SAP Results Analysis for Beginners
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Srinivasan Desingh
Posted onFebruary 22, 2015 3 minute read
SAP Results Analysis for Beginners
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SAP Results Analysis for Beginners
When I was picking up Project systems skills, Results Analysis was one of my challenging areas to understand. In this document, I tried to explain RA in a simpler manner with Professional services scenario.
Why Results Analysis?
In any customer projects with more lead time (at least 3 months), RA plays an important role. Results Analysis is to valuate ongoing unfinished activities, in projects during period-end.
If you look at profit and loss of such ongoing unfinished activities, you will see costs only and therefore your P&L shows loss. If you look at this in the period-end, the project’s ongoing activities will have an unfavorable effect on the company’s results. Accurate, timely recognition of project profitability, for each project, for every period end, is very important in any company.
SAP Results Analysis is used to show a more realistic view of your ongoing activities by capitalizing the value added so far in the balance sheet.
How to capitalize?
SAP has supplied fifteen RA methods as standard. Results analysis methods contain the rule for calculating the results analysis data. These methods will help you to capitalize the costs/revenue.
Professional Services Scenario
Consulting, audit & tax, legal, and IT services businesses use professional services scenario in SAP. This would efficiently manage people, client relationships, maximize resource utilization, improve project and operational efficiency, drive profitability and adhere to government regulatory requirements.
Method 3 – Cost based Percentage of Completion (POC) method
In this document we will look into Method 3 – Cost based Percentage of Completion (POC) method. This method is primarily used in large customer projects and is used to capitalize revenue instead of costs. With this method, you assume that the costs incurred to a project will lead to an amount of revenue equal to the costs. For example, if you realize 15% of your percentage of completion, you will capitalize 15% of your planned revenue. This enables you to report a profit before any revenue has actually been received. Some countries will not allow unrealized profits to be reported. Legal requirements in different countries stipulate that unrealized profits can be capitalized or that they cannot be capitalized.
How RA Method – 03 works?
The following are the parameters used to calculate
Planned Revenue
Actual Revenue
Planned Costs
Actual Costs
Output parameters
Calculated Costs (Cost of Sales)
Calculated Revenue
Revenue Surplus (Reserves for unrealized costs). ( In SD Revenue Recognition term this is called Deferred Revenue)
Revenue in Excess Billing (Capitalized costs (WIP)). (In SD Revenue Recognition term this is called Unbilled receivables)
In this method, system has to calculate Percentage of Completion (POC) based on planned costs and Actual costs.
Percentage of Completion (POC) = Actual Costs / Planned Costs
1. Calculated Costs = POC X Planned costs
= (Actual costs / Planned Costs) X Planned Costs
= Actual costs
Therefore, in this method, Calculated Costs (Cost of sales) will be always Actual Costs.
2. Calculated Revenue = POC X Planned Revenue
= (Actual Costs / Planned Costs) X Planned Revenue
If Actual Revenue > Calculated Revenue
System creates Revenue Surplus
3. Revenue Surplus = Actual Revenue – Calculated Revenue
If Actual Revenue < Calculated Revenue
System creates Revenue in Excess Billing
4. Revenue in Excess Billing = Calculated Revenue – Actual Revenue
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Now let us take an Example. I have taken a happy path where there is no loss in the project.
A project with sales contract is created with planned revenue $ 100. You plan labor and service costs in the project for $80. Assume, the project will have lead time of 4 months (periods).
In the first period, few services were performed in the project and therefore the actual costs $20 incurred in the project. No invoice was raised to the customer.
Although NO revenue is received, Profit has already been capitalized. This is the specialty of this method.
—————————————————————————————————————————————————————-
In the period 2, you send an invoice of $40 to your customer and also your actual costs in the project increased to $40.
Profit is capitalized during this period.
—————————————————————————————————————————————————-
In the period 3, you send another invoice of $40 to your customer and actual costs increased to $60.
—————————————————————————————————————————————————-
In period 4, you complete the project technically and send the final invoice to your customer.
Total actual costs incurred is $80 and total invoiced amount is $100.
Based on this method, you can learn other methods easily. Hope, I have explained you simply.
Enjoy SAP..
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36 Comments
Saurabh Tiwari
February 22, 2015 at 1:52 pm
Dear Srinivasan,
I really enjoyed reading this document of yours. Earlier it used to be my dry area in PS but now it has cleared my many doubts on RA.
The only few doubts here is,how down-payments are handled with this method? And if there is a return on delivery then how it will impact on RA calculation?
And what if the project goes on Loss side?
It would add great value to this learning if you can support it by providing/creating a new document on its mapping(configuration setting) in SAP.
Also, please let us know which are the mostly used RA methods across industries and which is the most recommended method.
Many thanks for such a wonderful document. Really enjoyed seeing those handwritten practice of concepts on paper. Reminds us of those academic days where we use to prove every algorithm while learning a new concept.
Thanks & Regards
Saurabh
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Srinivasan Desingh Post author
February 23, 2015 at 12:07 am
Hi Saurabh,
Thanks for your comment.
I don't want to include many concepts and complicate this document. That is the reason I have mentioned 'Happy Path'.
If loss is incurred in the project, then another parameter called 'Reserves for Imminent loss' will come into this concept of Results Analysis.
I will try to write another document with config and transaction to support this document.
It is very difficult to pinpoint a method used across industries. But most commonly used methods (according to my knowledge) are Revenue based RA with/without profit realization, Cost based POC method, Completed contract method.
Regards
Srinivasan Desingh
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Saurabh Tiwari
February 23, 2015 at 7:37 am
Hi Srini,
Waiting for yet another document from you on the said topics .
I was thinking of Configuration because the doubt came to my mind was that How the posted GL / Group of GL are recorded in RA, How the system record individual values per area like Cost, Revenue , Deferred revenues and so on.
Would be interesting to know about it.
Regards
Saurabh
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Paulo Vitoriano
February 22, 2015 at 10:59 pm
Dear Srinivasan,
Is it possible to use POC method without plan data?
Thank you,
Paulo
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Srinivasan Desingh Post author
February 23, 2015 at 12:09 am
Dear Paulo,
Cost based POC method is based on planned data. Without that system cannot calculate the values.
Regards
Srinivasan Desingh
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Sunil Yadav
February 27, 2015 at 6:55 am
Hi Srini,
Thanks for such nice explanation of RA and its Method (Cost Based POC Method).
This Document will help all members to understand simple calculation of Values and related posting in Finance.
Regards
Sunil
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Srinivasan Desingh Post author
February 27, 2015 at 6:16 pm
Thanks Sunil.
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Sunil Yadav
February 27, 2015 at 6:59 am
Exceptionally good !!
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Former Member
February 27, 2015 at 7:58 am
Hi Srini,
Thanks a lot for share the knowledge on RA and it's very well explained.
Regards,
DSP
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Former Member
March 5, 2015 at 10:35 pm
Hi Srini,
In a nutshell..."Beautiful Document".
Will definitely be of great help to beginners
Best Regards,
Gokul
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Srinivasan Desingh Post author
March 6, 2015 at 5:10 am
Thanks Gokul..
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Gerry Hodgins
March 6, 2015 at 10:40 am
Hi Srini,
I Really Really enjoyed this
Its simplified and educational ..
I would like to see more in other areas
Ger
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Srinivasan Desingh Post author
March 6, 2015 at 5:20 pm
Thanks Ger.
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Former Member
March 10, 2015 at 4:40 am
Hi,
Thanks, i learned POC method
Thanks
prasathn
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Former Member
March 13, 2015 at 6:50 pm
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