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Lecture 2 Introduction to ERP and Business Process

FIN419

Learning Objectives

Understand the definition of ERP and business processes

Understand the inter-related nature of an ERP system

Describe the financial impact of business processes

List the SAP business suite elements

Review SAP basic concepts

Master data

Transactional data

Explain the silo effect

Enterprise Resource Planning Silo Effect and its Implications

Silo Effect

The tendency to focusing on functional objectives without regard to process objectives

Focus optimizing functional goals vs. process goals

Implications

Impossible to manage processes that are geographically dispersed without utilizing modern information systems

Lack of communication/coordination among functions

Reduction of productivity

Reduction of profitability

Lack of standardization

Lack of real time reporting

Fall 2015

Most companies are organized according to functional departments, which group together related activities and assets under specialized management controls. Although this approach enables companies to focus resources on specific activities, it also creates communication difficulties and delays between the highly specialized groups. Business processes cut across the vertical barriers (silos) that characterize the functional structure. For this reason they require cross-functional communication and collaborative execution. Enterprise systems allow companies to effectively manage business processes across functional areas and institutional boundaries. They perform this task by removing barriers to sharing and accessing information, thereby providing a holistic platform to execute integrated business processes consistently and efficiently. One of the key benefits to managing business processes with an integrated enterprise system is that process data are collected throughout the execution of each step of the process. Managers can then use these data to monitor and improve the organization’s processes. Enterprise systems enable companies to achieve operational efficiency through transparency across functional areas, and they provide consistent information for managerial decision-making. All business processes have an impact on the organization’s financial status, and the real-time impact of process execution can be monitored and analyzed through the use of an integrated enterprise system.

Enterprise Resource Planning ERP and Business Processes

Enterprise Resource Planning

System that integrate the management of core business processes end to end within an Enterprise

Benefits

Integration / Improve profitability, productivity and reduce TCO

Standardization / Governance/ Single source of truth / Improve productivity

Audit trail / Governance and risk reduction

Immediate availability of data (reports) / Financial management

Business Processes

Sequence of tasks or activities that produce desired outcomes

Key processes

Operations

Finance and Accounting

Human Resources

Sales and Distribution

Procurement

Processes interrelated with other processes

Processes may have sub-processes

Regardless of their type or size, successful organizations and industries use processes and enterprise systems to complete the work needed to achieve their goals.

A business process, illustrated in Figure 1-2, is a set of tasks or activities that produce desired outcomes.

Because different functional areas or departments carry out the various process steps, effective communication and collaboration among the departments is essential to the smooth execution of these processes.

Enterprise Resource Planning Integrated Processes

Order to Cash

Procurement to Pay

Sales Order

Capacity Materials

Load schedule

Procurement

Receiving

Manufacturing

Shipping

Billing

Incoming Payment

Sourcing

Purchase Order

Receiving

Invoice receipt

Outgoing payment

Enterprise Resource Planning Integrated Sub-processes

Month End-Close

Post recurring entries

Complete asset transactions

Run depreciation

Complete interco transactions

Complete monthly accts maintenance

Post accruals

FASB 52

Consolidation and report

Close manufacturing accounting

Close AR and AP

Enterprise Resource Planning Business Processes Impact on Finance

ERP covers end to end processes

All process are cross functional requiring inter-dependent tasks between the organization’s groups.

Share responsibilities among functional areas

Each process has a trigger and an outcome

The final outcome of all processes is always financial

Finance

Procurement

Process

Fulfillment Process

Production Process

Inventory process

SAP Business Suite Solutions and SAP ERP (Core)

FSCM

APO

PLM

GTS

CRM

SCM

SNC

SRM

Business Warehouse

Advance Planning

Product Lifecycle

Global Trade

Customer Rel Mng

Supply Collab

Mfg Execution

Supply Chain

Supplier Rel, Mng

Exchange Infrastructure

FSCM

Finance and Controlling

Human Resources and Payroll

Purchasing &

Inventory

Quality

S&D

Plant Mnt

Production Planning

SAP Business Suite SAP ERP Solution Map

SAP Basic Concepts: Data types

Within a client there are three types of data:

Organizational (Configuration)

Used to represent structure in an enterprise

Master data

Reusable data relevant to multiple business processes

Transactional (Application)

Data that reflects outcomes of business processes

Application Server

Client 020

Client 010

Configuration

Master data

Configuration

Master data

Application data (transactions)

SAP Basic Concepts: Master Data

Master Data

Set of reusable data that will influence the flow of transactional data within the system. It is the most important element of a system design and operational integrity.

Information is organized into views which are assigned to organizational elements.

Data at the client level can be used by all company codes.

Master Data is created centrally and can be used by all applications and all authorized users

Chart of Accounts

Customers

Vendors

Materials

Bill of Materials

Cost Centers

Profit Centers

HR Master record

SAP Basic Concepts: Tables Relationship (Master Data)

Source: Google.com | Search for “sap tables pdf”

SAP Basic Concepts: Transactional Data

Transaction Data

Data that represents an event within the system and reflects the consequences of executing process steps

Whenever possible, master data is copied during transaction processing, thus avoiding the re-entry of data.

When a business process transaction is executed in the system and saved, a document is created.

Journal entry (Chart of Accounts)

Billing (Customers)

Invoice (Vendors)

Good receipt (Materials)

Manufacturing (Bill of Materials)

Journal entry (Cost Centers)

Journal entry (Profit Centers)

Payroll (HR Master record)

SAP Basic Concepts: Tables Relationship (Transactional Data)

Source: Google.com | Search for “sap tables pdf”

Lecture 2 Introduction to Accounting in SAP

FIN419

Learning Objectives

Understand Accounting in SAP

SAP Financials and FICO differences

Identify the link between SAP FI, CO and Corporate Finance

Explain SAP FI goal and its elements

Explain SAP CO goal and its elements

List the basic elements of FICO enterprise structure

Accounting in SAP SAP ERP Financials Features

Standardized business processes

Single version of truth

Improved transparency

Accurate prediction of future costs and profits

Tighter control of overhead

Analysis of profitability based on criteria that is important to you

Improved control of project initiatives

Accurate and timely reporting

Fall 2015

Standardized business processes across all of your subsidiaries, divisions, and departments, while factoring in individual requirement help to improve productivity and interoperability of your employees.

Every one in the company accesses the same data, same transactional details, and same reports providing enhanced information sharing across departmental boundaries.

You can drill down from summarized consolidated statements to the individual accounting entries and associated information. You also have detailed audit trail accountability.

Detailed business information from sales, manufacturing, procurement, and other systems are integrated and can provide information useful in predicting costs and profits.

FI support planning, budgeting, analyzing and controlling of direct and indirect costs at the departmental level. The support of activity based costing provides even greater control over planning, budgeting, and analyzing the costs of business activities in your company.

Fully customizable framework for profitability analysis allows you to calculate and analyze contribution margin by any criteria relevant to your business.

You can analyze your complex projects for recording overhead costs, capitalizing investments, or manufacturing products per customer specifications.

With numerous standard reports and reporting tools you can quickly design custom reports that generate consistent, timely, and accurate reporting across all levels of your company.

Accounting in SAP Financial (FI) and Managerial Accounting (CO)

Fall 2015

What is Managerial Accounting?

There are seven key differences between financial accounting and managerial accounting:

 Users: Financial accounting reports are prepared for external parties, whereas managerial accounting reports are prepared for internal users.

 Emphasis on the future: Financial accounting summarizes past transactions. Managerial accounting has a strong future orientation.

 Relevance of data: Financial accounting data should be objective and verifiable. Managerial accountants focus on providing relevant data even if these data are not completely objective and verifiable.

 Less emphasis on precision: Financial accounting focuses on precision when reporting to external parties. Managerial accounting aids decision makers by providing good estimates as soon as possible rather than waiting for precise data later.

 Segments of an organization: Financial accounting is concerned with companywide reports. Managerial accounting focuses on the segment reports. Examples of segments include: product lines, sales territories, divisions, departments, etc..

 Managerial accounting–no externally imposed rules: Financial accounting conforms to GAAP and IFRS. Managerial accounting is not bound by GAAP and IFRS.

 Managerial accounting–not mandatory: Financial accounting is mandatory because various outside parties require periodic financial statements. Managerial accounting is not mandatory.

Accounting in SAP Finance (FI) and Controlling (CO)

FSCM

Finance and Controlling

Human Resources and Payroll

Purchasing &

Inventory

Quality

S&D

Plant Mnt

Production Planning

Financial accounting (FI) is meant for external reporting.

FI is structured and mandated by legal requirements.

Management Accounting (CO) purpose is for internal management information regarding cost and revenue

Finance (FI) and Controlling (CO) FICO Modules and Corporate Finance

FI-AP

FI-GL

FI-AR

PCA

CCA

IOA

Controller

Treasurer

Cash Manger

Credit Manager

Financial planning Manager

Tax Manager

Cost Accounting Manager

Financial Accounting Manager

Finance (FI) and Controlling (CO) Relationship/Dependency

CO is the foundation for managerial accounting and it is closely intertwined with FI

CO controls the Sales, COGS and expense to determination the profitability element on the balance sheet which is controlled by FI

Profit Centers

Assets

Liabilities

Equity

Sales

COGS

Cost centers

Expense

Sales

COGS

Expense

SAP Finance (FI) Goal

Financial accounting is designed to collect the transactional data that provides a foundation for preparing the standard portfolio of reports.

In general, these reports are primarily, but not exclusively, directed at external parties.

Standard reports include:

Balance Sheet

Income Statement

Statement of Cash Flows

SAP Finance (FI) Sub-modules

General Ledger (GL) use to record the financial impacts of business process steps. It constrains the data for financial reporting.

Accounts Receivables (AR) is associated with the fulfillment process and is used to manage money owned by customers for good and services sold

Accounts Payables (AP) is associated with the procurement process and is used to managed money owned by vendors for the purchase of materials and services

Asset Management (AM) is used to record data related to the purchase, use and disposal of assets.

SAP Controlling (CO) Goal

Managerial accounting – termed controlling – is designed to collect the transactional data that provides a foundation for preparing internal reports that support decision-making within the enterprise.

These reports are exclusively for use within the enterprise and include:

Cost center performance

Profit center performance

Budget analysis

SAP Controlling (CO) Sub-modules

Cost center Accounting (CCA) use to control the cost incurred in the organization by department

Profit Center Accounting(PCA) use to control the profit and losses of the organization by business

Internal Order Accounting (IOA) use to control certain types of cost that requires monitoring through out the business process

Product Costing (PC) use to plan for the cost of materials

Profitability Analysis (COPA) use to evaluate profitability by market segments and classify them by multiple dimensions (sales org, business areas, plant, company code, etc)

Finance and Controlling Enterprise Structure

Plant

Client

Chart of

Accounts

Company

Code

Fiscal Year

Variant

Credit Control

Area

Purchasing

Organization

Purchasing

Group

Shipping

Point

Sales

Organization

Distribution

Channel

Division

Sales Area

Controlling Area

SL10

SL20

Finance and Controlling Organization and Master Data

Company Code (Org)

Represents an independent legal accounting unit

Balanced set of books, as required by law, are prepared at this level

Chart of Accounts (Master data)

Chart of accounts is a logical structure of the general ledger accounts used to record, consolidate, and report financial transaction information related to the business.

Chart of Depreciation (Org)

It is the controlling object that manage the depreciation of fixed assets

Operating Concern (Org)

It represents an organizational unit for which sales market has a uniform structure. It is the valuation level for Profitability Analysis (COPA)

Controlling Area (Org)

A self-contained, organizational element for which the management of revenues and expenses can be performed

Financial AccountingManagerial Accounting

1. UsersExternal persons whoManagers who plan for

make financial decisionsand control an organization

2. Time focusHistorical perspectiveFuture emphasis

3. VerifiabilityEmphasis onEmphasis on

versus relevanceobjectivity and verifiabilityrelevance

4. Precision versusEmphasis on Emphasis on

timelinessprecisiontimeliness

5. SubjectPrimary focus is onFocus on

companywide reportssegment reports

6. RulesMust follow GAAP / IFRSNot bound by GAAP / IFRS

and prescribed formatsor any prescribed format

7. RequirementMandatory forNot

external reportsMandatory

Sheet1


	Financial Accounting	Managerial Accounting
1. Users	External persons who	Managers who plan for
	make financial decisions	and control an organization
2. Time focus	Historical perspective	Future emphasis
3. Verifiability	Emphasis on	Emphasis on
versus relevance	objectivity and verifiability	relevance
4. Precision versus	Emphasis on	Emphasis on
timeliness	precision	timeliness
5. Subject	Primary focus is on	Focus on
	companywide reports	segment reports
6. Rules	Must follow GAAP / IFRS	Not bound by GAAP / IFRS
	and prescribed formats	or any prescribed format
7. Requirement	Mandatory for	Not
	external reports	Mandatory

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