Derive Greater Value from CO-PA by Taking Advantage of Frequently Overlooked Functionality
Mitresh KundaliaQuality Systems & Software
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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CO-PA — Overview
• CO-PA is SAP’s module for tracking and analyzing profitability
CO-PA = Controlling-Profitability Analysis• Primary goal of CO-PA is to do Profitability Analysis• CO-PA helps you understand where your profits
come fromWhat are the contribution margins of my business segments?Primary focus is market-oriented view, especially for sales management
• CO-PA provides tools to track and analyze profitability, especially from business segments
Examples of Business Segments: Customer, Customer Group, Product, Product Group, Region, and more
Margin Analysis allows drill-down reporting for the business segments
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What Is Profitability Analysis?
• In simple terms, Profitability is determined by:
Profit Margin = Revenues - Costs
• The basic idea of Profitability Analysis is understanding where your profits came from
Which are my most profitable customers?• Primary purpose of Profitability Analysis is to do:
• Components of contribution marginGross Sales 500
Customer Discounts 20
Other Discounts 10
Net Sales 470
Product Costs 250
Contribution Margin I 220
Direct Sales Costs 20
Campaign Costs 10
Other Customer Costs
Contribution Margin II 180
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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What Is Different About the CO-PA Ledger?
• Primarily, there are two major differences between the CO-PA ledger and other financial ledgers (G/L, CCA, PCA)
Structure of CO-PA ledgerRevenue-matching principle for postings
• Since the prime objective of CO-PA is to provide margin analysis, the CO-PA Ledger is structured accordingly
CO-PA Ledger has multiple columns for amountsOther financial ledgers have only one column for amounts
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CO-PA Ledger Structure
• The CO-PA Ledger has multiple columns for the components of the Margin calculations
These are called “Value fields”• The beauty of CO-PA is that you can define your own
columns for the CO-PA Ledger• This gives you tremendous flexibility to define and
analyze the margins based on your own requirements
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What Is the CO-PA Ledger?
• Technically, the CO-PA Ledger contains Characteristics and Value fields
Characteristics are fields that describe: Who, what, where, or when
Value fields are actual numeric values that quantify:Revenue, cost, or quantity
Characteristics Value fields
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CO-PA and General Ledger Accounting Principles
• General Ledger (G/L) Based on Period Accounting principlesCosts are recognized in the period when they occurred
• CO-PA Ledger Based on Cost-of-Sales (matching-revenues) Accounting principles Costs are matched to revenues and are accordingly posted to the period when revenues are recognized
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Typical Profitability Postings to CO-PA Ledger
• The costs of goods are matched to revenues and are posted together to the CO-PA Ledger
Revenues, discounts, and Cost of Goods Sold (COGS) are posted in CO-PA during billingNote that the COGS is not posted to CO-PA at the time of Post Goods Issue (PGI)
XCOGS
XInventory
time
XRevenue
XCustomer
DiscountsX
Delivery/ PGI
Sales OrderPR00K007VPRS 30
-10110
InvoicePR00K007VPRS 30
-10110SD
CO-PA
FI
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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Costing-Based CO-PA
• CO-PA is based on Cost-of-Sales Accounting principlesAlso, called as Matching-Revenues principles
• Since the primary goal of CO-PA is to do margin analysis, CO-PA matches costs to revenues to determine the profitability
• Costs are matched to revenues, and both (costs and revenues) are posted together
• Costs and revenues are posted in the period when revenues are recognized
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G/L and CO-PA Reconciliation
• Consider a common scenario: When the shipment is not invoiced in the same period in which the goods were issued (PGIed)General ledger posts costs in the same period when Goods Issue takes placeHowever, Costing-based CO-PA is based on the “Matching Costs to Revenues” principle, so it will “delay” posting costs until revenue occursThe result: CO-PA and G/L will not reconcile
G/L and CO-PA reports run against the same period will show different cost totals!
Issue
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XCOGS
XInventory
time
XRevenue
X
Customer
DiscountsX
DeliverySales OrderPR00K007VPRS 30
-10110
InvoicePR00K007VPRS 30
-10110SD
CO-PA
FI
G/L and CO-PA Reconciliation (cont.)
• Mismatch of Costs between FI and CO-PA when Shipment and Invoicing happens in different periods
P1P1P1 P2P2P2Period
COGS posts to FI in Period 1
COGS posts to Costing-based CO-PA in Period 2
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Is CO-PA Wrong?
• The Costing-based CO-PA approach is desirable to determine the true profitability for the business segments, but it can be confusing to many FI analysts!
• This behavior leads to the misconception that “CO-PA is wrong”
Business users are therefore hesitant to believe in its accuracy
Issue
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G/L and CO-PA Reconciliation
• However, since the CO-PA Ledger and general ledger are based on different principles, they don’t need to tie together
It’s like comparing oranges and apples!
• Since these users typically have G/L experience, they tend to go with the G/L numbers and ignore the significance of the CO-PA numbers
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G/L and CO-PA Reconciliation – Typical Workaround
• Many customers have employed “CO-PA reconciliation”procedures
• The purpose is to make CO-PA Ledger Match General Ledger (G/L)
These procedures are primarily based on identifying the “Shipped But Not Invoiced” transactions Post these transactions in CO-PA as CO-PA Only entries (and reverse for the next period)
• However, this reconciliation process is tediousExtremely time-consuming, prone to errors, and requires a lot of in-depth knowledge of technology/processesSo, you give up and end up with CO-PA and G/L mismatch
• The result is you don’t leverage CO-PA to its fullest Client
Issue
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G/L and CO-PA Reconciliation – New Solution
• The solution is to activate Account-based and Costing-based CO-PA
• Note that you could use BOTH Costing-based and Account-based CO-PA TOGETHER
With this feature, SAP “splits” CO-PA into two “views”: Account-based and Costing-based
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Account-Based CO-PA
• Similar to General Ledger (G/L), Account-based CO-PA is based on Period-Accounting principles
• Costs are posted in the period when they occurred• Revenues are posted in the period when the revenues
are recognized
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Account-Based CO-PA (cont.)
time
X
XRevenue
Customer
DiscountsX
XCOGS
XInventory
Sales Order
PR00K007VPRS 30
-10110
Delivery Invoice
PR00K007VPRS 30
-10110
Costing-based
Account-based
XCOGS X
Revenue
DiscountsX
P1P1P1 P2P2P2P0P0P0 PeriodSystem posts COGS to Account-based PA
in Period 1
… and still posts COGS to costing-
based PA in Period 2
SD
CO-PA
FI
CO-PA
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Account-Based CO-PA (cont.)
• CO-PA reports are run against separate views• CO-PA reports then ask you to specify which method
to useThe dialog below appears when you execute a CO-PA report (Tcode KE30)If you specify “Account-based,” costs will match your G/L
In our example: COGS will be reported in period 1 If you specify “Costing-based,” costs will be paired with revenues as usual
In our example: COGS will be reported in period 2
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How to Activate Account-Based CO-PA
• Step 1: Maintain Operating Concern for BOTH types of PA
Use IMG path CO-PA IMG > Structures > Define Operating Concern > Maintain Operating Concern (Tcode KEA0)Activate checkbox for Account-based in Type of Profitability Analysis section
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How to Activate Account-Based CO-PA (cont.)
• Step 2: Activate Profitability Analysis for BOTH types of PA
Use IMG path CO-PA IMG > Flow of Actual Values > Activate Profitability Analysis (Tcode KEKE)Change the Active Status from “2” (Costing-based PA) to “4”(both Costing-based and Account-based PA)
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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Segment-Level Characteristics
• CO-PA offers very flexible and robust margin analysis for business segments
• The segments are created as Characteristics, and these Characteristics are included in CO-PA for drill-down reporting
• CO-PA features drill-down reporting analysis• You can drill down for different Characteristics
These Characteristics are defined as “Segment-level”Characteristics
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Segment-Level Characteristics (cont.)
• Business requirements: “We want to perform detailed Profitability Analysis, including Sales Orders”
E.g., a Gross Margin analysis based on Sales Order Number
• Most people’s first reaction is:“Sales order is listed as a ‘drill-down’ characteristic for CO-PA reports”“I’ll simply activate ‘Sales Order’ as Segment-level Characteristic (KEQ3)”
Warning
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Segment-Level Characteristics (cont.)
• Do not set the Sales Order as the Segment-level characteristic
The size of your CE4 (Segment Level) increasesReport performance deteriorates dramatically GOTCHA!
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Segment-Level Characteristics (cont.)
• Avoid the most common costly mistake• Do not set Characteristics such as “Sales Order” and
“Order” as Segment-level Characteristics• Better solution: Instead, use Line-Item-based reports for
these needsCO-PA IMG > Information System > Create Reports based on Line Items (KE91)Line-Item-based reports are similar to CO-PA reports and in addition, you could also choose other Characteristics (which are not defined as “Segment-level” Characteristics)
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Exception: Segment-Level Characteristics
• You don’t need to worry about performance if your business isn’t Sales Order intensive
• For example:You are purely a Make-to-Order (MTO) or an Engineer-to-Order (ETO) industry (i.e., you don’t use Sales Orders that often)You don’t process an exceptionally huge volume of Sales Orders per month
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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CO-PA Performance
• CO-PA report performance is always a key issue due to the huge amount of data involved
The CO-PA module gathers information from:Sales and Distribution (SD)/Service Management (SM) – Sales Bookings and Sales InvoicesFI/CO – Accounting and Overhead CostsPC – Product Costs
Thus, the CO-PA database grows at a rapid rateYou should always consider archiving the CO-PA data to reduce the volume of data, thus improving performanceIn addition, consider the performance improvement options available in CO-PA
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CO-PA Reporting Performance: Basic Concepts
• CO-PA reports normally read directly from the segment table (CE4) and segment level (CE3)
This can take time due to the large amount of records involved!
KE30
CE1
CE2
CE3
CE4
Source Document
KE30 (Execute CO-PA Reports) reads segment-level data
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CO-PA Performance Improvement Tools
• CO-PA offers several options for improving performance • Most are controlled from the dialog shown below
Access it from any CO-PA report selection screenUse menu path CO-PA Report > Options > Performance
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Understanding Summarization Levels
• Summarization levels are the most powerful tools to improve the CO-PA performance
• Summarization levels are pre-summarized data for selected Characteristics
The primary purpose of a CO-PA report is to display information in aggregated (summarized) form If the report has to read the CO-PA data from transaction tables and pre-summarize it in memory before displaying the data, it takes much longerInstead of reading the transaction data, the report performance can be improved if the pre-summarized data already exists
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Understanding Summarization Levels: Data Structures
Segment Table Segment LevelCE4xxxx CE3xxxx
Key Table K810001
Summary Table K810002
Summarization Levelsfor “Customer”
Summarization Levelsfor “Customer”
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Summarization Levels – 5 Best Practices
1. Include “dependent” Characteristics and avoid fixed characteristic values
2. Avoid redundant summarization levels3. Build all summarization levels with the same timestamp4. Regularly update summarization levels5. Keep a safety period when building summarization levels
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1. Include “Dependent” Characteristics
• When you include a characteristic in a summarization level, also include all the Characteristics that dependon it!
This will not significantly increase the size of the summarization level, but the summarization level will be usable in many more situations!
• Related tipsIf you use system proposal (Extras > Proposal for > Reports), include dependent Characteristics in the definition of the summarization levelIf you have included “customer” in the summarization level, you should also include all Characteristics that are derived from the “customer” master record
E.g., Customer Group, Customer Region, etc.
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2. Avoid Redundant Summarization Levels
• If one summarization level contains another one, make sure they are not too similar
A summarization level with nearly as many records as the segment level (CE3) should be avoided
It’s not worth creating a separate summary table that is more-or-less the same size as the original data!
To review the size of the summarization level, use transaction KEDV
GOTCHA!
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2. Avoid Redundant Summarization Levels (cont.)
Tcode KEDV
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3. Build All Summarization Levels with Same Timestamp
• It is advisable to build all the summarization levels to have the same timestamp
All summarization levels will have the same “current” status and number of summary records once correctly updatedIf you have many summarization levels:
Build all the smaller summarizations together in the first runNext, build larger summarization levels Last, update all summarization levels, so all will have the same timestamp
Advantage: Smaller summarization levels are immediately available for use
Tip
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4. Regularly Update Summarization Levels
• It almost always makes sense to update all summarization levels on a daily basis
Do not build summarization levels unnecessarily oftenIt is usually sufficient to rebuild summarization levels once and update periodicallyUpdate every night with program RKETRERU (transaction KEDU)
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5. Keep a Safety Period When Building Levels
• While building summarization levels, the system does not include line items created in the last 30 minutes –this is called the safety delta
When building and updating summarization levels, always allow a safety period of 30 minutes after any jobs that post mass datato CO-PA
Otherwise, not all newly inserted line items will be updated to the summarizationWhen you run reports that show current data, the rest of the line items will be read over and over, worsening the response time of reportingThe “missing” line items will appear in the summarization level upon the next update
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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CO-PA or SAP BI/BW?
• What reporting tool should you use when it comes to Profitability Analysis reporting?
• SAP BI/BWSAP’s strategic reporting solutionVery sophisticated
• CO-PA CO-PA drill-down reporting tools have many hidden strengths and analytical capabilities
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CO-PA or SAP BI/BW? (cont.)
• Please note that the question of CO-PA or SAP BI/BW is for reporting – not for functionality of determining Profitability Calculations
• CO-PA module is still required to do the profitability calculations
Based on Cost-of-Sales or Period Accounting principles• The question is whether to perform reporting in the CO-
PA module or the SAP BI/BW module
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CO-PA or SAP BI/BW? (cont.)
• Many factors influence which tool is right for you:Reporting StrategyIT InfrastructureUnderlying TechnologyData VolumeReport PresentationContent and Focus of DataData UsageBusiness Communities ServedCompany-specific factors: Type of industry, organizational structure, and cultural background
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Profitability Reporting in CO-PA
• Why use CO-PA for profitability reporting?Reporting requirements are relatively simple and predictableThe costs of transferring data to BI/BW can outweigh the benefits of BI/BW reportingProfitability analysis is perfectly integrated with value flow in CO-PAConsistent matching of revenues earned with costs incurredEnriched real-time with product costs and accrued costs Period-end allocation of overhead, process costs, and variances
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Profitability Reporting in BI/BW
• Why use BI/BW for profitability reporting?No limitations on number of CharacteristicsNo limitations on number of Value fieldsConsistent reporting interfaceReporting in dedicated system (OLAP)Cross-application report dataData storage is used solely for report dataIntegration with other SAP products like CRM
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Profitability Reporting: Using CO-PA and BI/BW Together
• Profitability ReportingA possible approach could be to use both CO-PA and BI/BW for Profitability ReportingAlthough BI/BW is the most robust and powerful Analytical Tool, CO-PA drill-down functions also offer many useful reporting featuresA clever combination of CO-PA and BI/BW may offer the optimal reporting solution with the maximum utilization of existing reporting investment
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CO-PA or BI/BW?
Custom ABAP reports or interfaces may need access to transaction data from SAP system
CO-PACustom reporting or interface within SAP system
BW’s inherent reporting strengths make it a strong candidate to take away the query load from the SAP system
BWPerformance degradation of the SAP system due to reporting
The costs of transferring data to BW are more than the benefits of BW reporting
CO-PAExtracting, Transforming, and Loading (ETL) efforts are huge
BW robust architecture and its administrative tools can handle complexities
BWComplex business requirements across multiple systems
BW can retrieve information from various systems and display consolidated query results
BWAll data fields are not within SAP
Standard LIS reporting functionality is strong enough for routine requirements
CO-PAReporting requirements are relatively predictable
BW offers strong OLAP functionality for querying
BWReporting requirements require flexibility
Why?CO-PA or BW
Factors
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What We’ll Cover …
• CO-PA – Overview• CO-PA vs. General Ledger• Costing-Based and Account-Based CO-PA• Segment-Level Characteristics• CO-PA Reporting Performance• Profitability Reporting – CO-PA or SAP BW?• Wrap-up
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• CO-PA articles published by Mitresh Kundalia“Track Your Profitability with CO-PA” (SCM Expert, July 2005).“Ask the SAP Financials Expert: Should I Report in CO-PA or BW?” (Financials Expert, January 2005).“Can You Really Post to COGS During a Billing Process?”(Financials Expert, April 2005).“Plan and Monitor Your Sales Campaigns in the CO-PA Ledger”(Financials Expert, February 2004).“10 Best Practices for Designing Summarization Levels”(Financials Expert, January 2004).“The Good and the Bad of CO-PA’s Transfer +/- Option”(Financials Expert, May 2004).
Resources
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• CO-PA articles published by Mitresh Kundalia (cont.)“What You Should Know About the SD Higher-Level Item Category’s Influence on Financial Reports” (Financials Expert, March 2003).“Split and Speed Up Your CO-PA Reports Using the Report/Report Interface” (Financials Expert, October 2002).“Help Your Profit Analysts Find Cause-and-Effect Relationships with Three CO-PA Data Fine-Tuning Options” (Financials Expert, June 2002).
Resources (cont.)
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7 Key Points to Take Home
• The core competency of CO-PA is determining the contribution margin analysis for business segments
• CO-PA Ledger is different than general ledgerCO-PA Ledger is structured to support contribution margin analysis
• Costing-based CO-PA is based on Cost-of-Sales Accounting principles
Costs are matched to revenues to determine the profitability• SAP also offers another flavor of Account-based CO-PA
You could use BOTH types of CO-PA simultaneously • Account-based CO-PA is based on Period-Accounting
principles (same as general ledger) Therefore always matches to G/L
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7 Key Points to Take Home (cont.)
• Avoid costly mistake of setting Sales Orders as Segment-level Characteristics
Exceptions are for business processes that are not Sales Orders extensive
• Summarization levels are one of the most powerful tools to improve CO-PA reporting performance
Summarization levels are further summarization of CO-PA data• Bonus Key Point! CO-PA offers flexible and robust OLAP
functionsFor more flexible reporting options, consider BI/BW solution
You could use BOTH (CO-PA and BI/BW) simultaneously for profitability reporting
