Central Finance – An Overview
This blog post was designed in my mind around six months ago when I first started working on a Central Finance implementation project. Conceptually, the idea of a Central system running on SAP S/4HANA with almost zero impact on the source system(s) and their functionality on paper seemed far fetched and complicated. Several questions bugged my mind: What will the architecture look like? Why not implement complete SAP S/4HANA system? Would this system be flexible to accept data from non-SAP systems? What is the cost-benefit for implementing Central Finance vs SAP S/4HANA? After working on the functionality for around six months now, I have all the answers and, in this blog, I have tried to explain the same. If you are looking for those answers, please proceed reading.
How it began?
We represent a new generation that began consulting profession just before Simple Finance, so we are few of the primitive industry experts who kind of grew up with SAP S/4HANA. But we still must get our hands dirty in the old ERP versions when trying to do a conversion or implementing a Central Finance system. The old ECC system is one of the most robust ERP systems and well ahead of its time. The architecture,modules and cross components have made the transition to SAP S/4HANA much easier than it would have been. It is important to remember that without the core concepts and modules within ECC, SAP S/4HANA wouldn’t be as profound as it is today. Ultimately, ECC is the foundation for what an ERP should be, while simultaneously allowing SAP S/4HANA to build upon that core foundation and deliver additional value.Today’s strategic conversations are hyper-focused on SAP S/4HANA being the next gen Enterprise Resource Planning tool for organizations looking for a financial transformation and gain the benefits of a relational database, real-time centralized financials and a single source of truth.There are several options for SAP S/4HANA deployment like migration, greenfield implementation, side car approach etc. So where does this Central Finance fit in? Central Finance system is the deployment of a parallel operational ERP platform with real-time data integration with existing ERP systems for faster consolidation and reporting. This approach presents lower risks in terms of change impact and time of implementation, and medium impact for complexity and cost of ownership. Basically, it is a step towards migrating towards SAP S/4HANA.
Caught your interest?
Checking the pulse of the industry, one of the major elements of the SAP S/4HANA story that has been stimulating interest across is Central Finance.Central Finance uses SAP S/4HANA’s real-time abilities to replicate financial documents into the central platform as they are posted that gives a real time organization-wide finance view. By design, a deployment of CFin is negligibly disruptive (only a few notes to be implemented in the source and a few more things)mainly due to the architecture of this solution. This allows organization to reap the benefits of SAP S/4HANA. Central processing functions like cross system allocations and inter-company reconciliation can be immediately moved to the central instance to get immediate paybacks, but other functionalities like credit control, outgoing payments can then be migrated piece by piece into the central instance because of the potential financial benefits of consolidating these activities. Finally, all finance related functionality can be migrated into the central instance and the source financial systems can be shut down.Therefore, we can say that Central finance does not deliver any new functionality which was not available before. It does not coerce the customers to completely migrate to HANA database and S/4 application,instead, it allows them to duplicate the finance documents into a new central finance instance which is executing on SAP S/4HANA. It is a technique for adopting SAP S/4HANA and gives a flavor of SAP S/4HANA without actual migration. This therefore is a lower risk method to migrate to SAP S/4HANA especially from the older source platforms.
How it works?
Below are the salient features of Central Finance:
1. The central finance system maps the master data & the configuration (key mapping & value mapping explained further) and replicate the postings from source to target system.
2. The master data mapping from source SAP or non-SAP system can be done either manually or by using Master Data Governance (MDG) Tool.
3. Central Finance system can be used to map, validate, substitute and manage postings in the source system.
4. The transfer of the item level data related to the accounting document to the central finance system.
5. With the help of a document relationship browser, the source system document can be navigated back to using the drill down functionality of Central Finance.
6. The Central Finance system provides a consistent reporting in a single system which runs on SAP S/4HANA platform.
7. The previous documents (generally about year from Go-Live) are extracted and posted in the Central system in a process called as the ‘Initial Load’. The Initial Load process uses RFC connection to transfer data from the source system to the target system.
8. After successful completion of the Initial Load, the replication is activated which starts the real time replication of all documents in the source to the target through the System Landscape Transformation Tool (SLT).
What makes it work?
The SAP ERP as the source system where the business processes execute, and documents are posted. The source system needs to have the Central Finance integration component which is required for the SLT to read the data. This component can be installed via SAP notes or by updating to the latest service pack of the release. There can be cases when the source systems are non-SAP systems, in that case we use the third-party tools like Magnitude to connect with the SLT and replicate the data.
SAP Landscape Transformation (SLT Tool):
SAP SLT is an integration platform which reads and replicates the FI & CO documents. There are 3 run time migration objects in the SLT. These migrations objects read the data from the source system and call Central Finance interfaces to replicate the data:
- Replication of FI/CO postings: FINS_CFIN_AC_DOC_GENERATE
- Replication of CO-internal postings: FINS_CFIN_CO_CENTRAL_POSTING
- Replication of Cost objects: FINS_CFIN_CO_OBJECT_ASSIGN
Master Data Governance:
Business mapping is used to harmonize the master data in the documents. Identifiers and codes in the documents can be mapped, which means that the relationship between an identifier or code used in the source system and one used in Central Finance must be defined. This is vital because generally, there are different identifiers or codes being used for the same entity (like master data). In the source system, a vendor with vendor# 8700000 could be vendor# 1200000 in the Central Finance system. Central Finance provides integration to Master Data Governance (MDG) to access available mapping information there.Mapping must be defined for the following categories:o Key Mapping: Mapping for business object identifiers (customer, vendor, material etc.).o Value Mapping: Mapping for codes (company code, business area, country code, etc.).o Mapping for short-life Cost Objects (production order or internal order) is done directly in Customizing of Central Finance.Note: The background Central Finance uses the MDG mapping tables that are available without installing MDG which does not require an MDG license.
Application Interface Framework (AIF):
AIF enables monitoring and error handling for the replicated data in the Central Finance system. The data in Central Finance systems passes through different steps: prepare, map, adjust and post. Any error occurring during the replication (incl. the call of SAP standard functions) is logged in AIF and needs to be resolved.
SAP S/4HANA Central Finance Box:
The final system is the SAP Central Finance as the target system on SAP S/4HANA where the financial and controlling documents are re-posted. Central Finance is also able to replicate cost objects as prerequisite for the FI and CO postings. On the SAP S/4HANA system which is the Central Finance system, there are some other components, i.e. Central Finance Interface, Business Mapping, AIF, Universal Journal.
What is included in the package?
One of the biggest advantages of Central Finance provides the below key capabilities to be operated on the target system centrally, thereby the business can have a flavor on SAP S/4HANA features while using the current version of ERP system, for example:
- Central Payment
- Central AP/AR Reporting
- Inter-company reconciliation
- Integrated Planning
- Shared Services Framework
And what is not?
There are some functionalities which are not replicated in the Central system and would stay as-is in the source systems:
- Asset Accounting document replication is not supported.
- Postings to CO-FI reconciliation ledger (GL Reconciliation Postings).
- Year-end closing postings where the reference transaction (AWTYP) is GLYEC.
- Clearings & clearing resets are not transferred as part of the initial load, but you can activate the transfer of clearings via ongoing replication.
- Recurring entries & Sample documents.
- Noted items (except down payment requests and payment requests).
- Parked documents & Balance carry forward items.
- Generally, the posting from Central Finance system back to the source system is not possible.
There are some challenges with the central finance approach from a business point of view the biggest about how an extra cost related to the central finance approach can be verified? The additional cost is related to the fact that instead of running a single transaction there would be two systems to replicate the financial transactions. And it would be essential to preserve and support new central finance as well as a legacy system temporarily. It is needed to be evaluated this cost against the benefits of the transparency of having finances in a business and the risk related to the slow advancement to the SAP S/4HANA functionality. Therefore, it is required to evaluate the business case carefully.And there are a few challenges for adopting the Central Finance approach:
1. Technical Complexity: The other components are required to maintain the existing source systems and the central finance system; involving the SLT server presented on a distinct instance and the related updates to the source systems. These include the installation of the data duplication components at the technical level as well as a series of functional level upgrades. Although the effect on source systems is negligible, it is required to introduce some of SAP notes into the source systems, this permits the duplication of a document from a source system to the target system. There could be a massive dependency if the recent releases of the source systems are not available and even the support packages are not updated. This will result in a state, where it is required to perform the regression testing of the source systems which will add the extra cost and risk to the project.
2. Mandatory Competencies: It is required to have some capabilities which are to be constructed in the SLT sever. Well, this is comparatively direct technique and ought to be fascinated into the existing BASIS provider. However, it is also required to develop capability in Master Data Governance, i.e., MDG from both the technical as well as a business point of view.
3. Architectural anxiety on the Central Finance method: The financial statements should be drawn either in the source systems or the Central finance system. If it is required to bring the economic articulations from the source framework, possibly the result of allocations and reconciliations carried out in the central framework should be passed once again into the source systems. It is possible that the system records may have altered if the statements are taken from the central systems and thus it is also required to change the integration to combination framework.
There are a few myths around the whole industry which are debunked below:·
Central Finance is ONLY relevant for organizations with multiple source systems:
While it is true that Central Finance brings a lot of value to organizations with multiple SAP and non-SAP ERPs, it also reduces the risk for organizations going through a financial transformation. Several SAP customers are already leveraging Central Finance as a stepping stone to SAP S/4HANA. By starting the project with Finance, companies can cut back on the number of decisions needed at one time. Also, running Central Finance in parallel to their existing ERP limits the disruption to operations and significantly lowers the risk that a full ERP migration represents.
Central Finance prevents the adoption of SAP S/4HANA:
On the contrary, Central Finance extends upon a full SAP S/4HANA system. As such, Central Finance eases the adoption of SAP S/4HANA with a phased approach. Most organizations implementing Central Finance start with Central Reporting. From there, they can introduce financial shared services like Central Payments, Central Credit Check, or Tax Reporting. Later,Central Finance can serve as a platform for downstream systems like a data warehouse,planning, or consolidation system. Last, when the time is right, the source system can be fully migrated to the SAP S/4HANA platform.
Central Finance is a short-term solution:
Every organization tries to avoid or minimize temporary solutions that contribute to regret costs. Contrary to traditional data warehousing or custom reporting solutions, Central Finance leverages standard solutions for the load and replication of finance and controlling transactions. In addition,since the platform is based on SAP S/4HANA, all the configuration and migration work that occurs during a Central Finance project would not need to occur during an SAP S/4HANA implementation.
Central Finance only works with SAP source systems:
Long-term SAP customers know that the support of non-SAP solutions is limited. This is simply because SAP developers are limited in their ability to work with “third-party” solutions. In the context of Central Finance, the solution lies in staging tables available on the SLT server. In addition, there are some solutions offered by Magnitude offers out-of-the-box integration between the most popular ERP systems and SAP Central Finance.
And the ultimate truth:
Central Finance is stable and scalable & very stable, especially considering that more than 500 customers have bought the license, more than 400 projects have started, and about 100 customers are live. In addition to being part of SAP S/4HANA, Central Finance relies on tried and true components like the SAP Landscape Transformation (SLT) and Application Integration Framework (AIF). All this contributes to an architecture that’s reliable and scalable for all scenarios.
Myths from – https://www.truqua.com/sap-central-finance-4-myths-and-1-truth/