Structures in CO-PA
In this section, let us look at the organizational structures and master data that are required for CO-PA.
Intent and Purpose of CO-PA
In addition to mapping contribution margin accounting with actual and planned figures, the purpose of CO-PA is to answer various business questions, for example:
- Which customer do I earn the most money from?
- Which products are the key to my business success?
- Which specific products are successful with which specific customers?
- Was my last marketing campaign successful?
- What effect has my new price strategy had on the purchasing behavior of my customers?
- Should I grant a customer further discounts to increase the sales quantity?
- Are my contribution margins in a business area sufficient to cover the fixed costs assigned there?
- What do I give my customers in sales promotions — and does this lead to a higher sales quantity?
- Where do my deviations to planned figures come from?
These are just some of the questions that CO-PA can answer — provided you have customized it correctly. As you will recognize from the various questions, CO-PA is designed as a sales controlling tool. In principle, however, it can map all of the elements of contribution margin accounting down to earnings before interest and tax (EBIT).
The Operating Concern
In an SAP system, the operating concern is the organizational unit responsible for Profitability Analysis (CO-PA). What are organizational units in the SAP system? You usually use organizational units to map your company structure: you set up company codes for your independent accounting units; you create sales areas in SD; you define plants etc. for MM and PP. The entire remaining customizing of your SAP system is based on this organizational representation of your company structure. The organizational structure is the backbone of your system.
Common error in practice
If you do not think through the mapping of the organizational structure in the SAP system thoroughly from the very beginning, meaning that you have to make changes later, you will have to check the customizing that is based on this structure whenever you make changes. SAP projects often take longer and become unnecessarily expensive because the management thinks about changes to organizational structures during the SAP implementation phase. The SAP implementation is later deemed to have taken very long and been too expensive, but in reality, it is the management decisions that have caused the extended time frame. Consultants, on the other hand, are very happy.
In an operating concern, you define all operating concern-relevant master data that you need for your subsequent work with CO-PA. You then assign the operating concern to one or more controlling areas. Here, I would recommend a 1: 1 relationship — i.e., assign the operating concern to only one controlling area. You may wonder whether it makes sense to define a 1: 1 relationship here when you want to evaluate data across the group or company later on. Your thinking is correct, but the clue is in the assignment of controlling areas to company codes: a controlling area is the organizational unit of the CO module — you can assign one or more company codes to one controlling area. To enable you to perform evaluations across the group or company (and not only in Excel or a business warehouse, which would lead to further costs), you have to assign all of your “live”company codes to one controlling area. You then assign this controlling area to the operating concern. This ensures that you can see not only your costs across the group, but also your revenues, contribution margins, and of course, your profit.
Master Data in CO-PA
There are two forms of Profitability Analysis: costing-based and account-based Profitability Analysis. The costing-based form works with value fields and the account-based form works with accounts.
As the name indicates, a value field is a field in which values are entered. For example, for each line of contribution margin accounting (unless the line can be calculated as a formula), you define a value field. This field is then filled with data “automatically,” regardless of whether you are compiling actual or planned figures. In the same way, quantity fields, as the name indicates, are filled with quantities, e.g., sales quantities. Mapping contribution margin accounting is part of management accounting. In contrast to financial accounting, there are no legal requirements as to the presentation of contribution margin accounting — each company maps its structure in accordance with its own needs. This individuality in mapping contribution margin accounting is (naturally) possible in our supreme module CO-PA. In account-based Profitability Analysis, you would define your contribution margin structure using accounts that you also create as cost elements.
Both forms of Profitability Analysis work with characteristics. But what is a characteristic? You use characteristics to enter selections for your Profitability Analysis data set. SAP has a number of predefined characteristics, such as company code, sales organization, distribution channel, customer, or product, to name just a few. You can also define characteristics that are important for control in your company. For example, if you want to look at the data of customer XY in a period to see whether he purchased products from product group 4711, you can use the characteristics to select your data and present it in reports. You will see not only the sales quantity and the sales, but also all costs that you can directly assign to this customer and the related products, product groups etc.
Costing-Based or Account-Based Profitability Analysis?
There are companies that use both forms of Profitability Analysis, but on a long-term basis, they often decide to use only costing-based Profitability Analysis: it certainly meets the requirements sufficiently. In contrast, the account-based form attempts to build a bridge to the operating profit of the profit and loss statement (P&L), and is therefore a type of additional control instrument.
Do you really have to subject yourself to the additional one-time and subsequent ongoing effort involved in setting up account-based Profitability Analysis? Just to confirm the operating profit of the P& L?
In general, you do not have to do this — particularly if you also use Profit Center Accounting, which performs this control function anyway. In every company, there are business transactions that have to be posted automatically in FI. Normally, you will have defined the related controlling-relevant account assignment via the account determination, substitution, or validation automatically so that there is no interruption to automatic runs.
CO-PA takes priority over all other controlling-relevant account assignments: it is real — the other account assignments are only statistical. Automated account assignment of a profitability segment (as the controlling-relevant account assignment to Profitability Analysis is known) could take place at best at a high, aggregated level. But which additional information do you have in account-based Profitability Analysis that you do not already have in Profit Center Accounting? If you use account-based Profitability Analysis, you also need large volumes of memory storage. Believe me, your SAP Basis support colleagues will not be your best friends, and at the latest when you have to archive your data, you will be the one with the greatest storage requirement of all.
When defining the operating concern therefore, use the costing-based form and create the value fields and characteristics that you need in your CO-PA. Here too, you should think thoroughly beforehand about which characteristics and value fields you need. Changing a live operating concern later on is not easy. If you change or extend the operating concern in a live system, you run the risk of having to import your previous data backup and the entire day’s work of your SAP colleagues having to be repeated.
Setting Up an Example Operating Concern
Now, we will set up CO-PA for a company that manufactures products that are initially stored before they are sold to customers (make-to-stock (MTS) process).
Description of the Main Example Data
For the MTS process, most customers belong to trading groups; there are also small and large customers who do not necessarily belong to large customer constellations. Which characteristics that you can use later for data selection can we define from this small amount of information?
On one hand, SAP provides default fixed characteristics, such as the controlling area, company code, etc.; most important of these are listed below. They also appear in our example.
Examples of fixed characteristics and their values
For an overview of the user-defined characteristics, that is, those that you can define yourself, see Table below.
Examples of user-defined characteristics and their values
For our example company, let us use the contribution margin structure as presented in table below. As you can see, the individual lines represent value fields that was shown in the second column.
Contribution margin structure
In addition to the value fields above, our example company requires the quantity fields shown in Table below.
Quantity fields used