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Author's profile photo Srinivasan Desingh

SAP Results Analysis for Beginners

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:

  1. Planned Revenue
  2. Actual Revenue
  3. Planned Costs
  4. Actual Costs

Output parameters:

  1. Calculated Costs (Cost of Sales)
  2. Calculated Revenue
  3. Revenue Surplus (Reserves for unrealized costs). ( In SD Revenue Recognition term this is called Deferred Revenue)
  4. 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

———————————————————————————————————————————–

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.


RA-1.jpg

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.


RA-2.jpg

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.

RA-3.jpg

—————————————————————————————————————————————————-

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.

RA-4.jpg

Based on this method, you can learn other methods easily. Hope, I have explained you simply.

Enjoy SAP..

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      38 Comments
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      Author's profile photo Saurabh Tiwari
      Saurabh Tiwari

      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

      Author's profile photo Srinivasan Desingh
      Srinivasan Desingh
      Blog Post Author

      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

      Author's profile photo Saurabh Tiwari
      Saurabh Tiwari

      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

      Author's profile photo Paulo Vitoriano
      Paulo Vitoriano

      Dear Srinivasan,


      Is it possible to use POC method without plan data?


      Thank you,

      Paulo


      Author's profile photo Srinivasan Desingh
      Srinivasan Desingh
      Blog Post Author

      Dear Paulo,

      Cost based POC method is based on planned data. Without that system cannot calculate the values.

      Regards

      Srinivasan Desingh

      Author's profile photo Sunil Yadav
      Sunil Yadav

      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

      Author's profile photo Srinivasan Desingh
      Srinivasan Desingh
      Blog Post Author

      Thanks Sunil.

      Author's profile photo Sunil Yadav
      Sunil Yadav

      Exceptionally good !! 🙂 🙂

      Author's profile photo Former Member
      Former Member

      Hi Srini,

      Thanks  a lot for  share the knowledge on RA and it's very well explained.

      Regards,

      DSP

      Author's profile photo Former Member
      Former Member

      Hi Srini,

      In a nutshell..."Beautiful Document".

      Will definitely be of great help to beginners 🙂

      Best Regards,

      Gokul

      Author's profile photo Srinivasan Desingh
      Srinivasan Desingh
      Blog Post Author

      Thanks Gokul..

      Author's profile photo Gerry Hodgins
      Gerry Hodgins

      Hi Srini,

      I Really Really enjoyed this

      Its simplified and educational ..

      I would like to see more in other areas

      Ger

      Author's profile photo Srinivasan Desingh
      Srinivasan Desingh
      Blog Post Author

      Thanks Ger.

      Author's profile photo Former Member
      Former Member

      Hi,

      Thanks, i learned POC method

      Thanks

      prasathn

      Author's profile photo Former Member
      Former Member

      First, thanks for the explanation, it is very easy to understand as the method POC  works. I have a problem and I would like to help me. The problem is when the user enter a reclassification of costs, or a provision or just manually enter a value of IRIR in t code KKA2 and in subsequent periods the system no longer calculated properly. Any idea why and possible solution?

      Thanks in advance.

      Víctor

      Author's profile photo Former Member
      Former Member

      Hi Srinivasan,

      Thanks a lot.Just got very good idea  from your RA document and exploring it further.

      Thanks,

      DSP

      Author's profile photo Former Member
      Former Member

      Dear Srinivasan,

      Thank You for taking the initiative for making ,the RA process in a simpler way.

      Regards,

      vrkumar

      Author's profile photo Methee Puegkhao
      Methee Puegkhao

      Thanks for such a great content. One quick question. Can I get actual cost settlement as well? I just want to transfer all expense into a single G/L for P&L report

      Author's profile photo Ken Melching
      Ken Melching

      Hello Methee,

      You can configure all costs in RA to be on one Line ID (LID) and settle on a single cost element.

      You need to understand the difference between FI (G/L) and CO (cost elements).  Settlement is a purely CO function which posts on secondary cost elements.  Are you settling to COPA?  With a single LID you would settle to COPA on a single value field.

      Ken

      Author's profile photo Methee Puegkhao
      Methee Puegkhao

      Hi Ken,

      Thank you for your reply. I did configure RA in my system(regarding SAP Revenue Recognition for Projects (446)). Unrealized cost and profit is calculated and posted correctly. The actual cost is not transferred from WBS to cost center as I wonder if the actual cost can be transferred out of WBS. If yes, what will happen to the next period run in case of WBS is not completed yet.

      Methee

      Author's profile photo Ken Melching
      Ken Melching

      When you implement RA, how values are settled is controlled through the RA Cost Elements not through the original postings.

      So you have to configure the settlement Allocation structure source to include the RA Cost elements. 

      Author's profile photo Mohan Desai
      Mohan Desai

      Hi Srinivasan,

      Good Effort...

      Mohan

      Author's profile photo Former Member
      Former Member

      Hi Srinivasan

      Excellent work.

      I have a one question that have been puzzling me for a while. Why would results analysis revalue postings according to the exchange rate changes? We use R\A type B (dynamic line items) and R\A category POCI. How does the exchange rate revaluation work ?  Should costs/ revenues be revalued every time the exchange rate change? Is there any way that I can switch of the automatic revaluation of the WIP during the R/A runs? My client is a service organisation that use RA type B (dynamic line items) and R\A category POCI. They do not want the costs revalued based on the daily exchange rate

      your assistance is appreciated

      Regards

      Angel

      Author's profile photo Former Member
      Former Member

      Hello Srinivasan,

      Excellent document. Appreciate the effort of putting complex scenario in simple words.

      I tried mapping the scenario, however I have couple of questions. Your guidance will really help..

      1. During Settlement system is capitalizing both, revenue and cost.

      2. After RA from KKA2, while performing settlement of project CJ88, system is asking for settlement rule. Is it really required to give settlement rule during the tenure of the project?

      If you could share the configuration of RA Version that will really be helpful.

      Regards,

      Rahul Kulkarni

      Author's profile photo Srinivasan Desingh
      Srinivasan Desingh
      Blog Post Author

      Hi Rahul,

      1. It is up to your client's requirement, whether you want to capitalize rev or cost or both. In RA settings you have to configure accordingly.

      2. Settlement rule is must for performing CJ88 / CJ8G.

      Hope this helps.

      Thanks

      Regards

      Srini

      Author's profile photo Former Member
      Former Member

      Thanks for the guidance Srinivasan.

      I will relook at my configuration and come back in case of any queries.

      Regards,

      Rahul

      Author's profile photo Denise McGough
      Denise McGough

      Do you know of a way to calculate RA on the basis of a percentage input by the user? For example, in the case of a POC contract, the user maintains a gross margin percentage of 10%. Assuming actual costs incurred to date are $50,000, RA would calculate revenue of $55,555,56.

      Actual costs / inverse of GM % = Revenue

      50,000 / .90 = 55,555.56

      Any guidance is appreciated.

      Author's profile photo Former Member
      Former Member

      Hi Srivasan and Everyone in this Thread,

      Can Anyone please share the config docs for RA based on POC method.

      Regards,

      Kavitha

      Author's profile photo Arvind Pereira
      Arvind Pereira

      we have 2 keys, one RA under US GAAP and one under IFRS, customer wants to perform RA on sales orders using 2 different methods, i have 4 options now

      1. use 2 RA in one SO
      2. use 2 requirement class in one SO
      3. use 2 RA versions
      4. use 2 SOs.

      please guide me.

      Thanks

      Arvind Pereira

      Author's profile photo THEOT Vincent
      THEOT Vincent

      Hi,

      Very good description, easy to understand. Thanks.

      I'm looking for a description of result analysis with usage of profit indicator P in order to try to mix revenue bases and POC cost based methods in the same WBS element?

      Did somebody have such thing ?

      Vincent

      Author's profile photo Satish Shivaputrappa Kerur
      Satish Shivaputrappa Kerur

      Hi Srinivasan

      Thanks

      This document is really good. It explains the RA basics in more simplifed manner.

       

      Thanks & Regards

      Satish

      Author's profile photo Manuel Robalinho
      Manuel Robalinho

      Very good.

      Thanks for sharing.

      Author's profile photo Former Member
      Former Member

      Hi Srinivasan,

       

      Thank you for making SAP POC simple. However, you didnt mention how does the balance in the Revenue in Excess Billing and Revenue surplus get cleared out from the balance sheet at the end of the project.

       

      Thnx

       

      Jophy

      Author's profile photo Former Member
      Former Member

      Hi Jophy

      When you change the Project Status to "TECO" and run the result analysis again "KKA2" the system reads that you've reached the end of the project, and thus, it cancels any WIP or Reserve (ie: Revenue in Excess Billing and Revenue surplus) for the project.

      So afterwards when you run settlement "CJ88" the capitalization FI posting will cancel whatever amounts previously posted for this project and clear out the BS & P&L for that project.

      I think It's mentioned in the 4th paper (Image) in that post

       

      Author's profile photo Former Member
      Former Member

      Thank you for the rich example and the extraordinary effort.

      You really simplified the process of Result Analysis, and frankly, I will be using a lot of your explanation techniques with my clients in the future. so Thanks a Lot

       

      I’m implementing RA on S4/HANA 1610 and I’m facing a problem during settlement CJ88. Both the Project cost/ Revenue & the result analysis values are settled to the Receiver Object (PSG), Along with the Capitalization FI Posting as well.

      So I get weird results in my project as the project is credited with the Expense Amount Twice (once through the settlement allocation structure and once gain through the settlement of the RA cost elements) and it’s also debited with the Calculated Revenue amount which I have no billing for!!!

      All I want is for the RA to post the Capitalization FI Posting without affecting the Project or its settlement in CO. Is that possible? or do I have a misunderstanding of the matter?

       

      I’d highly appreciated your help.

      Thank you.

      Edit: Resolved

      I used another Version for Result Analysis (other than version 0) that does not allow Actuals and is not Relevant to Settlement. Is that correct or have I done a catastrophe :D!!!

      Author's profile photo sanjeev chauhan
      sanjeev chauhan

      Hi Srinivasan,

      it is nice document to learn the RA concept by new beginner, earlier there were some down but after reading this document all doubt has cleared. we really enjoy this document and expectation is from you is RA configuration.

      Regards,

      Sanjeev

       

      Author's profile photo Jason Smalarz
      Jason Smalarz

      Hi Srinivasan,

       

      Is there a good report that will show all these transaction period by period?  In your example you broke down the transactions over the four periods.  KKA2 will show period by period when you toggle but this isn't efficient for presenting progress month over month.

       

      Author's profile photo Glenn Variath
      Glenn Variath

      Thanks Srini, glad i came across this.