Overhead Cost Controlling

Objectives

To gain understanding of key business processes of SAP Overhead

Cost Management (OCM)

SAP Overview
SAP Overhead Cost Management

SAP Modules - Overview

SD

Sales &
Distribution

FI

Financial
Accounting

CO

MM

PP

Overhead
Cost
Management

Materials
Mgmt.

Controlling

AM

Product
Planning

Fixed Asset
Mgmt.

SAP R/3

QM

Quality
Mgmt.

PS
OC

PM

Plant Maint.

HR
Human
Resources

IS

Project
System

Office &
Comm.

Industry
Solutions

Correlations in Accounting
SAP SEM / SAP BW
Consolidation
Customer

Human
Resources

Cost center
Internal order
Project system
Profitability analysis
Profit Center

Accounting

Vendor

Subsidiary
Ledger

Controlling

General
Ledger

Fixed
Assets

Special Purpose
Ledger
Special evaluations
Parallel reporting
Joint Venture

Accounting

Material

Cash Management
Cash management

Document Database

position
Liquidity forecast

CO Components
CO
PA

Operating concern (9100 A group)

Profitability Analysis
Profitability Analysis

Product Cost
Controlling

Overhead Cost Controlling

Internal
orders

Cost centers

COarea
Production
Controlling
(9100 A group)
Order

Internal Orders
Activity
types

CO
CEL

FI

Standard
Cost Estimate
Cost Element Accounting

Cost Element Accounting

Financial
Accounting
Financial
Accounting

Asset

HR

Expense

Human
Resources

EC PCA

Profit Center Accounting

CO
OM

Profitability
segment

Revenues

Company Code (9100 A Ltd, 9200 A1 Ltd)

MM

Materials
Materials
Management
Management

SD

Sales and
S&D
Distribution

Overhead Cost Management

The Overhead Cost Controlling component (CO-OM) helps you to

plan, allocate, control, and monitor overhead in your organization
By planning in overhead areas, you can develop standards, that allow
you to control costs and valuate internal activities.
Cost Centre Accounting
Cost Center Accounting analyzes where overhead occurs within the
organization
Costs are assigned to the sub-areas of the organization where they originated.
SAP offers a wide variety of methods for allocating posted amounts and
quantities.

Internal Order Accounting

Internal Orders collect and analyze costs based on individual internal jobs.
SAP can monitor and automatically check budgets assigned to each job.

Overhead Cost Management

Cost Element Accounting
Cost Elements
Reconcilation with FI

Cost Center Accounting

Hierarchies
Cost Centers
Stat. Key Figures
Activity Types
Resource Planning

Multiple Currency
Multiple Valuation
Analyze of Plan/
Target/Actual Costs

Internal Orders
Internal Orders
Orders

OCM Processes
SAP Overhead Cost Management

OCM Process Overview

Controlling

Process decompositions are the starting

point for process documentation.
They summarise what is involved in the
OCM process at a high level

Cost Centre
Accounting

Master
Data

Planning

Actual
Posting

Period End
Closing

Reporting

OCM Processes
Planning

Master
Data

Cost Element
Cost Centre
Activity Type
Resource
Statistical Key
Figures
Internal order
Groups

Planning preparation
Cost Centre Planning
Internal Order Planning
Plan cost distribution
Plan cost assessment

Plan direct activity

allocation
Plan indirect activity

allocation
Plan settlement of
overhead cost orders
Other planning activities

Actual
Posting

Manual entries
SKF entry
Direct activity
allocation
Indirect activity
allocation
Order budget

Period End
Closing

Reposting
Actual Cost distribution
Actual Cost Assessment
Cost Splitting
Calculate Actual Activity Prices
Settlement of Overhead
Orders
Manual Cost Allocation
FICO Reconciliation

Reporting

Master Data
SAP Overhead Cost Management

Organizational Units & Master Data

Operating Concern

A Grp Operating
Concern (9100)

Controlling Area

A Grp Controlling
Area (1000)

Profit Centers
Ethylene
Propylene

Company Codes

Cost Centers

A Ltd
9100

Pharma

A1 Ltd
9200

Purchasing
13

Other Cost Objects

Gen
Services
14

Polyolefins

Power

Teleco
mmuni
cation

HQ
1000

Sales and
Marketing
15

Orders

R&T
16

Cost Objects

Inform
ation
techno
logy

Corporate
common

Cost Element

Description

A cost element classifies the organization's valuated

consumption of production factors within a controlling area
Primary Element - costs that originate outside the
company; relate directly to the income statement in FI and
must be included in the FI Chart of Accounts
Secondary Element - costs that result from internal
allocation activities; NO relation to G/L accounts in FI.
These accounts are exclusively for cost accounting and are
only maintained in CO

Cost Element vs GL Account

Financial
Accounting

Cost Centre Accounting

Internal Orders
Product Costing
Profitability Analysis

Adjustment
Accounts
Income
Statement
Accounts

General Ledger
Accounts Payable
Accounts Receivable
Fixed Assets
Treasury

Primary
Cost
Elements
Secondary
Cost
Elements

Cost Elements

Chart of Accounts

ce
n
ala t
B
No Shee ts in
u n l in g
o
c
l
Ac ntro
Co

Balance
Sheet
Accounts

Controlling

All
co
p
st rim
Inc lin elem ary
om ked en
e S to ts
Ac
co tatem
un
ts ent

ary
d
o n en ts
c
Se lem l
o
N t E ncia
s
Co Fina nting
In o u
c
Ac

Cost Centre

Description

Organizational unit within a controlling area that represents

a defined location of cost incurrence. The definition can be
based on:
Functional requirements
Allocation criteria
Physical location
Responsibility for costs
Defines the smallest area of responsibility within the
company that causes and influences costs; the lowest level
to which you can meaningfully assign direct and indirect
costs

Cost Centre Standard Hierarchy

Enterprise
A group
Standard
Hierarchy

Company
A Ltd
9100

Functional Area

Cost Center

xx01 - Production

9101000 Production Common

xx02 - Maintenance

9101011 EG- 1 Plant

xx03 - Utilities
xx04 Engineering & Projects

A1 Ltd
9200

xx05 Quality Assurance

xx06 Production Planning
xx07 Production Handling
xx08 Warehousing & Storage

A11 Ltd
9300

s
de
o
N

A111 Ltd
9400

xx09 Executive Office

xx10 - Finance

9110000 Finance

xx11 Human Resources

9111000 Human Resources

xx12 Information Technology

9111001 Housing Services

xx13 - Purchasing

9111002 Training Centre

xx14 General Services

xx15 Safety & Security
xx16 Sales & Marketing
xx17 Research & Technology
xx18 Company General

ts
c
e
bj
O
st
Co

Activity Type
Description

Unit in a controlling area that classifies the activities performed in a cost

centre, e.g. maintenance hours for a maintenance cost centre
Used in activity allocation process

Statistical Key Figure

Description

Used to track quantities and values for various operating activities

Designed to be used in reporting and analysis
Used to assist in the allocation of costs throughout the OCM
environment

Internal Order
Description

Used to plan, collect and settle the costs of internal jobs and tasks.
Internal orders are categorized as either:
Orders used purely to monitor objects within Cost Accounting (such as
advertising, training, or trade fair orders) and
Productive orders that are value-added, that is, orders that can be
capitalized (such as in-house construction of an assembly line).

Groups

Description
OCM master data can be grouped together, for example

Cost Centre Groups

Cost Element Groups
Activity Type Groups
Statistical Key Figure groups
Internal Order Groups

Master data groups are used in reporting, planning,

allocation, etc.
You can divide complex groups into manageable sections
by separating them into sub-groups
You can create and maintain sub-groups separately and
then combine them in larger groups

Actual Posting
SAP Overhead Cost Management

Manual Entries
Description

Actual cost entry enables you to monitor and trace costs incurred by
your company as they arise. This allows you to identify variances
quickly and take appropriate action to deal with them.
Actual cost entry involves transferring the primary costs recorded in
Financial Accounting (FI) to the Controlling (CO) application
component. In the CO component, this transfer occurs real-time from
the components FI, MM, and AM, whereby a cost accounting object is
recorded during account assignment

Process

Incorporated into other processes, e.g. FI Journal Entry, Goods Issue,

etc

Manual Entries

Primary postings include the following transactions

Payroll
Material Usage
Travel
Purchase Requisition / Purchase Order / Goods Receipt / Invoice
Inter / Intra Accounting Journals
Depreciation

Manual Entries
SAP SEM / SAP BW
Consolidation
Customer

Human
Resources

Cost center
Internal order
Project system
Profitability analysis
Profit Center

Accounting

Vendor

Subsidiary
Ledger

Controlling

General
Ledger

Fixed
Assets

Special Purpose
Ledger
Special evaluations
Parallel reporting
Joint Venture

Accounting

Material

Cash Management
Cash management

Document Database

position
Liquidity forecast

Statistical Key Figure Entry

SKFs required for reporting and allocations may be entered into the
system during the month or at month-end
They are recorded with a Controlling document number
SKFs may also be transferred from Logistics Information System (LIS)

Direct Activity Allocation

Description

Direct activity allocation involves the measuring, recording, and

allocating of business services performed
Activity types are used as the cost drivers
Activity allocation occurs, for example, when business transactions are
confirmed or when posting activity quantities to accounts, eg Plant
Maintenance Hour, Production Hours, Utilities, etc
The system multiplies the activity produced by the price of the activity
type.
Activity types are planned using prices set manually or using SAPs
price calculation

Indirect Activity Allocation

Description

IAA is a method of allocating actual and plan costs using activity

quantities as the basis. IAA is extremely beneficial when calculating the
activity quantities on the sender involves too much time or expense.
The value can be calculated inversely based on the activity quantities
actually consumed or planned on the receivers

Internal Order Budgets

Description

The budget is the approved cost limit for an internal order

The budget is the limit set by management for internal order costs over
a certain period of time
Budgets have the following components
Original Budget
Supplements
Returns
Transfers

Period End Closing

SAP Overhead Cost Management

Reposting

You can repost primary costs manually using transaction-based

repostings, whereby the original cost element is always retained. This
function is designed mainly to adjust posting errors.
You should always adjust posting errors in the application component
where they occurred. This ensures that FI and CO are always
reconciled
You can only adjust posting errors involving one cost accounting object
(a cost center or internal order for example) using a transaction-based
reposting in Controlling (CO).

A group Allocation Model

Cost Centre Accounting

Project

Company General
Executive Management

PS

Utilities
Administration
Storage
Production Support
Production

Product Costing

PC

Allocations - Description
Two types of allocations:
Distribution
The following information is passed on to the receivers:
The original, primary, cost element is retained.
Sender and receiver information is documented with line items in
the CO document

Assessment
The following information is passed on to the receivers:
The original cost elements are grouped together into assessment
cost elements (secondary cost elements). The original cost
elements are not displayed on the receivers.
Sender and receiver information is displayed in the CO document

Distribution
Administration

Company General

Materials

60

Staff Salaries

120

Rent & Rates

Light & Heating

Materials

100

Vehicles

Staff Salaries

200

Repairs

Production Support

Rent & Rates

Travelling

12

Light & Heating

Hotels

18

Materials

40

Staff Salaries

80

Vehicles

Rent & Rates

Repairs

Light & Heating

Travelling

20

Hotels

30

Total

Total

210

Vehicles
Repairs
Travelling

Hotels

12

Total

140

Allocation
Allocation through
through original
original cost
cost element
element

Assessment
Administration
Materials
Staff Salaries

Company General

Rent & Rates

Light & Heating

Materials

100

Vehicles

Staff Salaries

200

Repairs

Production Support
Materials

Rent & Rates

Travelling

Light & Heating

Hotels

Vehicles

Company General Costs 210

Rent & Rates

Total

Vehicles

Staff Salaries

Repairs
Travelling

20

Hotels

30

Company General Costs -350

210

Light & Heating

Repairs
Travelling
Hotels

Total

Company General Costs 140

Total

Allocation
Allocation through
through secondary
secondary cost
cost element
element

140

Cost Splitting

Actual cost splitting makes it possible to divide costs into fixed and
variable portions
The actual costs are split in two stages:
In the first splitting step, the system distributes actual costs by cost
element to the activity types based on the target costs or target
quantities
In the second splitting step, the actual costs are distributed on the
activity types according to splitting rules. If you have not defined
any splitting rules for a cost center, the system splits actual costs
based on the equivalence numbers for the activity types.
It is only in this way that you can compare the actual costs with the
target costs of the activity types and display the variances by activity
type.

Calculate Actual Activity Prices

During actual price calculation, the system calculates iterative prices for
activity types or business processes based on actual costs and actual
activities. The calculation takes into account all activity exchanges
between cost centres or business processes.
Price calculation, which you can carry out during planning, is based on
planned costs and activity. The resulting prices are used to valuate
actual activity.
After running actual price calculation, you can choose to revalue actual
activity at actual prices. This revaluates the activity using the difference
between plan and actual prices. By revaluing the actual activity with
actual prices, you can fully balance sender cost centres and sender
business processes.

Settlement of Overhead Cost Orders

Some or all of the plan and actual costs incurred on an object are
allocated to one or more receivers.
System automatically generates offsetting entries to credit the sender
object. The debit postings assigned to a sender object remain in place
even after settlement to a receiver
Two types:
Periodic Every period
Full After completion

Two methods:
Individual
By individual sender object
Allows to analyze in greater detail

Collective
Processes a large number of sender objects
Used during period-end closing activities

Settlement of Overhead Cost Orders

Cost Object B
Materials
Staff Salaries

Overhead Cost Order

Rent & Rates

Light & Heating

Materials

100

Vehicles

Staff Salaries

200

Repairs

Rent & Rates

Travelling

Vehicles

Hotels

Repairs

Company General Costs 150

Travelling

20

Hotels

30

Total

150

Company General Costs -150

Capitalisation

-200

Total

Allocation
Allocation through
through original
original cost
cost account
account
or
or settlement
settlement cost
cost element
element

Fixed Asset

Manual Cost Allocation

Manual cost allocation involves posting secondary costs manually. The

system credits a sender object (for example, a cost center) and debits a
receiver object (for example, an order)
You can use manual allocation to:
Avoid the need for complicated Customizing settings for simple
allocations
Manually transfer external data
Make simple adjustments to incorrect secondary postings.

FICO Reconciliation

The reconciliation ledger is a tool used to portray transaction figures in

Controlling in a summarized form
It provides reports with which you can monitor the CO/FI reconciliation
for each account
It can determine and display value flows that were posted in CO across
company codes and functional areas
Each company code in FI represents an independent accounting unit
for which a balance sheet must be created. Data flows between
company codes must be posted separately so that no information is
lost. These boundaries are not relevant for Controlling (CO).
You can use reconciliation postings to transfer cross-company code, or
cross-functional area postings made in CO that are relevant to FI, and
to automatically create reconciliation postings there

Month/Year end Closing - Process Map(1/2)

1

Send the monthly

Schedule manager
Logistics

Ensure payroll
Are posted
GL Inquiry

Release the
payroll
-5

Acknowledge
Schedule manager

5 Simultaneous
Costing *
Logistics

8
Close the period
for MM
Close Posting
Period

10

9
Enter journal
voucher *
GL Doc. entry

Adjust
Inventory *
GL Doc. entry

Close the period

for AP & AR
Close Posting
Period

11

Ensure settlement
& depreciation
Are posted
Run Depreciation

Treasury
activities
Treasury

Cash Out
-2

Fixed Asset
Fixed Asset
WBS Settlement Run Depreciation
-6
-13

AP Disbursement
-1

3
Review & correct
billing errors

SAP Job Role

Electronic
Processes

SAP Enabled
Processes

Month/Year end Closing - Process Map(2/2)

12

Close the
Period for FA
Close Posting
Period

19
Product Costing *
Logistics

13

Determine the
Lowest value
Principle *
Pricing

20

Material Ledger/
Actual Costing *
Logistics

14

16

15

Update materials
prices *
Pricing

21
Execute
Assessment
Cycle
Allocations

Complete the
electronic bank
reconciliation *

22
Run the
Reconciliation
Ledger
Rec. CO with FI

Run the foreign

Currency valuation *
GL Periodic
Processing

23

Final Close
Of GL
Close Posting
Period

17

Temporally
Close GL
Close Posting
Period

18

Generate a
Preliminary
financial report
GL Reporting

25

24
Generated
financial reports
GL Reporting

Carry
forward
balances *
Periodic Pro.

End

SAP Job Role

Electronic
Processes

SAP Enabled
Processes

Reporting
SAP Overhead Cost Management

OCM Reporting

Comprehensive, flexible information system to analyze cost flows

Carry out standard recurring evaluations
Construct special reports for unique situations
Analyse all costs online and trace them right back to the original
document
Execute all reports available online in background runs as well (helpful
for large amounts of data)
For hierarchically grouped objects, such as cost centers, you can
create separate reports for all hierarchy nodes and individual objects, or
you can create all the relevant reports in a single selection run through
the database
The second option allows you to navigate within a hierarchy. This
enables particularly flexible monitoring of cost center areas

OCM Reporting
ABAP Listviewer
Reporting

CO Summarization
Reporting

Tool Offers Set of Generic Functions

Without Programming

Standardized / Flexible Cost

Analysis of Cost Objects

Line Item Reports, Documents

Check of Data Consistency

Analysis of Incorrect Postings,

Corrections

Formatted Reporting
with ReportWriter
Target/Actual Comparisons,
Variances
Support of the Planning Process
Assessment Cycles, Target Costs

R/3
Reporting
for OCM

Drill Down Reporting

Reconciliation Reports to look

for Posting Anomalies

OCM Reporting Menu Path

OCM Sample Report Selection Criteria

Roles
SAP Overhead Cost Management

OCM Roles

Master Data Management

Master data role is assigned to an individual who is responsible for changes
and maintenance of OCM master data. This role is to be centralized. OCM
Master Data are:
Cost Center and Groups
Cost Elements and Groups

Internal Orders Maintenance

Internal order maintenance is assigned to an individual who is responsible
for creation, changes and maintenance of internal order status

OCM Roles continued

Plan Settings
Plan setting maintenance is assigned to senior individual who is
responsible for redefinition of plan version, maintain distribution keys etc

Primary Cost Planning

Primary cost planning is assigned to an individual who is responsible for
planning primary cost, copy from plan and actual, plan transfer from other
modules and plan revaluation

Secondary Cost Planning

Secondary cost planning is assigned to an individual who is responsible for
planning cost allocation

Internal Order Budget Maintenance

Order budget maintain is assigned to an individual who is responsible for
the maintenance of new budget in-out, supplement. Transfer from other
modules and plan revaluation

OCM Roles

Actual Postings
Actual posting is assigned to individual who is responsible for the actual
SKF data entry, posting manual entries, direct/indirect activity allocation
and reservations

Allocation Settings Maintenance

High level of individual who decide to Create or change allocation cycles in
the system-Configuration process

Period / Year End Closing

Period-end closing is assigned to individual who is responsible for carry on
necessary cost reposting, distribution, allocation, settlement, FI/CO
reconciliation and period look

Reporting Display
Reporting is assigned to an individual who is trained to access, use, and
interpret OCM reports

OCM Role to Process Mapping

Process
Role

Master
Data

Master Data Maintenance

Internal Order Maintenance

Planning

Plan Settings

Primary Cost Planning

Secondary Cost Planning

Internal Order Budget

Maintenance

Actual
Posting

Actual Postings

Allocation Setting Maintenance

Period / Year End Reporting

Reporting Display

Period End
Closing

Reporting