Result Analysis – Part I
Result Analysis in SAP – an Overview
Result Analysis is a month end activity in SAP that helps business ensure they do not over/under book the profits arising from the ongoing Sales Order / Internal Order / Projects.
It helps business align either their Costs or Revenue to maintain the profit ratios that are acceptable as per the applicable legal requirements.
In this chain of articles, we will focus on Result Analysis for Projects.
Before going into the configurations required, we we first try to conceptually understand more about the Result Analysis in SAP:
Why is RA required?
Result Analysis, based on the Valuation Method selected, helps account for the unaccounted Revenue / Cost so as to enable consistency in values accounted and profits/losses caused. This also helps account proportionate revenues / costs in periods so as to have the values spread over project lifespan in consistent and pre-planned way.
In order to understand the above fact, we would have to understand the following example. The project considered in the following example will be run for 4 months and will have milestone billing.
50% in 2nd Month
25% in 3rd Month
Balance in 4th Month
Revenue : 2,00,000.00
Percentage of Profit to Revenue: 40%
No Result Analysis
Let’s see how my accounts will look like in absence of Result Analysis
In this period, we book actual cost of 20,000.00 but since we do not have any Revenue. The account for project will look as below:
The Account for 1st period will show loss accounting to the whole amount of actual expenses booked.
In this period, we book actual cost of 60,000.00 which will total to 80,000.00. Now due to the milestone in this month, we will have a Revenue of 1,00,000.00. The account for project will look as below:
In this month we will have have a profit of 20,000 and percentage of Profit to Revenue will be 20%
In this period, we book actual cost of 20,000.00 which will total to 1,00,000.00. Now due to the milestone in this month, we will have a total Revenue of 1,50,000.00. The account for project will look as below:
In this month, we have a profit of 50,000.00 which accounts to 33.33% of the Revenue.
In this period, we book actual cost of 30,000.00 which will total to 1,30,000.00. Now due to the milestone in this month, we will have a total Revenue of 2,00,000.00. The account for project will look as below:
This is the final month of our project and in this month, we have a profit of 70,000.00 which accounts to 35% of the Revenue generate.
Result Analysis has impact on Financials and reconciliation between FI/CO-PA
The above example needs to be understood with regards to following pointers:
Impact on Financial
Throughout the lifespan of this project we have been working on actual values i.e. Cost and Revenue. This is causing inconsistent profitability for project . This will also have adverse impact on accounting as we will end up booking of profits/losses that are inconsistent and have sudden surge/drop through lifetime.
Impact on CO-PA
If we following Costing Based CO-PA, the cost booked in first period will not be posted in CO-PA due to non availability of Revenue bookings. This will cause difference in FI & CO-PA. Also from second period, the profitability will vary from month to month and may cause an unfavourable trend causing sharp increase/decrease during periods.
It is due to the above fact that we start feeling the need of a mechanism that can help achieve consistency in revenue and cost booking. A function that automatically, based on business needs, calculates adjustment in either Revenue or Costs and posts them to FI / CO / CO-PA to have consistent results throughout the lifespan. Result Analysis, in SAP helps to achieve this which comes with various Valuation Methods that have varied logic which helps business get a pre-configured solution for various business needs.
The above explanation would in some extent helps us understand why Result Analysis is required by business. At the same time we, in our next articles, will try to look into the various Valuation Methods available in SAP for this purpose.
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