Profitability Analysis General Overview

Profitability Analysis General Overview

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This page is to be used to provide a General Overview of Profitability AnalysisThere are three levels to learn any concept of SAP.

Level One :Process Understanding

Level Two: Understanding how the process is mapped to SAP

Level three: Intricate field to field details

This is a Level one Explanation to COPA (Profitability Analysis)

Overview

Profitability Analysis (CO-PA) enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin.

The aim of the system is to provide your sales, marketing, product management and corporate planning departments with information to support internal accounting and decision-making.

Two forms of Profitability Analysis are supported: costing-based and account-based.

Costing-based Profitability Analysis is the form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches, both of which you can define yourself. It guarantees you access at all times to a complete, short-term profitability report. Cost of Goods sold is recognized after goods are billed and before being shipped.

Account-based Profitability Analysis is a form of profitability analysis organized in accounts and using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides you with a profitability report that is permanently reconciled with financial accounting. Cost of goods sold is recognized after goods are shipped and before being billed.

From a technical point of view CO-PA is part of OLTP and thus resides in the same database as other transactions of ECC (formerly R/3). The main benefit is quicker reporting and access to the underlying transactions and line items. An OLAP-based reporting is optimized for querries and multidimensional pivoting with no access to transactions, but quicker slicing and dicing of reports. It's provided as an Excel Add-In and called Business Intelligence (formerly BW and BIW). The end result from the business perspective is the same: actual and planned financial results (values and key figures).

Definition

Profitability Analysis (CO-PA) enables evaluation of

-         Market segments

o   Classified cording to products, customers, orders or any combination of these,

Or

-         Strategic business units

o   Such as sales organizations or business areas,

With reference to company's profit or contribution margin.

Forms of Profitability Analysis:

Costing-based Profitability Analysis

This form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches. It guarantees access at all times to a complete, short-term profitability report.

Thus, this method emphasizes on matching the revenues for goods and/or services provided (the value that a company gains as a result of sales) against the related expenses for those items (the value that is lost when products are transferred out of the company). Therefore, this accounting method displays profit and loss information in a manner optimized for conducting margin analyses, and as such it is optimal for the sales, marketing, and product management areas.

Account-based Profitability Analysis

This form of profitability analysis is organized in accounts and using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides a profitability report that is permanently reconciled with financial accounting.

Thus, this method emphasizes on summarizing the activity and situational change over a period of time, for a given organizational unit. Therefore, this accounting method presents the revenues and primary expenses that have been incurred during a given period of time and the changes in stock value levels, work-in-process, and capitalized activities. As such, it is optimal for the production and profit center areas. Profitability Analysis (CO-PA) calculates profits according to cost-of-sales method of accounting. ProfitCenter Accounting (EC-PCA), on the other hand, supports both period accounting as well as the cost-of-sales approach.

Answers CO-PA can provide# Determining the largest and fastest growing customers- by studying the contribution of individual market segments or sales channels.

The definitions of both 'market segments'and 'performance figures' are freely definable, allowing for maximum flexibility in market evaluation. The definition of a market is configured in the system through the selection of characteristicsthat are to be the subjects of analyses. Performance figures may either be profit and loss account balances or freely defined value fields.

Market segments are normally some combination of information regarding customers, products, and the selling organization. Performance figures are normally measurements of quantities, revenues, discounts, surcharges, product costs, margins, period costs, etc.

Examining achievement of contribution margin goal/targets by the sales force - Margin goals of individual sales force/entities.

Sales Quantity

-         Sales Revenue

-         Customer discount

-         Sales commission

-         Direct sales costs

Net revenue

-         Direct material costs

-         Variable production costs

Contribution margin I

-         Material overhead

-         Fixed production costs

Contribution margin II

-         Variances

Contribution margin III

-         Overhead costs

Operating profit

Study the success of the most recent sales promotion for a product line- Success of Marketing Activities

Study the impact of a pricing strategy for a group of customers - Revenue and Cost Structure.

The results of Profitability Analysis can be analyzed with a multidimensional reporting tool, which allows the dynamic sorting and rearranging of data to provide multiple perspectives within a single report.

The method of determining period operating results in Profitability Analysis is based on the assumption that a company's success can be measured primarily on the basis of its transactions with other companies.

This sales-oriented approach in CO-PA means that no contribution to the organization's success is made until a sales transaction has been completed. Consequently, the products sold are transferred to CO-PA in accordance with the cost-of-sales accounting method and provide information on the sales revenue and sales deductions.

This net revenue is then compared with the cost of sales. These costs consist of the cost of goods manufactured of the products sold or services rendered plus any production variances known.

To round off the profitability data, overhead costs can also be assigned to profitability segments in the course of period-end closing activities.

Views of Profitability Management

Sales Reporting:

CO-PA allows analyzing the profitability of segments of the market segments structured according to products, customers, orders, and summarizations of these and other characteristics as well as organizational units such as company codes or business areas. The aim is to provide sales, marketing, planning, and management organizations with decision-support from a market-oriented viewpoint.

Responsibility Reporting:

EC-PCA allows analyzing internal profit and loss for profit centers. This makes it possible for evaluation of different areas or units within the company. Profit centers can be structure according to region (branch offices, plants), function (production, sales), or product (product ranges, divisions). Profit Center Accounting is a component of the module "Enterprise Controlling".

Integration

Profitability Analysis, along with Profit Center Accounting (EC-PCA), is one of the application components for profitability accounting.

Features

In the application component CO-PA, users can define own master data, the basic structures of this form of profitability analysis. This master data includes both, units (that are desired to be evaluated (characteristics)) and the categories (in which values analyzed).

In costing-based CO-PA, "value fields" to store data for analysis are defined.

In account-based CO-PA, the values are structured by account.

Using the SAP master data (customer, product, customer hierarchy) or CO-PA derivation rules, the system can derive additional characteristics based on the ones entered manually or transferred from primary transactions. The combination of characteristic values forms a multidimensional profitability segment, for which profitability can be analyzed by comparing its costs and revenues.

If company is reorganized into smaller units, such as sales districts or customer hierarchies, the assignments between characteristics for data that has already been posted can be changed.

Actual postings

Account based CO-PA: The actual postings represent the most important source of information in CO-PA. Both sales orders and billing documents from the Sales and Distribution (SD) application component can be transferred to CO-PA in real-time. In addition, an interface program is available to transfer external data to the R/3 System. Costs from cost centers, orders and projects, as well as costs and revenues from direct postings (G/L account postings in FI, orders received in MM, and so on) can also be transferred or settle costs from CO to profitability segments.

Costing-based CO-PA: In costing-based CO-PA, incoming sales orders or billing documents can be valuated to automatically determine anticipated sales deductions or costs. The data can also be revaluate periodically to adjust the initial, real-time valuation or add the actual costs of goods manufactured.

Planning

In CO-PA planning, a sales and profit plan can be created. Whereas both types of Profitability Analysis can receive actual data in parallel, there is no common source of planning data. Consequently, a plan is always made either in accounts (account-based CO-PA) or in value fields (costing-based CO-PA). In costing-based CO-PA automatic valuation can be used to calculate planned revenues, sales deductions and costs of goods manufactured based on the planned sales quantity.

Planning: manual

The manual planning function allows defining planning screens for an organization. With this reference data in planning can be displayed, formulas calculated, forecasts created and more. Planning can be performed at any degree of detail. For example, it can be at a higher level, and have this data distributed top-down automatically.

Planning: automatic

In automatic planning, actual or planning data can be copied and revaluate for a large number of profitability segments at once. planned sales quantities can also be transferred from (costing-based) CO-PA to Sales and Operations Planning (SOP) for the purpose of creating a production plan there.

Information System

The Information System lets interactive analysis of existing data from a profitability standpoint using the functions of the drill down reporting tool. Navigation through a multidimensional "data cube" using a number of different functions (such as drill down or switching hierarchies) can also be performed there. The system displays data in either value fields or accounts, depending on the currently active type of Profitability Analysis and the type to which the report structure is assigned.

Each report structure is assigned to either costing-based or account-based CO-PA.

The display parameters can be changed online directly from the displayed report. Report structures with predefined sort orders, number formats and so on can be stored, and executed online or in the background at any time.

Accounting Methods

Profitability Analysis (CO-PA) calculates profits according to cost-of-sales method of accounting. Profit Center Accounting (EC-PCA), on the other hand, supports both period accounting as well as the cost-of-sales approach.

Both of these applications can be used --and consequently both methods--at the same time in your organization.

The CO-PA application itself offers two forms of Profitability Analysis: costing-based and account-based. Both of these types of CO-PA can be used simultaneously.

Profitability Analysis Using the Cost-of-Sales Method

With this method, the emphasis is on matching the revenues for goods and/or services provided (the value that a company gains as a result of sales) against the related expenses for those items (the value that is lost when products are transferred out of the company). Therefore, this accounting method displays profit and loss information in a manner optimized for conducting margin analyses, and as such it is optimal for the sales, marketing, and product management areas.

In cost-of-sales accounting, the cost of sales is set off against revenue using either direct costing or full absorption methods(contribution margin accounting). Fixed costs can be allocated on a proportional basis or en bloc to any level(s) of a hierarchy. Standard costs can be used to valuate the cost of sales for the purpose of obtaining a preliminary profit analysis. Or the variances of production orders and cost centers can also be transferred to Profitability Analysis in order to reconcile CO-PA with Financial Accounting (FI) on the basis of actual costs.

Costing-Based Profitability Analysis

This type of Profitability Analysis is primarily designed to allow analysis of profit quickly for the purpose of sales management. Its main features are, firstly, the use of value fields to group cost and revenue elements, and, secondly, automatic calculation of anticipated or accrual data (valuation). The advantage of this method is that data is always up-to-date and therefore provides an effective instrument for controlling sales.

Account-Based Profitability Analysis

This type of Profitability Analysis enables reconciliation of cost and financial accounting at any time using accounts. In contrast to costing-based Profitability Analysis, this type uses cost and revenue elements, which gives a unified structure for all of accounting.

The system posts all revenues and costs to both Financial Accounting and Profitability Analysis at the same time and using the same valuation method. This means that the cost of sales is posted to Profitability Analysis at the point of goods issue.

Account-Based Profit Center Accounting Using the Period Accounting Method

With this method, the emphasis is on summarizing the activity and situational change over a period of time, for a given organizational unit. Therefore, this accounting method presents the revenues and primary expenses that have been incurred during a given period of time and the changes in stock value levels, work-in-process, and capitalized activities. As such, it is optimal for the production and profit center areas.

In period accounting, the performance of a particular business unit (profit center) - that is, its revenues, changes in inventory and capitalized services - is set off against the total costs of the period. This occurs at the G/L account level and adheres to the formal structure of Financial Accounting. This gives a uniform structure of report data and allows reconciliation of the data of cost and financial accounting on the basis of cost elements.

Flows of Actual Values in Profitability Analysis

Actual Postings represent the most important source of information in CO-PA. Both sales orders and billing documents can be transferred from the Sales and Distribution (SD) application component to CO-PA in real-time. In addition, an interface program is available to transfer external data to the R/3 System. Costs from cost centers, orders and projects, as well as costs and revenues from direct postings (G/L account postings in FI, orders received in MM, and so on) can also be transferred or costs from CO to profitability segments settled.

In costing-based CO-PA, incoming sales orders or billing documents can be valuated to automatically determine anticipated sales deductions or costs. Data can also be revaluated periodically to adjust the initial, real-time valuation or add the actual costs of goods manufactured.

Objects in Profitability Management (CO-PA part)

Profitability Segments

-         Characteristics

-         Characteristic values

-         Value fields or accounts

Profitability segmentsare the market channels or strategic business units that are to be analyzed in CO-PA. They may be combinations of product, customer, and sales structure information, and/or may encompass company code, business area, and profit center information.

Since reporting margins and other profitability figures along marketing lines (as defined by these profitability segments) is the primary purpose of CO-PA, its design has been optimized for producing profit and loss statements under the cost-of-sales accounting format and philosophy.

Parallel Currencies in Profitability Management

In costing-based CO-PA, all amounts are stored at minimum in an operating concern currency, which is specified in the operating concern attributes.

It is also possible to configure the attributes to store values in the local currency as well; this has the effect of doubling the stored transaction data, though.

Account-based CO-PA stores all transaction in three currencies, the transaction currency, the local currency, and the controlling area currency.

Structures

The Master Data determines the basic structure of CO-PA. This includes both units to be evaluated (characteristics) and the categories in which values are analyzed. Thus master data provides the fundamental data and content within the structures and is determined by characteristics and value fields.

Using the SAP master data (customer, product, customer hierarchy) or CO-PA derivation rules, the system can derive additional characteristics based on the ones entered manually or transferred from primary transactions.

The combination of characteristic values forms a multidimensional profitability segment, for which profitability can be analyzed by comparing its costs and revenues.  *Creation:*The creation of structures determine the possible valuation levels and are required to be created first.

To create the structures, the following need be defined:

-         The operating concern

-         The characteristics and

-         Value fields belonging to the operating concern from different field sources.

-         Identify and set non-segment-level characteristics

From a technical point of view, this actually amounts to creating different tables.

In the operating concern, structures can be defined so that the revenues and sales deductions (= value fields) are shown that correspond to the respective levels (customer, customer group, sales office, and product (= characteristics)).

Thus master data is closely linked to the structures in Profitability Analysis. Master data consists of the individual values that the characteristics and value fields can take. The combination of the latter specifies the valuation level. In other words, the combination of particular characteristic values forms the actual analysis object, called the profitability segment+.+Organizational Units

The operating concern is the highest reporting level within CO-PA; it defines the limit of sales and marketing information, which can be reported together from this module. One or more controlling areas are assigned to an operating concern when organizational structures are defined. Often, corporations have only a single operating concern, which is recommended for the sake of simplicity and convenience if all controlling areas and company codes share the same fiscal calendar.

The structure of an operating concern is determined by

-         Analysis criteria (characteristics) and

-         The values to be evaluated (value fields) (only in costing-based Profitability Analysis).

-         G/L accounts (only in account-based Profitability Analysis).

In a first step, the characteristics have to be defined for the operating concerns. Characteristics are defined in the Customizing activity Maintain characteristics. For costing-based Profitability Analysis, value fields also need to be defined. This is done using the activity Maintain value fields. These characteristics and value fields can be used in several operating concerns. Their definition applies to all clients.

After this, the structure of the operating concern has to be defined, by selecting the desired characteristics and adding them to the data structures of the operating concern, in the activity Maintain operating concern. If costing-based Profitability Analysis is active, the required value fields also need to be selected and added. The structure of an operating concern is valid in all clients.

In the step "Maintain operating concern", the attributes of the operating concern (fiscal year variant, currencies) are also specified. By maintaining the attributes, an operating concern is made "known" in the current client. The attributes are client-specific.

The controlling area is an organizational unit delimiting the organization's independent cost accounting operations (cost center accounting, profit center accounting, and order accounting). Company codes are assigned to controlling areas when organizational structures are defined. Often, a 1:1 relationship exists between the company code and the controlling area. However, a controlling area can also incorporate several company codes to take cross-company cost allocations into account.

The company code is an independent accounting unit within a client. The legal requirements of a balance sheet or profit and loss statement are fulfilled on the company code level. Plants are assigned to company codes when organizational structures are defined.

The plant represents a production facility. It is the primary organizational unit in the SAP R/3 Materials Management and Production Planning application components

Different types of derivations in COPA

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Different types of derivations in COPA:

This blog post will give you information about the various types of derivations available in COPA and specific scenarios with examples for which these can be used.

There are in total 5 types of derivations as below:

Derivation rule

Table look up

Move

Clear

Enhancement

We will discuss each type in detail along with its usage. First of all, we need to understand why we require derivations.

Derivation in COPA is a functionality through which we can derive the value of any field defined as COPA characteristic, from other fields within or outside COPA. We can derive master data fields and configuration values as well.

Since COPA is a management reporting tool so it requires different characteristics to flow from different places like SD, MM, FI and combine them together so as to present better reporting.

Now, we will check each type of derivation in detail:

Derivation Rule:

It is kind of direct derivation in which we need to specify source and target fields along with its values. This is useful when client is having requirement to maintain specific values for certain COPA characteristics and then derive those based on certain parameters.

In this table, Co. Area and Profit Center are standard fields which are defined as source fields however Market Segment, Subscription type and Product category are custom fields defined in COPA and taken as target fields.

For these kind of requirements, direct derivation can be written to fetch target values.

Go to transaction code KEDR and click new, it will give you type of derivations which can be used. Select derivation rule and continue.

In the definition tab, select source and target fields as given in table.

If you click on magnifying glass against target fields, you can select if you will get multiple options to overwrite value for target fields.

Another tab is condition tab where any condition can be given, as in upon successful execution of conditions only, derivation will work.

Last tab is Attributes under which you can control the derivation like if you want error should be given if no rule values found, rules values should be maintained with specific dates etc.

After saving of derivation rule, values can be maintained directly from same screen by clicking rule values option.

Once values have been saved, you can test it directly from that screen also.

Click on Test icon and system will take you to COPA PSG segment screen where you can give your input criteria and click on derivation to see if desired values are derived or not.

2. Table Look Up:

Table look up is used when you want the value of some COPA characteristics should be updated based on some pre-conditions which are dependent on table.

As an example, our client requirement is to populate sales order line item field against one COPA characteristics for which we can use table look up.

Benefit of table look up is, it is one time activity of mapping fields from tables so unlike direct derivation as in Ist type, no separate one to one mapping is required.

Let us take an example that one custom characteristic is to be filled as “Customer reference” field in sales order line item data.

For that, we can go with table look up from sales order table (VBKD having customer reference field).

Once source and target fields are defined, conditions and attributes can be used in similar way as mentioned for direct derivation rule type.

3. Move:

Move type can be used in 2 ways:

a) One is if you want the value of one characteristic to flow to another characteristics.

b) Another is if the requirement is to fix the value of any characteristic.

As an example, client requirement is to fix the value of field manufacturer number if certain conditions are met then we can use “move” type.

4. Clear:

Similar to move, clear type is used when there is requirement to clear any characteristic value based on certain conditions.

5. Enhancement:

Enhancement is a specific type which is designed for some custom coding logic to be used through User Exit.

If client requirement is such which can’t be met through other types of derivations and some custom code is to be written then this type of derivation is to be used.

There are multiple standard user exits in COPA which can be used to fetch values.

These are the 5 types of derivations which can be used based on different requirements.

Digits specific derivation:

Within derivation, there is another feature to take the values based on specific digits of source or target fields.

To understand this, let us take same example as given in type 2 (table lookup) however in place of fetching complete value from customer reference field, we only require first 10 digits, to be populated in Offer Code.

To do this, click on magnifying glass against customer reference field and you will get the option to define the digits.

Conclusion: There are multiple types of derivations in COPA which can be used for different scenarios based on requirement. It is also possible that a requirement can be met with more than one type of derivation so decide carefully which one you want to use and best suited for your requirement.

Revenue field in Profitab. Analysis Document did not show value for part billing item

Posted onMar 25, 2017 at 04:11 PM | 154 Views | Last edit Mar 27, 2017 at 08:48 AM 2 rev.

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Dear Experts,

I have a strange Billing 8200000275 (VF03), which includes item 11 and item 21.

After I release the billing to accounting, the accounting document 8000000274 was created normally with two Profitab. Analysis Document. Please see Pic-1 and Pic-2 below.

Pic-1

Pic-2

In the Profitab. Analysis Document 0000137792, related to billing item 11, the Revenue field displayed the correct value 1708.8. See Pic-3 below.

Pic-3

However, in the Profitab. Analysis Document 0000137793, related to billing item 21, the Revenue field was blank, which was expected to show a right value 4732.80. Please see Pic-4 below.

Why?

Pic-4

I have checked all my SPRO Customization, Material Master Data and Customer Master Data for a long period of time, but I did not get the answer until now.

I really hope some one would give me some cues.

Thanks so much.

Controlling Area	Profit Center		Market Segment	Subscription Type	Product Category