Very few organizations have not performed some variation of financial statement planning at one time or another. These plans are usually produced to fulfill legal statutes or regulatory filings, so much time is often put into their accuracy. Private-sector organizations often engage in this type of activity on a weekly basis. The process involves the production of forecasted profit-and-loss (P&L), balance- sheet, and cash-flow statements. Public-sector organizations tend to carry out this exercise annually, with the result influencing part of or all the next year’s budget.

Regardless of the existence of profits within your organization, it is almost a certainty that somewhere, someone within your organization is planning its finances. I wrote this article for those in the private sector, but the topics and functionality can easily be adapted for use by the public sector.

So where can SAP users perform financial statement planning? The answer to this question is simple: in R/3 or in Strategic Enterprise Management (SEM). Why you would choose to use one of these SAP modules over the other is a question I will discuss later. The answer involves flexibility, timeliness of data, the ability to create “what-if” scenarios, and your company’s definition of financialstatement planning.

So what is financial statement planning? In the simplest terms, it is the process a business goes through to predict what its financial statements will look like at a specific point in time. These statements usually consist of P&L, balance-sheet, and cash-flow statements, but planning of this type can involve much more than those three statements. Investments, taxes, headcount, sales, profitability, and cost-center planning are just a few of the plans that businesses commonly use to help derive their forecasted P&L, balance-sheet, and cash-flow statements.

Are these additional plans considered part of financial statement planning? The answer depends on how your company produces those final three statements. Does it estimate them without incorporating investments? Then investment planning is not part of your financial statement planning process. Are detailed sales forecasts part of the process that decides what your future P&L looks like? Then sales planning is part of your planning process. From these two examples, you can understand why financial statement planning means different things to different people. This flexibility of definition often causes confusion among SAP users, as one company’s planning process is rarely the same as another’s.

Truth be told, most SAP users don’t plan or forecast their financial statements in SAP. Most businesses use Microsoft Excel, regardless of the complications caused by planning offline in this manner. To accomplish this planning using Excel, most users create their budgets in Excel and manually load the plan data into R/3 via a flat-file upload. Report Painter/Report Writer reports are then run to validate the data or compare actual vs. plan data. Any changes to the plan must be carried out by altering the offline Excel spreadsheet and re-uploading the data via a flat file. This process of manually uploading offline data and running reports via Report Painter/Report Writer is considered slow by most users.

Financial Statement Planning in R/3

To increase the accuracy and timeliness with which users can carry out financial statement planning, some businesses have configured various aspects of R/3 to create a financial statement planning process while eliminating offline planning using Excel. For example, you might configure the following modules and processes within R/3 to create a forecasted financial statement: First, Profitability Analysis (CO-PA) can be used to allow end users to input forecasted sales and production quantities directly into the CO module, thus bypassing the need to upload Excel data. Second, a user’s input into R/3’s Sales and Operational Planning determines how much the business should make or buy for a given time period. Third, demand planning in the Production Planning (PP) module can decide whether or not the business has the capacity to meet the sales and operational plans that have been created. Fourth, CO’s cost-center planning or product costing uses planned activity rates or product costs to derive a P&L statement. Other steps that can be included in this planning process are the planning of accounts receivable/accounts payable, inventory, and assets using Profit Center Accounting (PCA); direct labor using the Human Resources (HR) module; and procurement using the Materials Management (MM) module.

These R/3 processes have several advantages over offline planning using Excel, because plans can be integrated and manual data loads can be eliminated. Users are allowed to input plans directly into R/3; therefore, they make fewer errors and IT spends less time debugging failed data loads. Compared to planning in SEM-BPS, these R/3 processes have other benefits, such as sophisticated allocation formulas (including the use of complicated allocation models that your business has already created), availability control, and use of existing Report Painter/ Report Writer reports. The use of existing reports is extremely important if you have hundreds of necessary planning reports that have not yet been recreated in the SAP Business Information Warehouse (BW).

Downsides to planning in R/3 include:

• R/3 master data must be used, which limits the ability to do “what-if” planning by creating nonexistent master data/hierarchies.
  
  
• Different interfaces for each R/3 application increase confusion and cost of training.
  
  
• Full integration among all plans is hard to achieve.
  
  
• Reporting tools differ by application (SIS, Report Painter/Report Writer, ABAP reports, LIS, etc.).
  
  
• Planning functions (roll-up, forecast, depreciate, etc.) either differ by application or don’t exist at all.
  
  
• Some of the planning processes are not Web-enabled, forcing users of that application to utilize a SAPGUI.

Financial Statement Planning in SEM-BPS

To overcome the shortfalls that financial statement planning in R/3 presents, some SAP users have turned to the SEM module’s Business Planning and Simulation component (SEM-BPS). With SEM-BPS, users seem to more easily achieve integration between planning areas (HR, CO-PA, MM, PP, etc.), while having considerably more flexibility. The result of this flexibility and integration can lead to faster and more accurate modeling and forecasting of balance sheets, P&L statements, and cash flow statements (without the hassles of uploading data or managing multiple offline Excel spreadsheets). For example, this integration and flexibility can allow users to simulate the impact organizational changes might have on financial statements, perform rolling forecasts, and immediately see how changes made to future sales, expenses, or investments affect cash flow and the bottom line.

SEM-BPS is just one of five components that make up the SEM module, which also includes Strategy Management, Performance Measurement, Business Consolidations, and Stakeholder Relationship Management. (See Figure 1.) SEM-BPS is both an operational and strategic planning solution that uses BW as its database. What this means is that SEM-BPS can access, and thus plan and forecast on, any and all data that resides in BW. Because BW is an open-hub solution, it has the ability to accept data from many different types of transactional systems, such as R/3, Oracle, PeopleSoft, and legacy systems. Therefore, there is no limit to the type or source of data that SEM-BPS can plan on.

Figure 1

SEM’s five components

The architecture of SEM-BPS is such that all data, regardless of its module (FI, SD, MM, etc.) and point of origin (R/3, PeopleSoft, Microsoft Access, etc.), is extracted into BW and then passes to SEM-BPS via an online analytical processing (OLAP) buffer (Figure 2).

Figure 2

SEM-BPS architecture

This buffer allows transaction data to be read, written, and buffered to/from BW and BW master data (including hierarchies) to be used by SEM-BPS. (This last point is a significant benefit to those using Hyperion Planning who have to maintain master data in multiple places). Once SEM-BPS accesses this data via the OLAP buffer, a single planning framework (accessible via a SAPGUI, Web application server, or portal) allows users to access all plans and forecasts, regardless of the planning area.

What all this means to a planning end user is that:

• Non-R/3 master data (including hierarchies) can be created and used.
• Non-R/3 transactional data can be more easily incorporated in the plan (a significant benefit to those who forecast financial statements that include divisions that do not use R/3).
• The single planning framework decreases training costs and overall planning tim, while giving all plans access to planning functions.
• BW acts as a single, integrated Web-enabled reporting method for all plans.

To describe how financial statement planning can be achieved using SEM-BPS, let’s look at one piece of SEM’s delivered content for BPS, namely the financial statement planning application (often referred to as “balance-sheet planning” in the SEM help documentation). By activating both the BPS application and its related BW InfoObjects, users are able to create plans for income statements, balance sheets, and cash-flow statements that can then or later be integrated with sales and operational plans. (InfoObjects are BW’s equivalent of tables and fields in R/3. Examples of InfoObjects are InfoCubes [multidimensional tables], characteristics [fields, dimensions], and key figures [amounts, quantities].)

Upon opening a planning folder in SEM-BPS, users have access to separate folders that allow them to plan on revenue, cost of sales, working capital, investments, and depreciation, by country and by year, all without leaving the original screen (Figure 3). Changes made to any of the data in these folders results in an immediate update to a forecasted income statement, balance sheet, and cash-flow statement. By making changes to this data, a user is able to perform “what-if” analysis. For example, after making a change to a planned investment three years in the future and clicking on the tab marked Cash flow, a user can immediately see how that cash outlay affects cash levels four years in the future.

Figure 3

SEM-BPS financial statement planning folder

Many organizations need to plan at levels more granular than country and year. Those who do can copy the financial statement planning application and add more granular dimensions to the data model. To increase integration along with granularity, other BPS business content applications can be activated and integrated with the delivered financial statement planning application. For example, headcount planning can be activated and easily integrated with cost-center planning. More granular sales planning can be activated and integrated with profitability planning. Finally, a fully integrated financial planning process is achieved by integrating the previously mentioned cost-center planning and profitability planning with investment planning and financial statement planning.

Activating SEM-BPS

To activate SEM-BPS financial statement planning, install SEM-BPS on a BW server and transport the desired planning applications from Client 000. Then, in the working client, activate BW business content InfoCubes that are relevant to the desired planning application found in the SEM-BPS InfoArea in BW (Figure 4). (An InfoArea is a folder containing multiple InfoCubes.) Once the InfoCubes are active, open up the planning application in SEM’s Planning Workbench and connect the InfoCube to the plan in the planning area.

Figure 4

BW Administrator Workbench — SEM business content

The most important tip I can pass along to those who want to implement financial statement planning in SEM-BPS on their own is to start small. Because SEM-BPS allows you to activate and integrate deeper levels of granularity on a piece-by-piece basis, I recommend that users begin by working with only the financial statement planning application. Although this application plans at a level higher than your business needs, working with it gives you an appreciation of the data modeling and functional configuration needed to expand your project to cover greater scope.

Although R/3 and SEM-BPS can both be used to plan financial statements, each has pros and cons that users have to weigh in determining which to use. One involves heavy use of BW and multidimensional modeling, while the other has a strong link to transactional data flow. One allows for rolling forecasts and simulations, while the other follows more rigid planning processes that users cannot deviate from. So to determine which method your organization should use, first determine how much flexibility and integration is desired, and then determine whether the use of BW is in your current or future plans. If your answers are “a lot” and “yes,” then implementing financial statement planning in SEM-BPS is probably right for you.