How SAP COPA (Profitability Analysis) differs in S/4HANA from previous ECC-based SAP ERP?

What is SAP COPA – Profitability Analysis?

SAP COPA is the component of the Controlling module of SAP which deals with reporting of Profitability across various dimensions. It stands for Controlling – Profitability Analysis while popularly referred to as SAP CO-PA.

Key Reporting Dimensions where SAP COPA benefits you

Customer ( customer wise report)
Products ( product wise profitability)
Region ( Region wise profitability- East, North)
Employee
Sales Category (Domestic, Exports)

What is SAP COPA in S/4HANA Finance?

In SAP S4 HANA, one of the earliest innovations in CO-PA was through CO-PA Accelerators. These accelerators showed how performance in CO-PA planning, allocations and reporting processes would improve when it runs on SAP HANA.

Know how was SAP COPA before S/4HANA

Before SAP introduced HANA, Business Warehouse (SAP BW) was the most preferred analytical solution for CO-PA reporting. The Process flow in SAP FICO (ECC)

SAP S/4 HANA caused a standard shift on how customers would use and benefit from CO-PA in Future. The transformational changes include the usage of the Universal Journal and the elimination of reconciliation. It further improves the end-user experience, real-time close etc.

Types of SAP COPA in S/4HANA Finance

There are two types of Profitability Analysis in Controlling in S/4HANA Finance.

Account-Based CO-PA
Costing-Based CO-PA

Although both of them have their importance. However, we need to know why Account-Based CO-PA carries more value than Costing-based COPA in SAP S/4HANA Finance.

So, now let us understand each of them separately and additionally know the key difference between both of them.

1. Account-Based COPA

Account-Based COPA is simplifying COPA by accounts rather than value fields (used in Costing based CO-PA). The advantage is that it is easier to reconcile to the general ledger as there is no mapping involved.

Advantage of Account Based COPA

It is easy to set up than costing based COPA.
It takes much less time than configuring costing-based COPA. As the latter involves the mapping of condition types, cost elements, variance as so on to value fields.
Account-based COPA has easier reconciliation with the general ledger because you can look at the values in both modules using the same object (GL account).
You can use it along with costing-based CO-PA. This is to say, you can activate both costing and account-based CO-PA at the same time by checking the checkbox.

Also read: Accounting Vs. Ledger Approach in SAP New Asset Accounting

2. Costing-Based CO-PA

Costing-based CO-PA in SAP compromises the principle of a single version of the truth in finance. It does so by creating two versions of profitability that lead to the same old reconciliation issues experienced with SAP ERP.

So, if you are using costing-based CO-PA and are migrating to SAP S/4 HANA Management Accounting, you can continue to use it. However, you should activate account-based CO-PA as well.

Since it is not possible to migrate the history from costing-based CO-PA to account-based CO-PA. So you may want to retain costing-based CO-PA for a certain period. Once your business gets comfortable with the Account-based CO-PA, you may deactivate the Costing-based CO-PA.

Learn SAP CO-PA in S4 HANA Finance Training

Costing-Based COPA vs. Account-Based COPA

This topic is a key area of consideration for many SAP customers. As I mentioned earlier, the account-based method is preferred for CO-PA under SAP S/4 HANA. Still, I want you to find out which one you prefer by seeing the following differences

1. Universal Journal in SAP COPA

Account-based CO-PA is built on the Universal Journal and underlying table ACDOCA. Importantly, Universal Journal is the foundation of SAP S/4 HANA.

Since, for a long time, SAP customers have only used the costing-based method. Thus, this change is a major shift in the process, design, configuration and management side.

2. More Insights in Account-based COPA

With more insights available regarding COGS and production variances, account-based CO-PA is no longer the poor cousin to the costing-based method.

3. Data Duplication issue in Costing-based

The costing-based method continues to keep its separate data model in SAP S/4 HANA. Thereby creating duplication of data and reconciliation issues.

Related: Product Costing in SAP

So, Which method should you use?

To better decide this, you should keep these two points in mind:-

Evaluate Business Needs- Before deciding which method to use, you should evaluate the business needs of the costing-based method. If you are upgrading, you may need the history built-up to compare plan versus actuals.

Explore Data Modelling Options- Additionally, you should explore other SAP HANA data modelling options as well before activating the costing-based method because it adds redundant tasks to business users.

(While taking decisions as an SAP consultant, you need to be very analytic and calculative. Likewise, you must analyse all possible outcomes).

Read: SAP Product Costing Interview Questions

Characteristics Extension of Data Structure in SAP COPA

Extensibility- The Universal Journal has extensibility features that come with SAP S/4 HANA. Thus, you can easily extend the SAP COPA characteristics to enhance your information needs.
After you extend the CO-PA characteristics, they become part of the Universal Journal.
Extension of Coding Block- Extensibility was available even before SAP S/4 HANA through the extension of coding block in the general ledger.
Extensibility in GL- The setup for extensibility in the general ledger and CO-PA are separate activities. With extensibility as standard functionality in SAP S/4 HANA, it is hard to see why anyone would want to implement costing-based CO-PA. This is because all the dimensions that you need to report profitability are part of table ACDOCA, that the account-based method uses.

Learn More about: SAP S/4HANA Simple Finance Training

Configuration of SAP COPA

SAP CO-PA configuration is a critical process and not all SAP S/4HANA Finance Consultants are equally comfortable in this work. So, having complete knowledge of the configuration of SAP Profitability Analysis is an achievement in itself.

(I mean to say, if you know SAP CO-PA complete configuration in its entirety, it is an added advantage for your profile and your career in SAP Finance).

The importance of SAP COPA configuration lies in its uniqueness. Here mention two points in this regard below:-

– Few End-User Transactions in SAP COPA

CO-PA has unique functionality in the sense that it has very few end-user transactions for data entry.

– Data Flows via Other Processes

Additionally, 90% of the data flows into CO-PA through other processes. These include billing, inventory movements, allocations and so on. Usually, Non-Finance users do these processes.

Pre-requisite to do SAP COPA Configuration

Align the Reporting Requirements

The first step to design CO-PA in SAP is to align the management and operational reporting requirements. It also sets expectations with business users for reporting possibilities. This goes a long way to make sure that the business accepts the solution.

Understand Reporting Needs

A clear understanding of future reporting needs is an important prerequisite to starting the design phase of implementing COPA in SAP.

This was a brief about the importance of CO-PA configuration in general. Now, we will discuss changes in Profitability Analysis in S/4 HANA as compared to the previous version of ECC.

Changes in COPA Configuration in SAP S/4HANA Finance Vs. ECC

Many new things have come up in SAP ERP while migrating from ECC to HANA.

These have caused many good differences in SAP FICO as compared to S/4HANA Finance. The CO-PA is one of them.

Here I mention a list of some elements where COPA gets some modifications with this transition.

Operating Concern
Characteristics & Value Fields
Cost Elements
Universal Journal
COPA Planning

One by one we will know briefly about these elements and the impact of the changes on them with SAP Controlling Profitability Analysis of S4 HANA.

Must Read: What’s New in SAP Profitability Analysis in S/4HANA 2020?

Operating Concern, Characteristics and Value Fields

With SAP S/4 HANA, the majority of the configuration remains the same except in certain areas where SAP has introduced increased functionality because of SAP S/4 HANA capabilities such as

COGS splitting
Production Variances splitting
Removal of redundant tables

1. Operating Concern

What is an Operating Concern?

An operating concern is an organizational unit under which the CO-PA data model resides and data is stored for reporting purposes. It also defines the boundary for CO-PA data.

An operating concern is the highest organizational unit under which you want to report profitability for the entire business. The fiscal year of the operating concern should match that of the controlling area and the company code.

Also Read: Fiscal Year Variant in SAP

Change Impact

There is no change in the way the operating concern is defined under SAP S/4 HANA. However, all new implementations are likely going to be account-based CO-PA.

In the past, the majority of customers used costing-based COPA and few went for account-based COPA. For those who used the costing based method only, activation of account-based COPA is something to consider during the upgrade.

This is a prerequisite for using the new CO-PA features in SAP S/4 HANA. Though, you can continue the costing-based method as well.

If you don’t activate the account-based CO-PA during the upgrade, you will get the error message FCO_CO-PA 006. If it is a Greenfield implantation, make sure account-based CO-PA is active.

Costing based COPA is optional. During the migration to SAP S/4 HANA, there are new configuration tasks that you need to perform. See below.

2. Characteristics and Value Fields

What are Characteristics in SAP COPA?

Characteristics are elements in CO-PA that define different segments of an organization for which you want to measure performance.

You use value fields to define how that performance is measured. Both characteristics and value fields are critical because these do the work of transacting, planning and reporting in CO-PA.

Change Impact

With SAP S/4 HANA, there is no concept of segment-level and segment level characteristics. This is because all characteristics are themselves segment-level characteristics.

Transaction KEQ3, where you defined segment and non-segment characteristics are no longer available for use.

3. Value Fields and Cost Elements

What are Value Fields?

Value fields are measurements through which you can record and assess your organization’s profitability.

Additionally, Value Fields are used only in costing-based COPA. Example – Sales, Cost of Goods Sold, Rebate, discount etc.

What are Cost Elements?

Cost elements are general ledger accounts that are used in Controlling for the same purpose.

Change Impact

You still need Value Fields if you use costing-based CO-PA and nothing changes there. In SAP S/4 HANA general ledger accounts and cost elements are merged into one to reduce dual maintenance issues.

Additionally, P & L account now do what cost elements once did.

There are three ways in which you can define the P & L Accounts in SAP S/4 HANA.

P & L Accounts with no reference to CO.
P&L accounts for posting to cost centres, orders, projects CO-PA dimensions and so on.
P&L accounts to document cost flow from senders to receivers.

Account-based CO-PA uses all of these types of P/L accounts in SAP S/4 HANA.

Also Read: Concept of SAP Cost Object Controlling

4. Universal Journal Entry

SAP ERP (ECC) CO-PA has multiple tables for updating CO and FI postings depending on the method used. Although, for costing-based CO-PA there are multiple tables (CE1XXX-CE4XXX). While for the Account-based CO-PA there are tables COEP and CE4XXXX.

The SAP system updates several tables for the same source document which caused reconciliation issues, redundancy etc.

Change Impact

Table ACDOCA now stores all values in SAP S/4 HANA under account-based CO-PA. Further, it houses all values that we used to update in the past in table COEP.

Table COEP is no longer a table in SAP S/4 HANA. But it is there in SAP HANA view. Additionally, General ledger, CO and COPA are all available in table ACDOCA as single line items.

Characteristics Value in SAP COPA

There is no change here. If you are creating user-defined characteristics, you will continue to maintain values for them through configuration. This is also true with maintaining hierarchies of characteristics for reporting and analysis.

5. COPA Planning in SAP S/4 HANA

In SAP ERP (ECC), the planning functionality is available at the general ledger, cost center and profitability segment levels. Since the system did not integrate these levels, the users were doing them separately.

You could run Plan versus Actuals in SAP ERP, but they were separate processes.

Importantly, customers who had SAP Business planning and consolidation used it for Financial Planning instead of native SAP ERP.

Change Impact

In SAP S/4 HANA, the native finance planning functionality of general ledger planning, cost center planning and internal order planning is disabled by default. If you still want to use these functionalities, you can activate them.

However, most customers like to use a single planning process of planning at the Universal Journal. This helps to eliminate redundant and planning activities.

Conclusion

Based on all of the above points, we clearly understood that the preferred method for profitability analysis with SAP S/4 HANA is the account-based approach. This is the default option that the system gives to SAP S/4 HANA customers.

Of course, you can activate costing-based profitability analysis also. But, if you are planning on a Greenfield SAP S/4 HANA implementation, I suggest using only account-based profitability analysis.

Now, you have all the benefits of the costing-based on the account-based version. Thus, for migration (or you can say in the brownfield implementation) you should continue using the costing-based approach. Do it together with the mandatory account-based approach.

Watch Related Video: SAP CO-PA (Profitability Analysis)

Do Read: Product Costing in SAP – All that you Should Know.

Pradeep