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Using Hierarchy Settlement in Service Management

Objective

After completing this lesson, you will be able to use hierarchy settlement in Service Management

Hierarchy Settlement in Service Management

Introduction

As of SAP S/4HANA Cloud Private Edition 2025, SAP Service Management supports hierarchy settlement. Hierarchy settlement must be used instead of normal settlement, when different account assignment objects are in a hierarchical relation. With Hierarchy settlement all account assignment objects in the hierarchy are settled together.

The following scenarios can be distinguished:

  • A financial hierarchy …

    • … with classical service items or service hierarchies
    • … with execution order items
  • A stand-alone service order with an execution order item
  • Transition to item-based accounting: a service contract with the Account Assignment Manager

The first case of a financial hierarchy in Service Management is when a service contract item is defined as a root item in a financial hierarchy and there are service order items assigned to this contract item. When a service order item is an advanced execution item in this scenario, the linked plant maintenance orders are automatically part of the hierarchy.

The second case is a standalone advanced execution order item (no contract item assigned, or a normal contract item assigned) with linked plant maintenance orders.

For the first case hierarchy settlement is the only way to do settlement and the lower-level account assignment objects in the hierarchy cannot be settled alone.

For the second case both hierarchy settlement and separate settlement of service order items and PM orders is possible. This can be set up in Customizing.

Note

SAP S/4HANA Cloud Private Edition 2023 had the restriction that settlement and event-based revenue recognition (EBRR) couldn’t be used together. With the introduction of hierarchical settlement this restriction is no longer present.

Setup and Example

Screenshot of the definition of an item category, and then particularly the Sales view, with highlighted the field Settlement Options and the option to select H Hierarchy Settlement Allowed.

The setup of hierarchy settlement for Service Management can be found in Customizing under Service→Transactions→Basic Settings→Define Item Categories.

In the Sales view you can see the dropdown list Settlement Control which allows you to define how settlement is handled for the item category:

  • Settlement Without Hierarchy Allowed
  • Hierarchy Settlement Allowed
  • No Settlement Allowed

No Settlement Allowed forbids any settlement for this item category. The last option supports settling this item as already supported in SAP S/4HANA Cloud Private Edition 2023 FPS03. The second option allows hierarchy settlement in specific scenarios, detailed later. The default value is Settlement Without Hierarchy Allowed for upgrade reasons. That means you must choose Hierarchy Settlement Allowed consciously.

Screenshots of a service order with an execution order item, the parameter definition for the settlement run for this order, and the sender and receiver for the settlement run. The receiver is a work breakdown structure (WBS) element.

In the above image, the service order has a follow-up maintenance order without a service contract assigned. Hierarchy settlement settles the postings of the execution order item and the maintenance order together. You can also see that the settlement run is about to be started. You can see that the receiver is a work breakdown structure (WBS) element.

Screenshot of the sender information and the journal entry line items resulting from the settlement run.

In the above image, the sender information and the journal entry line items resulting from the settlement run are displayed.

Screenshot of the resulting line items of the settlement run using the SAP Fiori app Display Line Items - Cost Accounting.

You can also display the settlement postings in the SAP Fiori app Display Line Items - Cost Accounting at any time by referring to the service order transaction ID.

Screenshot of the settlement parameters for the settlement of a service contract item with a financial hierarchy and a follow-up service order. The service order includes the execution order item.

In this example, settlement for a service contract item with a financial hierarchy and a follow-up service order is shown. The service order includes the execution order item which generates revenue. The item also creates a follow-up maintenance order that incurs costs.

The app Run Settlement - Actuals is shown with the corresponding settlement run to be started manually.

Screenshot of the settlement run for a service contract item with a financial hierarchy. A screenshot of the sender information is also shown, as well as a drawing of some process steps (illustrative!) and a photo of two men working behind screens with headsets on (also illustrative).

The service contract item with the financial hierarchy is settled with hierarchy settlement to the profitability segment. The corresponding service order’s revenue from the execution order item and the costs from the maintenance order are settled together.

You can also see that sender information is shown. You can also see the statistics of the settlement.

Screenshot of the journal entry line items resulting from the settlement run. As well as a drawing of some process steps (illustrative!).

You can see that the journal entry displays the settled postings.

Transition to Item-Based Accounting for Productive Customers

Flowchart of the item‑based accounting process for service in SAP. Top row. Left: ‘Service Contract (Integration with Account Assignment Manager)’ showing multiple ‘Item’ rows. A labelled step ‘1’ points right with the text ‘Service Contract Assignment’ to ‘Service Order (Item‑Based Accounting)’, also listing items. From the service order, one arrow points to ‘Planned Cost and Revenue’. A second arrow to ‘Event‑Based‑Revenue’ is crossed out and annotated ‘Not supported’. Center row. Middle‑left: ‘Account Assignment Manager’ with three options: ‘Profitability Segment’, ‘I/O (header or item)’, and ‘WBS element’. Middle‑right: ‘Accounting Object’ containing ‘Item‑Based Accounting Assignment Object’. Three arrows connect the Account Assignment Manager to the Accounting Object, each labelled ‘automated Settlement Rule Generation’, with suffixes ‘(PSG)’, ‘(ORD)’, and ‘(WBS)’. Next to this connection is a circular icon labelled ‘2 Settlement run’. From the Accounting Object an arrow points to a grey note: ‘Report on Item‑Based Accounting: Service Actuals app’. Bottom‑left. ‘CO‑PA’ contains two blocks: ‘Margin Analysis’ and ‘Cost‑Based CO‑PA’. A line from the Account Assignment Manager to CO‑PA is labelled ‘Settlement to PSG’. Another circular icon near CO‑PA is labelled ‘3 Settlement run’. Two grey call outs provide reporting options: ‘Report on profitability analysis: SAP Fiori app ‘Manage Journal Entries’’ and ‘Report on cost‑based CO‑PA: Transaction KE24’. Overall meaning: Items in a service contract are assigned to a service order (step 1). Item‑based accounting creates an Item‑Based Accounting Assignment Object. The Account Assignment Manager defines the receiver as a profitability segment (PSG), internal order (ORD) or WBS element, and generates settlement rules automatically. A settlement run (step 2) settles to the chosen receiver. Subsequent settlement (step 3) posts to CO‑PA for margin analysis and cost‑based CO‑PA reporting. Planned cost and revenue are supported for the service order; event‑based revenue is explicitly not supported.

When a productive customer transitions to item-based accounting, Service Management supports service orders with item-based accounting that can be assigned to a service contract using the Account Assignment Manager.

For the service contract to have a complete view of profitability, SAP offers generating an automatic settlement rule to settle service orders using item-based accounting to service contract items using the Account Assignment Manager, which supports complete financial reporting with profitability analysis (CO-PA) on the service contract.

Execution order items which are only supported with item-based accounting create follow-up maintenance orders. These have a separate account assignment object besides the one from the execution order item. Now, with hierarchy settlement available, it is possible to use execution order items in the transition scenario as well since now the system supports hierarchy settlement, where revenue and costs of execution order items and maintenance order(s) are settled together to the service contract.

Note

In SAP S/4HANA Cloud Private Edition 2023 FPS03, there was an error triggered if an item category had a settlement profile and an EBRR key setup, since there was no hierarchy settlement. In general, the assignment of a settlement profile was allowed with settlement. In this case, profiles were always assigned. By default, the settlement profile YNS was assigned where settlement setup was not allowed. In the transition scenario to the item-based accounting scenario, this error did not show up; revenue recognition was, in this case, ignored.
A left‑to‑right SAP process flow that links service, maintenance and accounting with item‑based accounting. At the top left sits ‘Service Contract (integration with Account Assignment Manager)’, which feeds a ‘Service Order (item‑based accounting)’ containing multiple items; one item is highlighted in green as ‘Execution Order Item’. From the service order, arrows branch to accounting and to execution. Accounting branch: The service contract/service order connects to ‘Account Assignment Manager’, which contains three assignment types: ‘Profitability Segment’, ‘I/O (header or item)’, and ‘WBS element’. Each type shows ‘automated settlement’ to PSG, ORD or WBS respectively, with a small circle labelled ‘2 Settlement run’. The Account Assignment Manager leads to an ‘Accounting Object’ and specifically an ‘Item‑Based Accounting Assignment Object’. Below are boxes ‘Planned Cost and Revenue’ and ‘Event‑Based‑Revenue’, plus a bubble ‘Accounting Service Actuals app’. Left reporting area: A block ‘CO‑PA’ contains ‘Margin Analysis’ and ‘Cost‑Based CO‑PA’. Two report bubbles read ‘Report on profitability analysis – SAP Fiori app ‘Manage Journal Entries’’ and ‘Report on cost‑based CO‑PA – transaction KE24’. From CO‑PA, arrows labelled ‘Settlement to PSG’ point back to the profitability segment, with a circle ‘3 Settlement run’. Execution branch (highlighted by a large green frame): From the green ‘Execution Order Item’, an arrow creates a ‘Maintenance Order’. This expands into repeated levels: ‘Maintenance Order Item’ and ‘Sub‑Maintenance Order’, each with its own ‘Maintenance Order Item’. The chain ends with multiple ‘Maintenance Confirmation’ boxes to indicate several confirmations can be posted. Alongside these execution steps, a stack of blue ‘Accounting Object’ boxes shows that an item‑based accounting object is created for each order item. Overall message: A service contract and its service order drive maintenance execution while item‑based accounting captures costs and revenues per item, with automated settlement to profitability segment, order or WBS and reporting in CO‑PA via the stated apps and transaction.

The postings (marked in blue) on the account assignment objects (execution order item and maintenance (sub) orders) are all settled to the service contract using the Account Assignment Manager with the "old" financial integration.

The relevant execution order item in the service order and its follow-up maintenance orders are marked in green.

Restrictions

Currently, it is not possible to change the profit center in the maintenance order in case you have set up an execution order item category with the settlement option Settlement Allowed without Hierarchy. The profit center is currently always the same as in the execution order item.

Note

Additional information can be found here: What’s New and Application documentation.

Summary

  • Hierarchy settlement must be used instead of normal settlement, when different account assignment objects are in a hierarchical relation.
  • The following scenarios can be distinguished: A financial hierarchy with classical service items or service hierarchies, or with execution order items, a stand-alone service order with an execution order item, and a transition to item-based accounting: a service contract with the Account Assignment Manager.
  • SAP S/4HANA Cloud Private Edition 2023 had the restriction that settlement and event-based revenue recognition (EBRR) couldn’t be used together. With the introduction of hierarchical settlement this restriction is no longer present.
  • The setup of hierarchy settlement (that is: a dropdown list Settlement Control) can be found in Customizing for the item categories. Three options are available: Settlement Without Hierarchy Allowed, Hierarchy Settlement Allowed, and No Settlement Allowed.
  • For productive customers (that is: customers already live with the system) the transition to item-based accounting is supported using the Account Assignment Manager.
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