SAP S/4HANA for central finance and central internal order budgeting

Organisations need to control cash. Control of cash is not same as managing plans or forecasts. Budgets represents real cash and often are not the same as plans and forecasts. Many organisation engage in forecasting, planning and actuals; often shortened to FPA. However, as FPA primarily looks at the profit and loss account, it does not directly cover working capital as it is held in a balance sheet. And the most important element of working capital is cash. Cash is king and is the only outflow that can be effectively controlled.  Today, control of cash is more important than FPA per se.

SAP delivers cash controls through SAP S/4HANA using either standard or industry specific processes. Today, SAP S/4HANA can deliver standard controls of cash using commitment accounting based on management accounting configuration based on the needs of an organisation. Where an organisation has a single instance, such cash controls are easily deployed using SAP S/4HANA. However, in a multi-system landscape, this has not been possible in the past. This lack of functionality has meant an organisation cannot manage enterprise level cash controls and has to resort to reporting solutions using business intelligence tools, home grown solutions or simply give up control of cash. To counter this, SAP developed SAP S/4HANA for central finance.

SAP S/4HANA for central finance works as a data, process and analytics platform under many scenarios. Once such scenario is for the finance an risk function of an organisation.  With SAP S/4HANA for central finance, an organisation can have multi-instance approach to managing its business yet have central cash controls using central budgets using internal orders as cost container.  These cost containers can collect cost, share costs and settle costs for purposes of OPEX or CAPEX but allow management of cash at the earliest lifecycle of spend management such as a purchase requisition and/or purchase order.

Assuming the SAP S/4HANA or ECC system is configured correctly, the budget can be stored within SAP S/4HANA for central finance but spend can occur in a source system. This spend can be at the purchase requisition, purchase order or a manual accounting journal against the internal order cost collector. As long as the internal order order is specified and mapped, central budget controls are checked automatically and the user is alerted with one of the following.

• No budgetary violation. In this instance, the spend is allowed to proceed
• Violation of cash budget with a warning. in this instance, a user is alerted that budge is close to exhaustion based on a predefined tolerance. The user can cancel the spend or continue.
• Violation of cash budget with an error. In this instance, the user cannot continue with spend and has to either cancel the spend request/order or increase the budget to continue the spend request/order.

To implement central budgeting for internal orders with SAP S/4HANA for central finance, the following minimum release guidelines must be observed.

The release level for SAP S/4HANA for central finance for internal order central budget requires SAP S/4HANA 2020 release. SAP S/4HANA for central finance box is not backward compatible but the source system can be of an earlier release.

Further, the functionality process matrix is supported as follows.

The process matrix covers all the standard cash accounting needs from procurement and to journals/allocations carried out on a daily or periodic basis on financial and management accounting. It should be noted that the cost object support in SAP S/4HANA release 2020 only covers internal orders. For WBS support, I will release a new blog in the near future.

So how does the process actually work?

A users follows the SAP best practises process for purchase to pay and record to report. Depending on the context, a user can trigger central cash budget check. The source system and the SAP S/4HANA for central finance work on a real time basis where the source system is also an SAP system.

This is core functionality reused in SAP S/4HANA and requires similar configuration to a single instance concept subject to standard integration between the source system and SAP S/4HANA for central finance.

As promised to our customers, we have delivered enterprise cash controls across a multi-system landscape using internal orders (watch this space for WBS elements). The possibility of controlling cash across different divisions, geographies, tiers and processes that are not standardised is not possible by using SAP S/4HANA for central finance as a data and process platform.

Tip: SAP S/4HANA for central finance is a full SAP S/4HANA system. So use it like SAP S/4HANA system.