Cost Center Master Data Design in Exploration & Production Companies

You might have already noticed my previous blog on Key Master Data elements in Upstream Industry. In case you want to, you can still refer: Key Master Data Element’s in Upstream SAP Implementation I would like to talk about more specific topic now i.e. about Cost Center Master Data Design in the Upstream Industry.

Whenever we go for any implementation we need to create the master data in this case master data being cost center.

However the following generic questions automatically comes to our mind:· What do business mean by cost center master data & what does it represent in this particular

industry in question?· How to establish the design for the same?· What are the dependencies?· What is the process for Maintenance (Create/Change)?· What are the important considerations?

Now let see how can we address these questions & considerations.

Probably its worth to know What is a Cost Center & How do we define that in Exploration & Production Companies:The definition of cost center master data depends on where costs and revenues are incurred. Typically for an Exploration & Production companies this will highlight the lowest organizational unit like Well, department, component, prospect or portion of a pipeline or plant, well completions, segments of pipelines or facilities etc.

Now we might be in a position to appreciate the related detailed discussions for the Cost Center Master data.

Cost Center Master Data has many fields however some of the important fields that contributes to the key design considerations are as follows:

· Cost Center Category· Cost Center Hierarchy· Business Area· Functional Area· Profit Center· Joint Venture & related fields i.e. Equity Group

Cost Center Master Data important fields

Cost Center Category:Cost center category determines the type of cost center. It could represent division, district offices or functional departments .In upstream industry we may find the following types i.e.

· Development· Exploration· Production· Facility· Administration· Gas Plant· Terminals· Marketing etc.

 System wise, cost center category controls the lock indicator for different posting types and also which functional area it is linked to. Functional Area:By definition, Functional Area is an Account assignment characteristic that sorts operating expenses according to functions. Each industry will have its own operating expenses for example:

A major Oil & Gas Upstream company might have the functional area in the form of –

· Production Expense· Gas Plant· Exploration· Seismic· Dry Hole· Terminals & Rail· Abandonment· Drilling· Corrective Maintenance· Preventive Maintenance· Refurbishment

Cost Center Standard Hierarchy:The cost center standard hierarchy in any organization represents a roll up of the management responsibilities of the company and this is the reason why it is considered as the driving factor to prepare the management reporting.

Cost Center Standard hierarchy could as well be ideal to prepare SEC segment & divisional reporting.

Business Area:Business Area could represent a geographical location or area in terms of country or more specifically could also represent states if we are saying about big country like USA.

Profit Center:A profit center group can represent an asset. Many organizations aspire to have balance sheet view at the profit center level and profit center can represent: 

Gas Plant Pipeline Field etc.

 Joint Venture:We all know a joint venture partnership consists of an operating partner (operator) and one or more non-operating partners who combine monetary or personnel resources to share a project’s expenses and revenues. So it defines joint ownership associated with all operational aspects attributable to that ownership. Many a times we notice that it is typically defined at the lease level.

Now let's focus on business considerations & other important necessary details to create the Cost Center Master Data:

The trigger point to create the new cost center master data can be related to either the reason being new well coming into the picture or this is required purely due to administrative reasons.

If it is related to new well, Land Management & Joint Venture Team comes into the picture.

If can also be purely due to administrative reasons i.e. could be new offices, track allocations, payroll costs, general & administrative costs etc.

 Approvals for creation:

Creation of Cost Center Master Data requires necessary approvals from respective departments like Land Management, Joint Venture, Administrative/Management team’s approvals as well as approval from respective Business Unit for which the cost center is being created. 

Approval processes must be followed according to the prescribed guidelines stipulated in the organization (could be manual based on filling the form or automated method of workflow approval process).

Approval must be provided only after proper review to ensure the accuracy & completeness of the data with which the cost center will be created in the system. Why Land Management or Property Management comes into the picture ?As wells will be drilled in a particular land and these could be leasehold land or own, land management team must be important one to start with.Why Joint Venture Team ?This team is responsible to provide the relevant details of the Joint Venture like JV Master Data, Recovery Indicator, Equity Group, JV Object Type etc. Unless JV team provides these information, it will not be possible to complete the cost center master data creation and business cannot start using this master data in system even though it’s available and created using the dummy or default venture master data.

System wise prerequisite to create Cost Center Master Data:Before we crate the cost center master data the following settings & Master Data must be available in the system:

· Definition of the org structure (Controlling Area, Company Codes)· Definition of Cost Center Category· Cost Center standard hierarchy· Functional Area· Business Area· Joint Venture Master Data· Profit Center Master Data

Cost Center Master Data Change/modification:

· First: Once the cost center is created, many field value cannot be modified or changed after the postings to these cost centers are being made in the system. For example Profit Center, Joint Venture etc.

· Second: However certain field value change are allowed only after careful review of the request for change and required approval. Once the requested changes are made, notifications can be sent to all impacted parties either following the workflow process or e-mail etc. 

Important Considerations:

Its utmost important to create the cost center with the right dependent field values for example with right profit center, right joint venture, right functional area, business area, cost center category, the reason being either we cannot modify these to make an exception to the standard process followed or sap standard has its inherent limitations.

Its paramount importance lies in analyzing the impacts of any change or changes to the cost center master data as it could be the fact that the cost center master data is already being referenced in the other master data in the system i.e. WBS, PM Order, PO, Allocation Master data, Joint Venture Master etc.and it could also be the fact that entries already exist in the system.

Advance notification of the communication pertaining to the changes to all impacted parties are must for any change in the field values of the existing cost center master data so that they will be in a position to apprehend the impact and circle it back to the notification source to enable the appropriate course of action i.e. whether process change is required or only master data change will suffice. Many a times the decision changes based on the impact analysis of the existing settings so evaluating the pros & cons are must.

SAP CO-PCA: Profit Centre Accounting Purposes1. Represent the lines of business on which the costs and revenues are aggregated.2. Lowest Organizational Level where a Trial Balance can be generated from SAP R/3.3. Replaces Business Areas. If there is no Business Area concept maintained in that particular client. 4. Profit Centre Accounting is the source for many other reporting systems.5. Postings made in PCA are real-time with the exception of AR and AP; these balances are transferred to PCA at month end6. All Financial Postings will require assignment to a Profit Centre.

Key points while PCA configuration:Profit Center Accounting (EC-PCA) is being used to determine profits and losses by profit center using period accounting approach.  1. Set Controlling area – OKKS2. Maintain Controlling area settings - 0KE5

o        In this IMG activity you define the general control parameters for the controlling area.o        The first step you need to take is to enter the name of the standard hierarchy of profit

center master data. The system creates the standard hierarchy automatically when you save.

o        The dummy profit center receives all the postings in your system to objects, which are not assigned to a profit center. This ensures that your data will be complete in Profit Center Accounting. This field is displayed here for informational purposes only. You create the dummy profit center under Master data -> Dummy center.

o        The checkbox Elimination of internal business volume for Profit Center Accounting is ticked for the controlling area OP01

o        Currencies:o        Profit Center Local Currency Type    = Controlling area currencyo        Profit Center Local Currency = USD (as this is the group reporting currency)

o        Store Transaction currency: Yeso        Valuation view = Legal valuationo        ALE Distribution method: No distribution to other systemso        Currency Type changed to 30. This is as per OSS Note 119428.This note recommends

keeping the PCA currency type to 30 if the currency type for the controlling area is 30 since the currency type in Controlling area settings is 30 the PCA Currency type is changed to 30.

3. Activate Average Balance Ledger – 0KE6: The average balance ledger is not being used hence the 8Z ledgers have been kept as deactivated.4. PCA –Allow balance C/F: In PCA the balances have been configured to allow carry forward. The Pre requisite are that retained earnings accounts have been maintained.

5. Set Control Parameters for Actual Data -1KEF: As soon as Financial Accounting entries are been made the PCA – 8A Ledgers will be updated simultaneously.6. Maintain Document Types:  GCBX -> Document type maintained is A0. The three check boxes are for:a. The transaction currency,b. Local/company code currency andc. Third currency determines which currencies are stored for this document type has been used.

SL:  Maintain additional document type. This needs to be used when correction documents, (to rectify data posted from Finance and other modules) are posted during the test phases for the period end scenario.  This process will be used only during the test phases and hence this document type will not be transported to Production. 

7.      Maintain Number ranges for local documents - GB02: The number assignment is dependent on the company code

 8.      Maintain Automatic account assignment – OKB9

 9.      Choose Accounts:  3KEH: In this activity, you define which accounts or account intervals you

want to transfer to Profit Centre Accounting. If no profit center is specified in a posting, the system uses the default profit center for the account or account interval.

a. BS readjustment: The balance readjustment program read all AR, AP and TAX postings (posted without or with profit center DUMMY). It allocates the correct profit center to AR/AP and TAX and creates postings in FI and In the period end-closing schedule we also run the PCA AR/AP update where all open items (AR/AP) are updated in total in PCA per profit center. The offset postings are updated real time.This means we have double counting in PCA in the AR/AP area. To solve this the readjustment accounts are removed from 3KEH.

10.   Derivation Rules for Finding the Profit Center: 3KEI: 3KEH configuration is used for determining default profit centres for all Balance Sheet accounts, other than reconciliation accounts, where the COB cannot be determined. These accounts are therefore, assigned to Corporate or Financing. Certain Balance Sheet accounts are defaulted to DUMMY because the COB cannot be determined at time of posting, and should not be reported against any particular COB from a 'day to day' perspective. They are, however, dealt with during the period end and eventually are allocated to the COB's guidelines.

 11.   Adding fields to PCA distribution /assessments: Transaction GCA6: View/Table: V_T811I12.   Assignment of Profit Centres to Co codes: In this activity the profit centres are assigned to

company codes. This can be done while changing the Profit center or can be done collectively. Transaction KE52, KE56

13.   Perform Account Control for Valuation Differences: When payables and receivables are transferred to Profit Center Accounting, the system adjusts valuation differences arising from foreign currency revaluation. In this activity, you decide which account these adjustments through foreign currency revaluation are to be posted to. There are two possibilities here:

         Posting to the General Ledger account for payables/receivables          Posting to the balance sheet adjustment account of the general ledger

account for payables/receivables

There is not much configuration in CO (Except Product Costing and COPA) but most conceptual knowledge you should have in CO, 1. Create Controlling area OKKP - Activate CCA and PCA2. Assign company codes to controlling area OKKP3. Activate reconciliation ledger4. Maintain Version5. Maintain Document Number for Controlling Area6. Create Automatic / manual cost elements 7. Create Cost Center Groups8. Create Cost Centers (should have standard hierarchy)9. Before cost center create make sure you have cost center categories in place (standard) otherwise create your own.10. Make PCA controlling area settings - 0KE5 (make sure you have dummy profit center and standard hierarchy)11. Main 3KEH settings.12. Make sure you have created OKB9 account determination (wherever necessary)13. Maintain PCA number ranges in GB02 Use KSB1 for cost center line itemsUse KE5Z for profit center line items.

 You have following master data GL AccountVendorCustomerHouse BankBankAssetCost ElementCost CenterActivity TypeStatistical Key FigureInternal OrderProfit Center

SD Billing DocumentThe graphic below illustrates how the system determines the profit center for an SD billing document. In Profit center Accounting, the data in the MM document is posted to the profit center determined by the system.

For an SD billing document, the profit center is - with one exception - always determined indirectly via the preceding document.

 NoteCross-Company ScenarioWith cross-company transactions, the sales order item always contains the sender profit center.This profit center is used both for the internal settlement and the goods issue (see normal case in the graphic).The profit center making the sale must be determined using a substitution when the customer billing document is created (see cross-company transaction in the graphic).

Role of Profit Center Accounting in the SAP System

Role in Enterprise Controlling (EC)The Enterprise Controlling component (EC) is a powerful, integrated system which provides efficient, up-to-date information for controlling your group or company.EC consists of the applications Executive Information System (EC-EIS), Consolidation (EC-CS) and Profit Center Accounting (EC-PCA).

Executive Information System (EC-EIS)

The Executive Information System presents up-to-date aggregated data and provides user-friendly tools for analyzing the critical success factors for your company or entire group. The data basis can be supplied either internally (SAP system or other applications) or from external sources. EC-EIS is integrated with other information systems in SAP through the architecture of the SAP Open Information Warehouse.

Consolidation (EC-CS)

Consolidation (currently in development) gives you a reconciled view of your group’s financial data and lets you create the reports required by corporate law (by group, company or business area) as well as reports which reflect your company’s internal management structure (by profit center or region). This is possible due to powerful consolidation functions built on top of flexible structures. You can use corresponding interfaces to transfer data from General Ledger Accounting (FI-GL), Asset Accounting (FI-AA), Material Management (MM), Sales and Distribution (SD) and Profit Center Accounting. You can also analyze the results of the consolidation immediately in EC-EIS.

Profit Center Accounting (EC-PCA)

Profit Center Accounting forms an interface between the operative controlling (CO) applications and the Enterprise Controlling (EC) module. It reflects the actual and plan postings from operative

controlling and settlement components, with which it is integrated in real-time. It then summarizes this data according to profit centers, which reflect the internal structure of areas of responsibility within your company.Profit Center Accounting primarily serves to calculate internal (plan and actual) results according to the period accounting approach. If the function area is specified for the data in the controlling components, you can also analyze results using the cost-of-sales approach.In addition, EC-PCA lets you analyze certain balance sheet items by profit center. This also makes it possible to control the necessary key figures for an area of responsibility.If you store values flows in multiple fields using different valuation methods, you have the option of valuating goods movements with transfer prices in Profit Center Accounting.Profit Center Accounting is account-based. That means, the values are updated in EC-PCA according to account. Consequently, you can reconcile the data here with that in Financial Accounting.You can modify or supplement both actual and plan data taken from the operative components to meet your company’s requirements for Profit Center Accounting (assessment/distribution). You can then use this data as a basis for a more strategic analysis using EC-EIS.Multiple profit center hierarchies (profit-oriented, functional, regional, and so on) make it possible to analyze data in different ways in multidimensional organizations. Through the elimination of internal business you can also represent data at higher hierarchical levels.EC-PCA provides you with a comprehensive and flexible information system for analyzing your data by period. You can access the original postings from FI, CO, SD, MM, and so on directly to identify potential weaknesses. Using the report/report interface, you can drill down to the information systems of other components.

The Distinction Between Profit Center Accounting and Profitability Analysis (CO-PA)Profitability Analysis (CO-PA), like Profit Center Accounting, is another form of profitability accounting. However, it is incorporated in operative cost accounting. That means that the profitability segments in CO-PA are accounting assignment objects and are thus directly integrated in the flow of data in cost accounting.In contrast to EC-PCA, where profits are found for areas of responsibility within the company, CO-PA lets you analyze the profitability of different segments of your operative business -- defined according to products, customers, orders, or any combinations or groups of these -- or organizational units, such as company codes or business areas. The aim of CO-PA is to provide the accounting department and decision-makers in sales, marketing, product management and corporate planning with information about the market.You can define the master data and basic structures in CO-PA flexibly to meet your company’s specific requirements. By choosing just the objects for evaluation (characteristics) and key figures you require, you can create a company-specific multidimensional structure for analysis.Unlike EC-PCA, CO-PA lets you use an account-based or a costing-based approach. In the costing-based approach, you can define your own value fields for analysis. In account-based CO-PA, the values are represented in accounts.EC-PCA and CO-PA should not be regarded as alternative components. On the contrary, they complement one another and jointly provide you with a flexible and comprehensive profitability accounting tool, allowing you both a market-oriented viewpoint as well as a responsibility- and person-oriented one.

For more details about CO-PA and how it differs from EC-PCA, see the SAP Library, under CO-PA Profitability Analysis .

The Distinction Between Profit Center Accounting and Special Purpose Ledgers (FI-SL)The component Special Purpose Ledgers (FI-SL) is primarily used to perform company-specific accounting-tasks which cannot be performed using the SAP standard functionality. This component contains no predefined business functionality. Rather, it makes available a number of abstract tools, which are already used in various standard applications.For example, Profit Center Accounting is based largely on the technology in FI-SL. You may wish to use the special purpose ledgers to supplement Profit Center Accounting if your requirements cannot be entirely met there. However, this would require a significant amount of programming and additional maintenance.

PCA Planning configuration

IntroductionThis entry describes how to configure PCA Planning. The transactions listed are for cost/revenue planning. SAP divides PCA planning into cost/revenue, balance sheet, and statistical key figure planning. They share functionality, with exception of the plan layouts.

[edit]Steps

Import standard planning layouts - transaction code 7KEJ Maintain planning layout - transaction code 7KEA for costs/revenue. This is a Report Painter layout. Maintain Planner Profile - Transaction code KP34PC Copy layout (probably want to copy 8A-411 Profit Centers/Account Group) into Z layout Drill down into Profit Center Accounting - Layouts for PCA - Default Parameters Choose Integrated Excel Double-click, and enter default parameters, then click on Overview (mountain icon) Click 'Save File Description' icon Save Excel Layout Click on Generic File, enter in all CAPS a .txt name for the files that will be uploaded, with an asterisk

(example PLANNING*.TXT) Choose File - Save as to save the Excel template to be used later to upload spreadsheet plan data Set up Plan Version - menu path SPRO - Profit Center Accounting - Planning - Basic Settings for

Planning - Plan Versions - Maintain Plan Versions

Using PlanningTransaction 7KE1 allows for manual cost/revenue planning.

Choose Planning - Set Planner Profile, choosing the planning profile defined in Customizing. Click the diskette icon 'User Master Record' if this is the main type of planning to be done by the user.

Enter in desired profit center and account parameters, then execute. Enter values, then click diskette icon in SAP menu bar to save. If the user does not already have a template for spreadsheet upload, choose File -- Save as from the

Excel menu.Transaction 7KEX allows for spreadsheet upload of plans.

First update the spreadsheet. Remove the totals line at the bottom of the sheet. You may have to unprotect the sheet to work with it. Then, enter your amounts. Save the sheet as a text, tab delimited file.

You can import either a single file, or multiple files in a folder. If you choose the folder option, SAP will pull in all files with the naming convention in the folder. For example, if the planning is configured as above, PLANNING1.TXT, PLANNING2.TXT, and PLANNING3.TXT would all be imported.

change the decimal notation field to 1,234,567.89. Execute. SAP will indicate the status of the upload.

The following example is given for cost center planning. However, you can go to Profit Center ==> Planning. Remaining are same except 7KE1. If you configure in this way, you can upload the plan data through excel for profit center. This is controlled by planning are in your planning profile. You need to use "Cost ctrs: Cost element/activity inputs" planning area for this purpose. Hope you are conversant with Integrated excel upload. To do integrated excel upload of cost center plan data. IMG ==> Controlling ==> Cost Center Accounting ==> Planning ==> Manual Planning User Defined Layouts - Create your own layout or copy from standard layout and change it. IMG ==> Controlling ==> Cost Center Accounting ==> Planning ==> Define User Defined Planner Profiles Copy the SAPALL to ZSAPALL. You cannot change SAPALL as it is standard. In ZSAPALL planner profile, select proper planning area and enter your layout. Tick Integrate Excel. Once the popup for KP06 comes, you need enter the data and save it. It would generate the file name. With the same file name you need upload the plan data by using KP06. In KP06 Extras ==> Excel Planning ==> Upload Select the file as prepared in accordance with format at the time of generating the file name. Hope this solves your problem.

Linking the Business Location to a Profit Center 

Use

Profit Center Accounting (EC-PCA) is a part of the Enterprise Controlling (EC) module. EC-PCA allows you to: Determine profits and losses by profit center using either period accounting or the cost-of-sales

approach Analyze fixed capital and statistical key figures (number of employees, square meters, and so on)

by profit centerConsequently, you can calculate all the key figures commonly used in cost accounting (return on investment, cash flow, sales per employee, and so on). A profit center is a management-oriented organizational unit used for internal controlling purposes.By assigning business locations to profit centers, you can analyze areas of responsibility and delegate responsibility to decentralized units, thus treating them as "companies within the company".The profit center differs from a cost center in that cost centers merely represent the units in which capacity costs arise, whereas the person in charge of the profit center is responsible for its balance of costs and revenues.By assigning balance sheet items (asset portfolio, payables and receivables, material stocks, work in process) to profit centers, you can analyze your company's business locations by profit center, thus using them as investment centers. This also makes it possible for you to analyze a number of key figures by profit center, including return on investment, working capital and cash flow.

Procedure

To assign a profit center to a business location master record:1. On the Change Business Location: Initial Screen, enter the location ID of the business location that

you want to change.

You can also assign a profit center to a business location when you create a business location.

2. Choose Goto® Assignment ® Object links.

The Change Business Location: Object Link Details screen appears.Depending on the configuration of your system, the Profit center assignment box may appear on the optional second object link assignment screen. To display this screen, choose Goto

® Assignment ® Object links 2. Enter the number and controlling area of the profit center that you wish to use to depict the business location in your system. Use the matchcode search if necessary to determine the correct profit center record.4. Choose Enterto validate the profit center details that you have entered.

A green tick or check icon confirms a valid profit center. If a red cross or X icon appears, there is a problem with the profit center, for example it may be flagged for deletion or blocked for use.You can use the profit center maintenance transaction to establish the cause of the problem.

5. Save the data.You return to the initial screen for changing the business location master record. The message Business location <location ID > has been changed appears

If you wish to code additional checks for the profit center to which you are assigning the business location, you need to activate enhancement OIFA0202. This enhancement calls user processing during the initial load of the profit center data and during PAI (process after input) on the profit center assignment input fields.