Is your Management Accounting function ready for SAP S/4HANA?

(This article by Todd Simon was originally posted here on LinkedIn and is posted with the author's permission)

Part 0: What to expect.

S/4Hana represents a tremendous leap forward in performance and functionality in the ERP space. From a Controlling standpoint, little has been written about the business considerations an organization should take into account when considering the move from R/3 to S/4HANA.

This article (s) is not intended to be a survey course on the entirety of S/4HANA. Rather, we will concentrate on the relevant advances & challenges in S/4HANA as they relate to the Managerial Accounting function.

This article will be published in three parts

  1. What is S/4HANA?
  2. S/4HANA -  Implications for the Management Accounting cycle
  3. Central Finance – the S/4HANA Enabler

What is S/4HANA?

SAP’s S/4HANA is the fundamental technological shift in the design of SAP from R/3 to S/4. Many excellent references exist explaining what makes up this change:

For our purposes, in S/4 the “transaction” engine and “analysis/reporting” engines are now combined. Coupled with In-Memory processors, this translates into a dramatic increase in processing power. This results in faster transactions and queries capable of handling much larger datasets. But technology alone will not help us construct better cost models from a Management Accounting Practitioner’s standpoint, the major change is that HANA is removing the constraints present in the R/3 platform.

SAP’s concept is that their system will function as the Digital Core of the enterprise.  This represents a true integration of the Transactional side with Business Intelligence capabilities. Their new systems architecture promotes exciting new functionality. This functionality includes Predictive Analytics, the Internet of Things (IoT), Unstructured Data and use of Hadoop. In addition, their new Graphical User Interface is greatly enhanced within their Fiori application. Fiori has the potential to present transactions, reports, and analytics in the now-familiar “app” format, similar to what we see daily on our smartphones, accessible/delivered on any connected device. Finally, SAP has developed revolutionary functionality that allows organizations to merge data from multiple SAP and Non-SAP sources into a “Target” system, called Central Finance (more on this later…)

For Management Accounting, we’re most interest in the software or application changes that will come with S/4HANA. From this standpoint, the single most important change in S/4HANA is called the Universal Ledger, known by the SAP nomenclature as ACDOCA (pictured below).

With S/4HANA, SAP has moved from the traditional design of multiple, interrelated relational database tables to what amounts to a Single Source of the Truth- one very large, two-dimensional table that will house all transactional data. The master data table structure remains unchanged. This sea change means that there will no longer be both Primary and Secondary Cost Elements in S/4HANA. Rather, there will only be Accounts, with a qualifier field as to what of type of account they are.  Further, whereas in R/3 parts of transactional data may have resided in a variety of modules, in S/4 ACDOCA will now carry the account and transaction value, but also such qualifiers as Controlling Area, Asset information, Material Number, Profitability Characteristics, etc. as applicable. This has some far-reaching consequences:

The processing power of S/4HANA means that summary tables are no longer needed – such data can and will be calculated “on the fly” in real time.

  • The traditional task of reconciling CO (management accounting) and FI (financial accounting) is no longer an issue – every transaction will store the relevant CO and FI information on the same line item.
  • We no longer need to extract data from other modules – so your operational reporting, which often had to be done out of data warehouses & external structures due to issues of serious system performance degradation, can now be done within the main S/4HAN platform without noticeable impact to transactional processing.
  • The quantity of master data is no longer constrained by the performance limitations of SAP. In the past we likely limited our cost model design due to these performance constraints – now, we can build in most any structure we want. The implication here is that as you transition to S/4HANA, you should review your cost model design, without the previous constraints.

What are the implications of ACDOCA now that FI and CO transactions are in the same document?

  • Roles and responsibilities within Finance will change. Whereas before, the CO-related function often had the freedom to structure and create Secondary Cost Elements as they saw fit, will this still be the case with ACDOCA, which drives the organization toward a true Global Charts of Account? What will the process look like for approval of the management accounting-relevant accounts and who will manage this process?
  • Auditors will have to be re-educated. It used to be relatively easy to segregate those accounts related to the Legal Set of Books (formerly Primary Cost Elements) from that related to internal management reporting (formerly Secondary Cost Elements). How will they view the control mechanisms on Account creation and modification? Auditors generally don’t concern themselves with, say, an account named Dining Facilities Costs per se – but costs of this nature are important to managerial accounting overhead control. In the newly merged FI/CO world, how will they react to these “Strange” accounts?

I leave those implications for next time but I encourage you to leave questions and comments down below. 

Dawn Sedgley, Partner                                214-649-2582

Todd Simon, Principal Consultant             303-246-3112

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