Technical Articles
SAP Result Analysis – Concept
1. Introduction
This blog starts with explaining a reporting issue faced in some given scenarios. And then in general will explain the possible solution. In the later part will see how SAP Result Analysis addresses these issues and provide some basic configuration details relating to Result Analysis.
2. Scenario
Let’s start with a scenario where in REV Ltd., a construction company gets into a customer project to build a plant. Terms of the contract are as below;
- The contract is of 10 million. Which means REV Ltd. gets revenue of 10 million from the contract.
- Invoice of 5 million will be raised at the beginning of the contract and the remaining 5 million will be raised upon completion of the contract which is after 4 months.
REV Ltd. has estimated that it would cost 8 million to complete this project. It means a profit of 2 million (i.e., 25% profit on the cost).
An investor looking at the above financials at the end of period 1 with no other details, finds the business to be highly profitable and may take a wrong investment decision.
Even when we look at the financials throughout the contract period, anyone will certainly interpret the business to be highly volatile and risky, though it is not as it looks by numbers.
To overcome the scope for interpretation and to keep a more stable and appropriate profit and loss statement, it requires adjustment in the reporting revenue or corresponding costs (as the case may be) in each period. In most cases, this exercise is also required to get complied with accounting regulators/standards.
So, how do we do this?
Indeed, there are multiple approaches. An appropriate one can be picked based on the nature or the business, internal policies, available information, regulations or any other influential aspects. Nevertheless, for our discussion and understanding we will limit our self to below two approaches;
1. Percentage of Completion Method (POC) – Cost Based
Under this method;
- Calculate POC of a project based on how much has been already spent on the project in comparison with the planned cost, i.e., POC = (Actual Cost/Planned Cost) * 100
- Recognize revenue only to the extent of POC, i.e., Calculated Revenue = Planned Revenue * POC
- If there is difference between Actual Revenue and Calculated Revenue, it must be adjusted.
When Actual Revenue > Calculated Revenue (Revenue Surplus), then reduce the revenue.
When Actual Revenue < Calculated Revenue (Revenue in Excess of Invoiced), then increase the revenue. - There will be no change in reported cost.
2. Revenue Based Method
Under this method;
- We keep revenue as it is; but do adjust the expenditure/cost to bring it in proportion to revenue.
- Calculated Cost = (Actual Revenue/Planned Revenue) * Planned Cost
- If there is difference between Actual Cost and Calculated Cost, it must be adjusted.
When Actual Cost > Calculated Cost (Work in Process), then reduce the cost.
When Actual Cost < Calculated Cost (Reserves for Unrealized Costs), then increase the cost. - There will be no change in reported revenue.
Now with adjusted financials as above under both approaches, profit is evenly distributed over the period and business doesn’t look volatile and risky. This is also called as principle of matching cost and revenue or ‘matching principle’.
In SAP, the ‘Result Analysis’ feature helps in automatically calculating and adjusting the financials as above.
3. SAP Result Analysis
3.1 Process
In SAP, a project is created with required Work Breakdown Structure (WBS) for each customer project. Planned cost and revenue of the project is also maintained. All expenses relating to the project are posted on WBS (cost object). Revenue relating to the project is also posted from SD (billing) on the WBS. (It is to be noted that when revenue is posted on WBS, COPA documents are not generated.)
During period end, Result Analysis (Transaction KKA2) is performed on the project to match cost and revenue. It is performed at WBS level while it considers all the sub level WBS and Network Activities under it. To calculate and propose accounting adjustment entries as per matching principle, Result Analysis considers various data like planned cost, planned revenue, actual cost, actual revenue, method to be used to match cost and revenue, and GL accounts to be posted. Result Analysis does not post any accounting entries. The calculated results should be saved to get considered for settlement run.
The next step is Settlement (Transaction CJ88) of the project. Settlement of the project happens based on the settlement rule assigned. Normally in case of customer projects, settlement happens on COPA. Settlement will post settlement accounting entries as well as result analysis entries.
3.2 Configuration
Let’s try to understand some of the important configuration which help Result Analysis work.
Maintain Result Analysis Keys (Transaction OKG1)
Result Analysis Key (RA Key) is a control parameter for Result Analysis. It is assigned to a WBS. When a RA Key is present in WBS it becomes Result Analysis relevant. The method assigned to RA Key will be considered when Result Analysis is executed.
Define Valuation Methods for Results Analysis (Transaction OKG3)
Valuation Method specify the method by which results analysis is carried out. Whether it is Cost-Based POC Method or Revenue-Based Method or so on. It is assigned to RA Key in combination to controlling area and RA Version.
Valuation Method can be assigned in Simplified Customizing or in Expert Mode. With Expert Mode lot of settings can be made in the valuation method. It is recommended to user Expert Mode only when necessary.
Below is the list of Result Analysis Methods available in SAP; (More details on Results Analysis Methods can be found in SAP Help)
Define assignment of Cost Elements (GL Account) for Results Analysis (Transaction OKG5)
Cost Elements are assigned to Line IDs defined. Line IDs structure the results analysis data according to the requirements of Financial Accounting. Postings to these cost elements (GLs) will be considered for actual data (cost and revenue) while calculating result analysis.
Define Posting Rules for Settlement to Accounting (Transaction OKG8)
This configuration helps us to define the GL accounts which needs to be posted as part of result analysis adjustments upon settlement. For example, GLs for Revenue in Excess of Invoiced or Reserves for Unrealized Costs. Result Analysis Category is the key for account determination. It is defined with origin of Result Analysis data. For Ex. RA Category POCI (Revenue in Excess of Billings) is referred for posting when calculated Revenue in Excess of Billings.
This configuration is maintained mainly in combination of CO Area, Company Code, RA Version and RA Category.
4. Conclusion
Hope you find the blog helpful. The intention of this blog is to give an overview of the Result Analysis concept. Result Analysis has lot of methods and options and please do further reading to know and utilize the full potential of Result Analysis.
NIce Blog Madhu, Very well explained.
Thanks for sharing your knowledge 🙂
Regards
Prasad
Thanks Madhu.
A very enlightening knowledge about RA for me.
Regards,
Aulia
Thanks Madhu.
It's really helpful for us .
For the example you have given, I try to implement it in my system,
But I was confused by the following issue:
As the cost is settled through CJ88/CJ8G,and we can get the corresponding profitability segment, through billing we can get the revenue , but there is no COPA segment for the revenue.
So I would like to know is it reasonable or is there any specific configuration points in COPA or anywhere in the part?
Thanks in advance for your support!
Best Regards
Qiuya
Hi Qiuya,
I am glad that you found the blog helpful.
Please check the settlement rule assigned in the WBS. Make sure the settlement is to PSG.
Regards,
Madhusudhan
Dear Madhusudhan,
Thanks for your reply.
We can get the COPA segment when posting the COST document by CJ8G,
But is no COPA segment when posting revenue document by tcode vf01,is it also relevant to the settlement of the WBS ?
Looking forward to your reply!
Best Regards
Qiuya
Hey really nice blog. I really enjoy reading it.
However, in a S/4 HANA configuration, you can import the budget with a Fiori app. It is not like the controlling version (CJR2). How an you link the planned revenue/cost to this result analysis?
Many thanks
Hi...
It's a really nice and helpful blog.
I have one recommendation. Can we mention here that when plan cost and the revenue it's should be done at cost element level in CJ40 or via CJR2 either case to run the RA as one of a mandatory thing? Let me know if it's correct and if it's helpful do include this point in the blog so it may helpful for PS guys.
Regards
Atul Rajmane
Thank you for the Blog, It's really helpful for us .
We have done all the configuration related to WIP and run full cycle ( KKA2 ), We got expected result in KKA2. But Planned Quantity is not showing in Plan data of valuation tab.
Is there any solution to bring Planned Quantity.
Please suggest what to do? I am new in SAP.
Regards,
Swapnil C
*chaudharis44@gmail.com
Hi Madhu,
Thanks for the explanation on the RA. Right now I'm having an issue on displaying the value for Plan complaint and commission in the RA for project(KKA2). I have done some configuration to add the complaint and commission via OKG4 and OKG5, the actual actual amount complaint and commission appear in the screen but for plan it was zero. Below is the screen shot,
Appreciate if anyone can advice how to show the amount for plan cost comission/complaint.
Regards,
Nora
Hi Madhu,
Thank you for your detail blog makes me very clear.
I would like to ask in terms of POC Method, Period 1, Revenue Surplus should be 4.375 not 4.9375 right?
Best
Weiyu
Thanks Weiyu for bringing it to the notice. I have updated it now.
Dear Madhu,
Thank you for your detail blog makes us very clear on result analysis. However we are not sure how to integrate the result analysis with revenue accounting and reporting.
Could you kindly assist on result analysis integration with revenue accounting and reporting, especially for POC based billing for the projects ?
How does RA method 16 & 17 work please