,
POB and changes
cancellation always period
based in OCM
50+ rules
available for
prospective and
retrospective
implementation
in OCM
Catchup
revenue
calculated
together with
recognized
revenue in OCM

Cost Fulfillment cost Contract BAdI discontinued:

recognition Contract acquisition cost FARR_BADI_COAC_DERIVE_TM_ATTR
acquisition cost at POB level not
at the contract possible in OCM
level New posting
category
accrued cost
introduced in
OCM
 Enhanced Enhanced System Impact Configuration/ Development
Functionality Objects

Migration Migration from Transition N/A

from legacy sales and between
system distribution, accounting
SAP Billing and principles not
Revenue possible in OCM
Innovation Sender
Management, components not
and third-party required to send
system possible legacy revenue
in OCM
under OCM
Migration via Status of
the SAP
company code
S/4HANA and transfer
migration date not
cockpit possible mandatory for
migration under
OCM
Operational load
and initial load
combined
together in OCM

Table 6.5 OCM Enhanced Functionality and System Impact

As you can see, there are very few changes in OCM, so the system impact is minimal.

6.3.3 Benefits
In this section, let’s look at the perks OCM brings to the table:
Performance optimization
With OCM, SAP changed data types for contracts and POBs from NUMC to CHAR. This
was primarily done for performance optimization and to make handling of temporary
IDs easier.
Day-based contract modification
In CCM, contract modifications are tracked and recorded on a period-by-period basis,
whereas in OCM, contract modifications are recorded on a daily or as-incurred basis.
This is a great value add for the accounting folks as they can monitor contract
modifications daily, such as what changed, what POB types were added, and so on.
This is our favorite benefit of OCM.
SAP Fiori-based capabilities
The following is a list of SAP Fiori functionalities that are added by default to OCM:
Contract management
POB management
Revenue schedule
Contract combination using quick combine
Revenue accountant overview
 Revenue disaggregation

The following SAP Fiori apps are exclusively developed in SAP S/4HANA 1909 and
are made available with OCM only to support the preceding functionalities: Manual
Fulfillment, Revenue Schedule, Manage Revenue Contracts, Overview Page for
Revenue Accountant, Disaggregation of Revenue, Quick Combine for Revenue
Contracts, and Manage Performance Obligation Details.
Parallel use of contract management
OCM and CCM can be used in parallel. For example, say you switch to OCM
tomorrow and there are open contracts within your RAR system. Those open contracts
can continue to use CCM, and any new contracts that get created can use OCM. This
feature is possible and comes as a standard functionality in OCM.
Advance termination
Even though early termination is supported in CCM, it involves a lot of manual steps.
OCM comes with standard condition type configuration for early termination, which can
be used to automatically execute the advance termination process. This is a great perk
of OCM that adds tremendous value.
Custom code adoption
While this isn’t a benefit per se, it’s something you should keep in mind if you decide to
move to OCM. If you have custom code within your RAR landscape, which most of us
do, then that custom code must be adopted to new contracts explicitly if they have had
any transactions with CCM.

6.3.4 Limitations
In this section, let’s look at CCM features not supported in OCM:
Contract combination between OCM and CCM
Let’s say you have both sets of contracts, OCM and CCM, existing in your RAR
system. The RAR functionality in SAP S/4HANA won’t allow you to combine both
contracts. You can combine OCM and OCM contracts, and you can combine CCM and
CCM contracts.
Hierarchal POBs
The concept of hierarchical POBs isn’t supported with OCM.
Cost POBs
Cost-based POBs aren’t supported in OCM. Therefore, the cost recognition
functionality doesn’t exist either.
Manual price allocation and manual spreading
In CCM, you can manually allocate price and/or change spreading for time-based
POBs. This feature isn’t supported with OCM.
BAdIs
The following BAdIs aren’t supported in OCM:
FARR_BADI_ALLOCATION_ENGINE

FARR_BADI_ALLOCATION_METHOD

FARR_BADI_DEFERRAL_METHOD

FARR_CHANGE_MODE_DETERMINATION

FARR_BADI_TM_REMAINING_PERC
 FARR_BADI_RAI0

Time-based POB with start date type 3

For time-based POBs, the start date type 3 option isn’t supported in OCM.
POC-based fulfillments with result analysis integration
Unfortunately, the POC fulfillment type with result analysis integration is discontinued
in OCM.
Deferral methods 3 and 4
Deferral methods 3 and 4, which involve rounding adjustments, aren’t supported with
OCM.
Transition to new accounting principles
This functionality isn’t available with OCM.
Results analysis integration
This functionality isn’t supported in OCM.
Simplified invoicing
This functionality isn’t supported in OCM.
Manual POB reassignment
Reassigning of POBs between contracts isn’t possible with OCM.
Contract creation from sales and distribution invoices
Within CCM, you can create a RAR contract from sales and distribution invoices. This
functionality isn’t supported in OCM.
Drop shipment
This functionality isn’t supported in OCM.
Intercompany billing
This functionality isn’t supported in OCM.
Condition-based contract acquisition costs
This functionality isn’t supported in OCM, although you can still create contract
acquisition cost POBs.
Fixed exchange rate method
This functionality isn’t supported in OCM.

Based on our experience working with SAP for many years, we feel if SAP sees a
genuine need for any of these features in the future, they will implement those through
feature packs or routine upgrades.
6.4 Summary
Congratulations! You can now confidently call yourself a
sales and distribution and RAR integration expert.
Here is a summary of all the topics we dove into in this
chapter:
In Section 6.1, we touched on the general concepts of
revenue recognition and talked about IFRS 15
compliance standards. We also compared traditional
sales and distribution revenue recognition with SAP
Revenue Accounting and Reporting and explored the
key differences. Finally, we concluded the section by
explaining price allocation and how it impacts revenue
recognition in the RAR world.
In Section 6.2, we jumped into the core sales and
distribution–RAR integration topics. We looked at
configuration steps in RAR and in sales and
distribution needed to build a successful sales and
distribution–RAR integration. You also learned about
Transaction NWBC and how it can be used to monitor
the impact of RAIs sent from sales and distribution to
RAR. Transaction NWBC is also used to run worklist
programs and revenue posting jobs. We walked you
through different steps in BRFplus that must be
performed to support sales and distribution and
integrations, and finally we concluded the section by
demonstrating a use case from an example client’s
sales and distribution–RAR system.
In Section 6.3, we talked about the concept of OCM
and how to activate it using contract categories. We
also looked at the OCM enhanced functionalities and
 their impact on RAR in SAP S/4HANA. Finally, we
concluded the section by comparing OCM to CCM to
help you understand the benefits and limitations of
OCM.
In the next chapter, we’ll talk about resource-related
billing (RRB) as one of the key integration points
between sales and distribution and Project System.