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Basic finance for PM Consultants – Part 1

In SAP Plant Maintenance implementation projects, there are always points of integration with FICO. Though the cost structuring, capturing and reporting is the work of FICO consultants, I am trying to cover here some basic concepts and terminologies which a PM consultant should be aware of:

Let’s first differentiate between FI and CO i.e. finance and controlling modules. I try to make it very simple here. FI is used for external legal reporting say balance sheet reporting, profit and loss statements etc. whereas CO is used for internal managerial reporting for decision making. Note the term legal in FI i.e. a company is bound by country laws while defining anything in FI, there is nothing legal as such while working in CO as it is intrinsic to company.

Key element in FI which a PM consultant should be aware of isG/L account or general ledger account. This is the most basic element to collect financial information about a business. A G/L account is an item within a general ledger. This is created by SAP transaction FS00. When a company creates a financial report such as balance sheet, most of the data is derived from the General Ledger.  G/L accounts can be broadly classified into 4 categories: assets, liabilities, expenses and revenues. The G/L account most relevant to PM is expense G/L accounts, for example utilities expense, maintenance expense, wages expense etc.

Now let’s talk about CO module. CO module has 5 sub-modules. The sub-module most relevant to PM is Cost Center Accounting. Key elements in Cost Center Accounting are cost center; cost elements, activity types etc.

Cost element acts as a link between FI and CO modules. How? Cost elements are corresponding revenue and expense elements to a G/L account. But this depends upon business requirements. Where COPA (Profitability Analysis which is another sub-module in CO) is active, then both expense and revenue
accounts (GL) are cost elements but where COPA is not active, then revenue account should not be made as cost element. Example of primary cost lements are material costs, personnel cost, energy cost etc. There are secondary cost elements also but let’s not go into that detail. Whenever a cost element is created, it needs to give a cost object to it. Cost object can be cost center, internal order, production order etc.

Hence cost elements are nothing but cost carriers. They carry the cost from FI G/L account and transfer to cost objects such as cost centers. So cost element will answer: What is the cost? And cost center will answer: Where is the cost going?

Let’s relate the above concepts with Work Order costing. In work order configuration for costing we assign cost elements to value categories. Value categories are nothing but classification of costs in a work order example labor cost, material cost, and external services cost etc. So whenever we issue any material against a work order or say somebody charges time against a work order, a G/L account gets hit which simultaneously hits the corresponding
cost element which puts cost in the work order and cost stays in the work order temporarily. Now, when we do the settlement of the work order, all the costs are moved from work order to settlement object which may be a cost center or WBS element or an internal order etc.

These are some basics of cost flow concepts which a PM consultant must be aware of. I will try to cover some more similar concepts in my next blog.

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  • Good one Tajinder !

    Hope members find this too useful. Add tags to this blog (you can do it at the at the bottom of the blog). When you add 'eam' it will be appearing in the front page in 'Related Content on SCN' section.


  • It is nicely explained in simple way, the beauty of post is any one can understand the basic concept of FICO-PM. Thanks Tajinder

    • Hi Keerthan,

      Thanks for showing interest. I have actually not started writing part 2. Is there anything specific you are looking for that I can think about writing?



  • Tajinder, thanks much for taking the time to write this piece.

    It gives a nice outline. I'd request you to put some light on the relation between G/L account and cost center. Also, where does a settlement profile comes into play when we settle a work order?



    • Hi Sumer, - Sorry for the delayed response.

      In Plant Maintenance environment, G/L account captures what is the cost on the order say labor cost or material cost and cost center captures who (which department) will bear this cost. So there is no direct link between G/L account and cost center; cost element acts as a link to pass the costs (as explained in my blog above) from G/L account to cost center.

      Settlement profile is configured for order types which govern the rules such as for a particular order type what could be the default settlement receiver, or what are the allowed/not allowed settlement receivers. Settlement receivers can be cost center, wbs element etc.

      Let me know if you have questions.



  • Hi Tajinder,
    Thanks for sharing!
    Please let me just add a comment related S/4HANA. Now GL creation (FS00) ends up with cost element creation. Cost element screen is now available in FS00 and the data will be stored in a singre table (ACDOCA).

    Kind Regards,