ecosolutionscope v1604 en in

EHP4 for SAP ERP 6.0

September 2010

English

SAP Best Practices for Engineering Construction and Operations V1.604 (IN)

SAP AGDietmar-Hopp-Allee 1669190 WalldorfGermany

Solution Scope

SAP Best Practices SAP Best Practices for Engineering Construction and Operations: Solution Scope

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Contents

1 Purpose........................................................................................................................................ 5

2 Functional Scope – Supported Business Processes or Scenarios...............................................5

2.1 Project Management..........................................................................................................5

2.1.1 Project Setup for Engineering and Construction............................................................5

2.1.2 Project Budgeting for Engineering and Construction......................................................5

2.1.3 Project Planning for Engineering and Construction........................................................5

2.1.4 Project Forecasting & Earned Value Management........................................................6

2.1.5 Time Entry for Construction............................................................................................6

2.1.6 Revenue Recognition for Projects..................................................................................6

2.2 Equipment & Tools Management.......................................................................................6

2.2.1 Equipment & Tools Management for Construction.........................................................6

2.3 Procurement....................................................................................................................... 6

2.3.1 RFQs for Project-based Procurement............................................................................6

2.3.2 Purchase Orders for Project-based Procurement..........................................................7

2.3.3 Consumable Purchasing................................................................................................8

2.3.4 Procurement Contract....................................................................................................8

2.4 Accounting.......................................................................................................................... 8

2.4.1 Contract Billing for Engineering and Construction..........................................................8

2.4.2 General Ledger..............................................................................................................9

2.4.3 Accounts Receivable....................................................................................................10

2.4.4 Accounts Payable........................................................................................................11

2.4.5 Cash Management.......................................................................................................12

2.4.6 Asset Accounting.........................................................................................................13

2.4.7 Period End Closing Financial Accounting.....................................................................14

2.5 Controlling........................................................................................................................15

2.5.1 Period End Closing Activities.......................................................................................15

2.5.2 Travel Management.....................................................................................................16

2.6 Analytics........................................................................................................................... 16

2.6.1 Project Reporting for Engineering and Construction....................................................16

2.6.2 SAP ERP Reports for Accounting................................................................................16

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SAP Best Practices for Engineering Construction and Operations – Solution Scope1 PurposeThis solution scope provides an overview of the processes and functions covered by the SAP Best Practices Engineering Construction and Operations Package for India. It describes the functions and explains their business purposes.

In the section Functional Scope – Supported Business Processes or Scenarios, you find a scenario-based view of the functions. In the section Functional Scope – Functions, you find a view arranged according to groups of functions and based on the relevant SAP Solution Map.

The solution scope does not provide technical explanations of how to use the functions. For details on this topic, see the Business Process Documentation.

2 Functional Scope – Supported Business Processes or Scenarios

2.1 Project Management2.1.1 Project Setup for Engineering and ConstructionThis scenario demonstrates how a project is created in the system. A project structure can be a set of work packages with reference to the physical object and construction disciplines into which the contractor organizes the work to perform, mostly for accounting and time control purposes, and is designed for project control and execution. It connects with the project owner needs reflected in a quote or awarded contract. It provides cost and resources spread in a time perspective.

2.1.2 Project Budgeting for Engineering and ConstructionThis scenario demonstrates how to create a preliminary budget using the Easy Cost Planning functionality found in the SAP system and how to execute date planning within the SAP system. The preliminary budget provides the cost view and equally quantifies the scope of work (physical output or production) and the necessary resources to be consumed in performing such production.

2.1.3 Project Planning for Engineering and ConstructionThis scenario covers how to create a detailed project plan to commit resources, funding, and the corporate staff, with the ultimate goal of delivering the project. The project plan is comprised of schedule, work plan (hours), construction equipment, purchase plan (construction material, equipment), budget (cost plan) and the production plan (construction physical output). The project plan is a solid, detailed management framework. It brings in elements to control execution and forecasting, enabling the contractor to steer the project, thus creating conditions to deliver on-time, and on-budget.

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2.1.4 Project Forecasting & Earned Value ManagementEarned Value Management is used to evaluate current project performance. Earned value management is a method to accurately determine a project’s health in terms of cost and schedule progress against the plan.

Project Forecast is used to evaluate based on the past performance of the project the future course of the project. It provides insights how current productivity, for example, will impact the project’s final results and is used to indicate areas of concerns.

2.1.5 Time Entry for ConstructionThis scenario describes the typical processes used in the engineering, construction and operations (EC&O) industry to create and maintain employee time information. Using cross application timesheet (CATS) application, salaried employees’ can enter exception time and hourly employees’ can enter their actual working hours, as well as the installed quantity, with a cost assignment to network and activity. Using personnel actions, the employee can be hired into, separated from and rehired into the system. In addition, the company organization structure can be maintained in order to create new organizational units, jobs and positions as required.

The hours worked can be transferred over into the Projects module for project confirmation. This enables the ability to calculate actual hours against the activity cost to further support project analysis by understanding the actual project labor costs against the planned costs for the project.

2.1.6 Revenue Recognition for ProjectsIn industries such as engineering and construction, it can take months or years to finish the entire contract. Therefore, it is essential to recognize revenue against the time spent, cost incurred, or milestones achieved.

Results Analysis (RA) is a sophisticated tool within the Controlling module that computes the cost of goods sold, WIP inventory and the reserves for unrealized revenue or surplus revenue. It uses percentage of completion based upon planned costs and revenue to calculate the values. WIP calculation and RA are generally interchangeable terms.

Settlement transfers results analysis data to financial accounting: WIP, reserves for unrealized costs, reserves for the cost of complaints and the reserves for imminent loss to financial accounting by period.

2.2 Equipment & Tools Management2.2.1 Equipment & Tools Management for ConstructionThis Scenario addresses the unique requirements of self performing construction companies, building contractors and equipment distributors by handling the industry-specific business processes such as equipment planning, -processing, -settlement and evaluation of resources (equipment and materials) including performance measurement.

2.3 Procurement2.3.1 RFQs for Project-based ProcurementThis scenario describes the typical processes used In the Construction industry to solicit, obtain, and compare supplier pricing information to select the appropriate supplier for the material or subcontracted service to be procured. The process starts with the definition of the required

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materials and subcontracted services for a specific project. The definition of the quotation criteria's and the bidding packages are the next steps, followed by a selection of suppliers for the relevant quotation utilizing price comparison report. The quotation will be compared, after the decision for the relevant suppliers the purchase orders / subcontractor orders are defined.

2.3.2 Purchase Orders for Project-based ProcurementThis scenario describes the typical processes used in the construction industry to generate and process various types of purchase orders (POs). These POs are used to procure materials and subcontracted services with or without material master records.

In addition to the PO creation process this scenario also describes other processes such as the goods receipt of materials, the service entry sheet process for services, the invoice verification process for both materials and services and the vendor evaluation process.

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2.3.3 Consumable PurchasingThis scenario deals with purchase order creation activities during the procurement process. Furthermore it describes the additional process steps of a purchase order approval, goods receipt of consumables, approval of service entry sheets and invoice receipts by line item. The process also covers the related processing of outgoing payments and period-end plant and period-end closing.

Consumable items (goods or services) are entered without material number but rather a short text description as the main identifiable characteristic. The purchase order is subject to approval based on predefined parameters prior to being issued to a vendor.

For consumable goods, there is no inventory in the system. By posting a goods receipt the value of the goods is expensed to a cost center or another cost element.

When the invoices are received from the vendor, they are entered with reference to a purchase order and item, providing a three way match of purchase order value, goods receipt value and invoice value. If there are any variances between invoice and purchase order value, the invoice is blocked and forwarded to the Buyer for approval. Checks to vendors are generated based on the net term condition reflected on the invoice, derived from the vendor master. Variances due to deviations from standard price are collected in the purchasing cost center and allocated to product line level based on a predefined percentage.

Procurement of a consumable service follows the same general process. The difference is that the consumable service is not posted by means of a goods receipt, but with a service entry sheet. The invoice follows the same rules in both cases.

2.3.4 Procurement ContractThe process to create a contract begins with the need to secure a big number of supplies as well as reducing procurement costs. The creation of a contract can start if the following issues have been clarified:

- Number/amount of material or services

- Validity start / validity end

- Payment terms

- Quantity of each contract material/service,

- Price of each position in the contract

- Location to where the goods/services are delivered.

A contract is signed by a purchasing manager or a buyer.

After the creation of a contract, purchase requisitions and purchase orders can be performed with relation to the contract.

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2.4 Accounting2.4.1 Contract Billing for Engineering and ConstructionThis scenario covers the three primary contract billing processes used by the engineering construction and operations industries, the first is Lump-Sum Contract with Milestone Billing, the second is Bill of Services – Unit Price Contract with Service Entry Sheet and third is Cost Plus and Time and Material Billing (RRB). These processes can be used with separate projects or they can all be used for one project if it is required.

2.4.2 General Ledger

PurposeThe central task of G/L accounting is to provide a comprehensive picture of external accounting and accounts. Recording all business transactions (primary postings as well as settlements from internal accounting) in a software system that is fully integrated with all the other operational areas of a company ensures that the accounting data is always complete and accurate.

The SAP FI General Ledger Accountant has the following features:

Free choice of level: corporate group or company

Automatic and simultaneous posting of all subledger items in the appropriate General Ledger Accountant accounts (reconciliation accounts)

Simultaneous updating of General Ledger Accountant and cost accounting areas

Real-time evaluation of and reporting on current accounting data, in the form of account displays, financial statements with different financial statement versions and additional analyses.

The General Ledger Accountant serves as a complete record of all business transactions. It is the centralized, up-to-date reference for the rendering of accounts. Actual individual transactions can be checked at any time in real-time processing by displaying the original documents, line items, and transaction figures at various levels such as:

Account information

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Journals

Totals/transaction figures

Balance sheet/profit and loss evaluations

Process Flow Posting General Ledger Account Documents

Displaying the Document Journal

Displaying G/L Balances (List)

Carrying Out Recurring Entries

Account Maintenance: Automatic and Manual Clearing

Key Points Provides a comprehensive picture of external accounting and accounts

Records all business transactions in a software system that is fully integrated

Ensures that the accounting data is always complete and accurate

Automatic and simultaneous posting of all subledger items in the appropriate general ledger accounts (reconciliation accounts)

Simultaneous updating of general ledger and cost accounting areas

Real-time evaluation of and reporting on current accounting data

Financial statements with different versions and additional analyses

Actual individual transactions can be checked at any time in real-time processing

2.4.3 Accounts Receivable

PurposeThis component deals with posting accounting data for customers in Accounts Receivable. From there, the data is sorted by customer and made available to other areas such as the Sales and Distribution system. When posting data in Accounts Receivable, the system creates a document and passes the data entered to the general ledger. General ledger (Profit and Loss) accounts and customer accounts are then updated according to the transaction concerned (receivable, down payment, credit memo and so on) customer payment activities. All business transactions are posted to and managed by means of accounts and for this a customer master records are created. One time Customers are used for avoiding building up of huge master data volume.

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Business Process Accounts Receivable focuses on the following activities:

Post down payment request

Post down payment manually

Post customer invoice

Post a credit note with invoice reference

Posting Payments Using the Payment Program

Posting Manual Payment

Automatic Clearing of open items in customer accounts

Manual Clearing of open items in customer accounts

Manual Bank Statement Processing

Reprocessing an Account Statement

Dunning

Account Balance Interest Calculation

One-Time-Accounts Postings

Setting a Credit Limit

Credit Control Reporting

General Business Processes: In this document, you can find some transactions that cover the following general business processes

Displaying an accounting document.

Displaying and Changing Line Items

Displaying Balances

Reversing a Document

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Reversing a Document – Individual Reversal

Reversing a Document – Mass Reversal

Process Flow Post down payment request/ manually

Posting customer invoice and

Post a credit note with invoice reference

Posting payments using the payment program

Posting manual payment

Automatic clearing of open items in customer accounts

Manual clearing of open items in customer accounts

Manual bank statement processing

Reprocessing an account statement

Dunning

Account balance interest calculation

One-Time-Accounts postings

Setting a credit limit and credit control reporting

Key Points When posting data in Accounts Receivable, the system creates a document and passes the

data to the general ledger

Profit, Loss and customer accounts are updated according to the transaction concerned customer payment activities

All business transactions are posted to accounts

All business transactions are managed by means of accounts and for this customer master records are created

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One time Customers are used for avoiding building up of huge master data volume

2.4.4 Accounts Payable

PurposeThis scenario deals with posting accounting data for vendors in Accounts Payable. From there, the data is sorted by vendor and made available to other areas such as the purchasing system. When posting data in Accounts Payable, the system creates a document and passes the data entered to the general ledger. General ledger accounts and vendor accounts are then updated according to the transaction concerned (payable, down payment, credit memo and so on) vendor payment activities. All business transactions are posted to and managed by means of accounts and for this a vendor master records are created.

Business Process Accounts Payable focuses on the following activities:

Down payment request / clearing

Post down payments using the payment program

Post vendor invoice

Enter vendor credit memo

Review and Release Blocked Invoices

Select invoices to be Paid

Review and block invoices for payment as needed

Post payment using the payment program Creation of payment media using Payment Media Workbench (Alternative 1)Creation of payment media using Classical Payment Medium program( Alternative 2)

Manual payment

Manual bank statement processing

Display of posted documents

Process Flow Post Accounts Payable Documents

Manual and automatic clearing of open items

Post down payments using the payment program

Post manual and automatic outgoing payments.

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Key Points When posting data in Accounts Receivable, the system creates a document and passes the

data to the general ledger

Profit, Loss and customer accounts are updated according to the transaction concerned customer payment activities

All business transactions are posted to accounts

All business transactions are managed by means of accounts and for this customer master records are created

One time Customers are used for avoiding building up of huge master data volume

2.4.5 Cash Management

PurposeCash Management in SAP ERP Financials provides three basic functions:

Quickly and reliably transfers all cash-relevant information from internal and external sources into the cash management system (inbound data)

Performs analysis and reporting of current and future cash flows to help you make cash management decisions (analysis and decision)

Communicates with banks and other business partners based on the results of the decision process (outbound data)

The cash position overview provides information on the current financial state of the bank accounts. It is the starting point for cash concentration in which the balances from various bank accounts are concentrated in one target account, taking minimum balances and payment optimization into consideration.

Process Flow Cash Management Status Analysis

Cash Concentration

Key Points Posting of a vendor invoice in local and foreign currency.

Posting of a customer invoice in local currency (from a sales order).

Posting of planning items and memo records.

Execution of the report showing cash position and the liquidity forecast.

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After posting a manual bank statement, the flow between the planning levels is demonstrated.

Automatically archiving memo records

The cash concentration function identifies the relevant amount and transfers them from one account to another.

Period End Closing Activities

o Cash Position & Liquidity Forecast

2.4.6 Asset Accounting

PurposeThe functions for Tangible Asset Handling enable illustration and documentation of the development of fixed assets for accounting purposes.

Asset accounting is a subsidiary ledger of the general ledger and is used to manage and document in detail fixed asset transactions. In general ledger accounting, it is possible to update depreciation and changes to asset balance sheet values in asset accounting. It is also possible also make various account assignments to cost accounting for these transactions.

As a result of the integration in SAP ERP, Asset Accounting (FI-AA) transfers data directly to and from other SAP ECC components, for example posting from the Material Management (MM) component directly to FI-AA. When purchasing an asset or produce an asset in-house, directly posting the invoice receipt or goods receipt is possible, or the withdrawal from the warehouse to assets in the Asset Accounting component. At the same time, you can pass on depreciation and interest directly to the Financial Accounting (FI) and Cost Accounting (CO) components. From the Plant Maintenance (PM) component, maintenance activities that require capitalization to assets are available.

To handle tangible assets, the business functions of the following system components are accessible:

Component Functions

Financial Accounting (FI) Integration with the general ledger and other subsidiary ledgers

Asset Accounting (FI-AA) Valuation of fixed assets and settlement of assets under construction

Cost Accounting (CO) Posting cost-accounting depreciation

Process Flow Acquisition from purchase with vendor

Acquisition with Automatic Offsetting Entry

Retirement with revenue

Asset Sale without customer

Post-Capitalization

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Write-Ups

Settlement Assets Under Construction

Down Payment Request for Assets under Construction

Depreciation Posting Run

Posting Acquisition and Production Costs Values

Depreciation Simulation/Primary Cost Planning

Key Points Entire lifetime of the asset from purchase order or the initial acquisition (possibly managed

as an asset under construction) through its retirement

Calculate values for depreciation and interest

Depreciation forecast

2.4.7 Period End Closing Financial Accounting

PurposeClosing operations are periodic tasks and can be subdivided in FI as follows:

Day-end closing

Month-end closing

Year-end closing

The closing operations component helps preparing and carrying out the activities required for day-end, month-end, and year-end closing. For this purpose, the system provides a series of standard reports that can be used to generate evaluations and analyses directly from all of the posted account balance. The system helps carrying out the following:

Creating the balance sheets and P&L statements

Document the posting data

No additional postings are required for day-end closing.

Using the following evaluations for day-end closing and for documenting the posting data is possible:

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Compact-Document journal

Evaluation of the documents that have not been posted

To carry out the closing operations in G/L accounting, it is necessary to carry out the closing operations in the subledger accounting areas you are using. These include:

Accounts receivable and accounts payable accounting

Inventory accounting

Asset accounting

Year-end closing is split into two phases:

At the beginning of the new fiscal year, you open new posting periods and carry forward the balances from the previous year

You then prepare and create the financial statements and document the business transactions using the balance audit trail

The SAP system offers a range of reports, which can carry forward balances into the new fiscal year. During this process, the profit and loss accounts are carried forward to one or more retained earnings accounts. The balances of the balance sheet accounts are simply carried forward into the new fiscal year. It is not necessary to create special opening financial statements.

Any postings done in the old fiscal year automatically adjust the relevant carry-forward balance. Closing the old fiscal year and carrying out the closing postings before opening the new fiscal year is not necessary.

As with month-end closing, you can create all the external reports required, document the posting data, and carry out the internal evaluations.

Process Flow day-end closing

month-end closing

year-end closing

Key Points Updating Exchange Rates

Gaps in Document Number Assignment

Invoice Numbers Allocated Twice

Displaying the compact document journal

2.5 Controlling2.5.1 Period End Closing ActivitiesThis building block provides the means and sequence of period–end closing steps for period–end closing on a daily, monthly and yearly basis. SAP Best Practices covers all different kinds of scenarios with a broad variable implementation approach. It should be possible to select all required steps depending on the selected solution scope. Period-end closing steps are closely related to

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scenarios and applications. SAP Best Practices for Baseline structures the period–end closing in two sections.

Section 1: The period–end closing process steps are described in detail in specific business process documents. These procedures are application oriented and contain all steps which are to be done in this regard.

Section 2: The Business Process Documentation does not cover the correct sequence of all period–end closing steps in one solution. Therefore an additional description is provided which contains all steps in a certain sequence. If the step is to be performed, the corresponding step of the Business Process Document should be selected and executed.

2.5.2 Travel ManagementThe purpose of this process is to provide fully integrated management of all incurred travel expenses – from the planning/approval stage right through to the point at which the travel expenses are posted to Financial Accounting and allocated on a cause basis in Cost Accounting.

2.6 Analytics2.6.1 Project Reporting for Engineering and ConstructionThis scenario presents a selection of typical reports that can be used to analyze and control EC&O projects. The reports shown are standard delivered in SAP ERP or were created using the Report Painter tool. The reports developed through Report Painter require no programming knowledge and can be easily modified or adapted according to customer requirements.

2.6.2 SAP ERP Reports for AccountingThis scenario demonstrates how to execute various reports to get information about all fields of financial accounting. The reporting tools and existing reports can be used to satisfy reporting requirements in most cases. In the area of accounting, various reports can be used to get information about all fields of financial accounting.

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