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Set up and utilize internal orders as standard SAP® functionality

John Jordan

ERP Corp

Introduction

• Internal Orders Explained• What are they?• How are they used?

• Real vs. Statistical• Limitations & Benefits• To Plan or Not to Plan• Grouping• Which type better fits your requirements?

• Case Study: Use of Statistical Orders to Capture R&D Costs• Configuration of Statistical Internal Orders• Collection of Values

• Reporting

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Topics

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• Internal Orders - What are they?• Real vs. Statistical• Case Study: Use of Statistical Orders to Capture R&D Costs• Reporting• Summary

Start of first section:List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

Internal Orders Explained

• What are they?• Internal orders are considered a cost object within the SAP

Controlling Module• The primary purpose of an Internal Order is to capture costs

or revenues related to specific event or project

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Internal Orders Explained

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• How are they used?• Depending on the defined requirements, internal orders are

used to capture and monitor:• Non-departmental costs • Revenues related to a specific sales order• Large internal projects

Topics

• Internal Orders - What are they?• Real vs. Statistical• Case Study: Use of Statistical Orders to Capture R&D Costs• Reporting• Summary

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Start of second section:List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

“Real” vs. “Statistical”

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• “Real” Internal Orders• A Real Internal Order is used to track a cost that can be

settled to:• An Asset• A General Ledger account• Another cost object such as a Cost Center.

• Can be a plan:• A new building or a large maintenance project that will result in an

asset.• SAP Implementation whose settlement will be split between and asset

and expense accounts.

“Real” vs. “Statistical” (cont.)

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• “Real” Internal Orders• Can be planned or budgeted

• A Plan allows for costs collected/committed to be reported against the planned value assigned to an order or group of orders

• A Budget allows for costs collected/committed to be reported against the budgeted value assigned to an order or group of orders

• The difference between the two is specific to the spend – a plan can be exceeded, a budget cannot

• Not all orders have to be settled• Internal Orders can be used in the same manner that cost centers can

with regard to capturing costs. The key is to ensure that the values are assigned correctly within the OPEX section of the Profit & Loss statement

• This can be accomplished by assigning a functional area

“Real” vs. “Statistical” (cont.)

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• “Statistical” Internal Orders• A Statistical Internal Order simply tracks a certain type of

cost that are not directly assignable to a cost center.• This type of Internal Order is used for reporting purposes

and cannot be settled. • As a general rule, Statistical orders are used for the following

types of spend:• Marketing Spend• Trade Show Costs• Special Projects (time and expense tracking) • Research & Development Spend

Benefits & Limitations

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Options ‘Real’ ‘Statistical’

Plan or Budget

Benefit – allows for clear view of spend against expectations

Limitation – expected amounts can be assigned to the order but not reported

Settlement Benefit – allows for cost collection and settlement according to user defined rules

Limitation – cannot be settledBenefit – because settlement is

NOT included, there is less maintenance

Posting Benefit – costs are posted directly to the internal order

Benefit – costs are posted to the relevant department which is ultimately responsible for the costs but the order allows for specific reporting

Reporting Benefit – reports can be run by order or group, viewing actual, commitment and plan/budget

Benefit – reports can be run by order or group

To Plan or Not to Plan

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• There are two types of Internal Order planning in ECC 6.0 • Plan Integrated

• This scenario combines cost elements and internal orders within the same plan as cost centers and all planned allocations are updated on the sender/receiver cost centers.

• This type of planning can also be transferred to Profit Centers & the Extended General Ledger based upon configuration and activation.

• Non plan-integrated • Only allows for the local planning of costs or activities related to an

internal order that is not setup for settlement to cost centers and/or Profit Centers and the Extended General Ledger.

To Plan or Not to Plan

• Budgeting for Internal Orders• In SAP, exceeding a budgeted value applied to an internal

order is considered a hard stop, unlike planning which is a warning. If the proposed spend exceeds budgeted value by any amount, the system will not allow the transaction to post. • Any excess amounts require an adjustment to the budget. • In addition to actual posted values, the budget can take into account

any values committed via a purchase order during entry of financial postings (invoices or G/L entries).*

*This requires that commitment management has been activated13

Grouping

• Unlike Cost Centers, Internal Orders are not associated with a mandatory hierarchy.

• Orders can be grouped by activity or project based upon planned usage. An example is as follows:

• One of the main benefits of grouping orders together is to increase efficiency related to execution of settlement and reporting.

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A2 Cycles Trade Show

400237Booth Rental

4002378Travel

400239Promotional

Items

Grouping

• In addition, a grouping of Internal Orders can also be used to collect and budget a large project where you want to charge to a lower level, but report at a higher level.

• Examples of this would be one of the following:• large scale building • renovation projects • large scale marketing/advertising

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Which type of order better fits your requirements?

• Determine how the order will be used• Will it require settlement to a cost center, asset or GL

account?• Do you require planning or budgeting?• It is necessary to review Actual vs. Commitment vs. Plan?• Is the purpose to collect department related costs specific to

an event or project for internal reporting requirements?

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Topics

• Internal Orders - What are they?• Real vs. Statistical• Case Study: Use of Statistical Orders to Capture R&D Costs• Reporting• Summary

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Start of second section:List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

Case Study: Statistical Orders to Captured R&D Spend

• Company/System Profile• Small privately held company in the United States• Implemented ECC 6.0 with the New GL in early 2008.

Controlling functionality implemented included: • Cost Center Accounting• Profit Center Accounting• Product Costing• CO-PA

• Requirement Provided:• Identify the correct tool to capture R&D expenditures by

individual product.• Project Systems or Internal Orders

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Case Study: Statistical Orders to Captured R&D Spend

• Current method of identifying R&D Costs• Cost Center Reporting

• Upon further discussions with the controller and CFO, it was confirmed that the R&D department was represented by various cost centers which are organized by function (Engineering, Design, General R&D) and location (Plant 1, Plant 2, etc.).

• The client did not have any systematic method of identifying the costs and manually reporting on the values using spreadsheets.

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Case Study: Statistical Orders to Captured R&D Spend

• Recommendation:• Statistical Internal Orders

• Given the base requirement that the existing cost centers retain responsibility as designed AND the reporting requirements, this was the most efficient option.

• Project Systems would require too much overhead and was an overblown solution based upon the requirement.

• In addition, the cost of implementing Statistical Internal Orders equated to 20 hours of consulting versus a full blown implementation of PS into an existing system.

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Configuration of Order Type for Statistical Order

• Transaction: KOT2• Menu Path: SPRO Controlling Internal Orders Order

Master Data Define Order Types• Select Cat 0420

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Configuration or Order Type for Statistical Order (cont.)

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• Field requirements:• Header

• Order Category = 1

• General Parameters• All fields blank

• Control indicators• CO Partner Update = Active• Classification = X• Commit Management = X

• Status Management• Status Profile = ‘00000002’• Release Immediately = X

Creation of a Statistical Internal Order

• Transaction: KO01• Menu Path: Accounting Controlling Internal Orders

Master Data Internal Order Special Functions Create • Select Order Type 0420

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Creation of a Statistical Internal Order (cont.)

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• Field requirements:• Header

• Description

• Assignment Tab:• Company Code• User Responsible

Creation of a Statistical Internal Order

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• Field requirements:• Control Data Tab

• System Status = REL• Currency = Company

Code Currency• Statistical Order = X

Creation of a Statistical Internal Order (cont.)

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• Field requirements:• General Data Tab

• Estimated costs = Enterestimated amount for project/event*

• Click Save • System displays a

message stating:“Internal order was created with Order number 400XXX”

*Information only; not included in reporting

Topics

• Internal Orders - What are they?• Real vs. Statistical• Case Study: Use of Statistical Orders to Capture R&D Costs• Reporting• Summary

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Start of second section:List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

Reporting

• The reporting found in Internal Order Accounting is very useful. And, like other costing modules, it is broken up into multiple compartments to make it easier to find the report you are looking for. In this area, the reporting is broken out as follows:• Plan/Actual Comparisons• Actual/Actual Comparisons• Planning Reports• Line Items• Master Data Indexes• Summarization Reports• More Reports

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Reporting

• The two primary reporting areas for Statistical Internal Orders are as follows:• Actual/Actual Comparisons• Line Items

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Actual/Actual Comparisons

• This selection of reports provides a means to compare results on a period, quarterly, or annual basis with a prior fiscal year. These two reports provide you with a means of identifying where your department is over time from a spend analysis perspective.• Period Comparison

• The report shows period totals for the fiscal year specified.

• Quarterly Comparison• The report shows quarterly totals for the fiscal year specified.

• Fiscal Year Comparison• This report details the current fiscal year totals along with the totals

for the two previous years.

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Line Items

• The group of line item reports provides access and research tools that enable you to view the line item data relevant to actual postings, commitments, and plan data. The two most relevant reports are as follows:• Orders: Actual Line Items

• This report provides a display of all line items that posted to the Internal Order or Internal Order/cost element combination you select.

• CO Documents: Actual Costs• This report provides a display of the actual CO document created

either internally or externally (from FI).

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Topics

• Internal Orders - What are they?• Real vs. Statistical• Case Study: Use of Statistical Orders to Capture R&D Costs• Reporting• Summary

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Start of second section:List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

Summary

• Statistical Orders can provide valuable reporting with limited time and expenditures. • Retains reporting by Cost Center• Allows for Grouping of Internal Orders based upon event

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Five Key Ideas

• Implement Statistical Orders for the following events:• Trade Shows• Conferences• R&D Expenses• Entertainment

• Collect costs related to company Christmas party

• Implement Real Orders without settlement for projects that do not require capitalization

• Implement Commitment Management• Consider Reporting using FAGLL03

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Resources

• ERPtips Journal Articles• An Inside Job: Internal Order Processing in SAP - Part I

• Sales orders drive an enterprise. But if you work in the financial area, you know that sales orders just begin the cycle: internal orders are just as important for the purposes of planning, collecting, & settling the costs of internal projects. Readers may know that SAP allows you to monitor these internal orders through the entire lifecycle from creation to posting. What you may not know is exactly how the internal orders are processed within SAP, & how to configure your system to make them fit your particular needs. In Part I, we focus on expense & statistical internal orders, looking at the process from Controlling area configuration to Model Order configuration.

• An Inside Job: Capital Internal Order Configuration-Part II• Gives the low-down on Capital IO configuration including the Model Order,

Internal Order, Asset Under Construction, Fixed Asset, and Settlement. This is Part II of a three-part series on Internal Orders—contains some very strategic knowledge that can help you use SAP to calculate depreciation of a project—a real boon come tax time!35

Resources

• ERPtips Classes• Controlling Workshop - http://www.erptips.com/SAP-Training/SAP-

Course-Listing/SAP-Financials/Controlling.asp• SAP Help for Internal Orders

• http://help.sap.com/saphelp_erp60_sp/helpdata/en/a9/ab7f68414111d182b10000e829fbfe/frameset.htm

• ERPtips Manuals• Controlling Training Manual -

http://www.erptips.com/SAP-Training/Course-Manuals.asp• ASUG Special Interest Group (SIG) – (must be logged in)

• http://www.asug.com/Communities/SpecialInterestGroups/Process/tabid/169/Identifier/GP_CU/TaxonomyId/275/Default.aspx

• SDN Wiki for FICO • http://wiki.sdn.sap.com/wiki/display/ERPFI/FICO+Resources

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Questions

• Now:• Ask questions now for immediate answers

• Later:• jjordan@erpcorp.com

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Q&A

Disclaimer

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