Profitability Analysis Q&A

Profitability Analysis

Explain the organizational assignment in the PA module?

The operating Concern is the highest node in Profitability Analysis.

The operating concern is assigned to the Controlling Area.

Within the operating concern all the transactions of Profitability Analysis

are stored.

The operating concern is nothing but a nomenclature for defining the

highest node in PA.

What is the functionality of the PA module?

PA module is the most important module when it comes to analyzing the

results of the organization.

In this module you basically collect the revenues from the sale order , the

costs from the production order, cost center or internal order and

analyze their results.

The interesting part about this module is that when it collects the costs

and revenues it also collects the characteristics associated with the costs

and revenues and this is what makes it stand out

So for e.g. using PA module you can find out the following:

Profit of a certain product

Profit of a certain product in a certain region

Profit of a certain product in a certain region by a certain customer

Profit of a certain product in a certain region by a certain sales person

And the list can go on in depth

It is one of the most wonderful modules in the SAP

How do you get all those characteristics defined above and how do

you analyze them?

To do so while defining Operating concern one has to define

Characteristics and Value fields.

What are characteristics and Value Fields?

In the operating concern two things are basically defined

a) Characteristics

b) Value Fields

Characteristics are nothing but those aspects on which we want to break

down the profit logically such as customer, region product, product

hierarchy, sales person etc

Value Fields are nothing but the values associated with these

characteristics

Eg Sales, Raw Material Cost, Labour Cost, Overheads etc

Once you define the characteristics and value fields these values are

updated in the table.

From where does the characteristics come from?

The characteristics which are defined above basically comes from either

the Customer Master or the Material Master.

How does various values( revenues and costs) flow into PA?

The Sales Revenue comes from the Condition Type in SD.

We need to map the Condition Type in SD to the respective value fields in

customizing to have the revenue flow into PA.

The Cost comes from Cost estimates which are transferred using the PA

transfer structure which we have covered in the Product costing section.

The various cost components of the cost component structure is assigned

to the value field of PA module and this is how the costs come into PA.

Once the actual revenue and the std cost defined above are captured in

PA the variances are also transferred into PA.

This way the std cost variances equal the actual cost.

So actual revenue- actual cost helps us determine the profit.

How do you configure the assignment of variances from product

costing to COPA module?

The variance categories from product costing along with cost element is

to be assigned to the value fields in COPA

Once you have captured all the costs and revenues how do you

analyze them?

The costs and revenues which we have captured in the above manner are

then analysed by writing reports using the Report Painter Functionality

in SAP.

What is characteristic Derivation in Profitability Analysis Module?

Characteristic Derivation is usually used when you want to derive the

characteristics . An example of this could be say you want to derive the

first two characteristics of product hierarchy.

In such cases you define characteristic derivation where you maintain

the rules, which contain the table names of the product hierarchy fields

and the number of characters to be extracted, and it also specifies the

target characteristic field in PA.

What is the basic difference in customizing in Profitability analysis

as compared to other modules?

In PA when we configure the system i.e. creating operating concern,

maintain structures no customizing request is generated. The

configuration needs to be transported through a different transaction

called as KE3I.

What is the difference between Account based Profitability Analysis

and Costing based Profitability Analysis?

Account based Profitability analysis is a form of Profitability analysis (PA)

that uses accounts as its base and has an account based approach. It

uses costs and revenue elements.

Costing based Profitability Analysis is a form of profitability analysis that

groups costs and revenues according to value fields and costing based

valuation approaches. The cost and revenues are shown in value fields.

What are the advantages and disadvantages of Account based

profitability analysis vis-à-vis costing based profitability analysis?

The advantage of Account based PA is that it is permanently reconciled

with Financial accounting.

The disadvantages are that it is not powerful as the costing based PA,

since it uses accounts to get values. No Contribution margin planning

can be done since it cannot access the standard cost estimate. Further

no variance analysis is readily available.

The advantages of the Costing based PA are manifold. They are as

follows: -

· Greater Reporting capabilities since lot of characteristics are

available for analysis.

· This form of PA accesses the Standard cost estimate of the

manufactured product and gives a split according to the cost

component split (from the product costing module) when the bills

are posted.

· Contribution margin can be planned in this module since the

system automatically accesses the standard cost estimate of the

product based on the valuation approaches.

· Variance analysis is ready available here since the variance

categories can be individually mapped to the value fields.

Disadvantages:-

Since it uses a costing based approach, it does not sometime reconcile

with financial accounting.

Can both Account based and Costing based Profitability analysis be

configured at the same time?

Yes. It is possible to configure both types of costing based profitability

analysis at the same time.

What is the advantage of configuring both the type of Profitability

analysis together?

The advantage of activating account based profitability analysis along

with costing based PA is that you can easily reconcile costing based

profitability analysis to account based profitability analysis, which means

indirectly reconciling with Financial accounting.

Is there any additional configuration required for Account based

profitability analysis as compared to costing based profitability

analysis?

No. There are no special configurations required except for activating the

account based profitability analysis while maintaining the operating

concern.

What is the difference between Profitability analysis and Profit

center accounting?

Profitability analysis lets you analyze the profitability of segments of your

market according to products, customers, regions, division. It provides

your sales, marketing, planning and management organizations with

decision support from a market oriented view point.

Profit center accounting lets you analyze profit and loss for profit centers.

It makes it possible to evaluate different areas or units within your

company. Profit center can be structured according to region, plants,

functions or products (product ranges).

What configuration settings are available to set up valuation using

material cost estimate in costing based profitability analysis?

In Costing based Profitability analysis you define costing keys. A costing

key is a set of access parameters which are used in valuation to

determine which data in Product cost planning should be read. In the

costing key you attach the costing variant.

In the costing key you specify whether the system should read the

current standard cost estimate, the previous standard cost estimate or

the future standard cost estimate or a saved cost estimate.

The configuration settings to determine this costing key is as follows:-

1) Assign costing keys to the products – Three costing keys can be

attached to a single product for a specific point of valuation, record

type, plan version.

2) Assign costing keys to Material types

3) Assign costing keys to any characteristics – You can use your own

strategy to determine the costing keys. This is through user

defined assignment tables.