Exploring Framework Conditions of the Service Process

This lesson introduces the service processing scenario and the master data objects. It explains which settings in the master data are important for this process.

The Work Breakdown Structure Element (WBS) as a part of the project structure plan (PS) serves as a cost object for service processing. In SAP S/4HANA Public Cloud Edition, it is not possible to use a sales order item as a cost object for services with the option to allocate actual activity quantity to it. It is necessary to use the WBS for a service process. The scenarios that represent customer project production processes is as follows:

In addition to creating a sales order, you can also create a project. This is useful if you require the typical capabilities of the project in the Cost Object Controlling scenario, such as budgeting, availability control, Project Cash Management, Easy Cost Planning, employee assignment, division of the business project into various subprojects that can represent various tasks, responsibility areas, and assignments such as profit center and company code. In this scenario, the project is the leading object. This means that the system does not control the sales order item as a cost object but assigns it to a WBS, defined a project with billing.

The customer order is created as a sales order. The sales order item requires the item type TAD for services, so that it can be invoiced directly without delivery. The previously created WBS is manually assigned to the sales order item. For the revenue posted with the invoice to be allocated to the assigned WBS, a corresponding requirement type must be automatically assigned to the sales order item. This automatic assignment of the requirement type is carried out via a parameter in the material master of the service product.

The service is provided by the employees of the service cost center. In practice, time recording for the service provided is done using a so-called cross application time sheet (CATS). The WBS is specified with the recorded actual times so that an automatic service allocation can be made from the service cost center to the WBS. In the service process presented in this learning, however, the cross-application time sheet is not used, but a direct service allocation is posted from the service cost center to the WBS. By specifying the service type and the number of actual hours, the actual costs are allocated, which can be evaluated in the cost center report and in the project report.

A service also requires a material master. On the one hand, certain parameters are used to control whether the customer order item is managed as a service item and can therefore be invoiced without delivery. On the other hand, a parameter is assigned in the material master that ensures that the required requirement type for project-specific individual production is assigned to the customer order item. Finally, the product with its material master is also required to determine the internal price and sales price of the service. The internal price should correspond to the hourly rate of the service type of the service cost center.

The evaluation of the results of the service projects takes place on the one hand around the project system. On the other hand, the evaluation in the overall context of the sales area is also necessary and therefore Margin Analysis is used. For this purpose, the WBS is settled to Margin Analysis. The settlement rule in the WBS determines the granularity of the reporting in Margin Analysis. For example, the actuals of the WBS could be settled to characteristics like product group and customer group. However, product and customer groups can also be derived from the material master and customer master when settling to Margin Analysis. The characteristics, take over from the WBS plus the derived characteristics define the profitability segment as the target of the settlement within Margin Analysis. Multi-dimensional and top-down reporting in Margin Analysis enables the analyzing of the entire sales area.

The parameters in the material master of the service product are explained in this lesson. When you want to create a material master for the service product, several views must be created. At first, when creating the material master, the material type FINISHED PRODUCT must be selected, not SERVICE. In the SAP S/4HANA Cloud - Public Edition - system, no material master views for material requirement planning are available for the material type SERVICE. Even if - of course - no production planning takes place, the "production strategy" parameter is required in the material master to automatically derive the correct requirement type for MTO with WBS in the sales order item.

But let’s start with the creation of the material master.

The figure above shows the creation of a material master with material type FINISHED PRODUCT and using the material master FLSERV01 as a template.

It is important that the product master record is assigned to the sales area for which the sales order is created.

The previous image shows which views are required for the service product. The necessary settings are now listed.

One or the other parameter must be set, even if it is not necessary for the service process. This is the case if it is a mandatory input. However, it has no influence on the control of the service process.

The unit to be used is H for hours, the division in this learning system is 00 - across all divisions. The weight is a mandatory entry, therefore an entry is made although it is not required.

The sales area data contains the tax classification - valid for the company code to which the plant for which this product master is created is assigned. In this learning environment, this is plant 1010 (Hamburg - DE) and company code 1010 (Germany).

The item category group SERV ensures that the SD item type TAD is assigned to the sales order item. This item type controls that the sales order item can be invoiced directly and no delivery is required.

The parameter for availability check refers to the material requirements planning, which is of course not carried out for this service product. However, it is a mandatory field and is therefore filled with a suggested value.

The profit center assigned here is important if profit center accounting is used in the system. This is applicable in this learning system. The profit center should be identical to the profit center that is assigned in the WBS.

The previous figure shows the important parameters in the MRP views in the material master of the service product. Since the customer order creates a requirement for the service product, but no production planning is carried out in the sense of manufacturing, the indicator NO PLANNING should be set for MRP Type (MRP – Material Requirement Planning).

Procurement type E means that it is an individual requirement. The opposite would be a collective requirement, which is only relevant for manufacturing: Components that are needed to produce a finished good should be taken from the warehouse and not explicitly manufactured.

The periodic indicator usually is set to MONTHS.

The plan strategy group is crucial for the "Project Make-to-Order" scenario.

The previous figure shows, that the main planning strategy E2 is assigned to strategy group E2.

The next figure shows the assignment of the requirement type E21 to the strategy E2. The requirement type E21 will be transferred automatically to the sales order item.

You can check the planning strategies and assigned requirement types using CONFIGURE YOUR SOLUTION in the SAP S/4HANA Cloud system – public edition.

But you cannot change the configuration for MRP as the following figure shows:

With the connection of planning strategy E2 and requirement type E21, the parameters of the planning strategy E2 will be used for the sales order item.

The previous figure shows that the planning strategy E2 is assigned to the account assignment category Q. This account assignment category Q is set up so that the actual revenues from the invoice of the sales order item are posted to the assigned WBS. The following figure for account assignment category Q shows this.

Note

The account assignment categories are delivered by SAP, and you are not authorized to change.

Work breakdown structure elements are created and maintained in the Project Control Enterprise Projects app.

The work breakdown structure element (WBS) can be part of an overall work breakdown structure. A work breakdown structure is maintained as a global hierarchy, as shown in the following figure.

Let’s look at the most important parameters in a WBS element.

The WBS at first has the status CREATED. It will be changed in the next step. The Project Profile is set to Project with Revenue. This is necessary to assign revenues to the WBS.

With the assignment "Multiple Sales Order Items Scenario" several sales order items can be assigned to this WBS. The evaluation can be carried out in summary on the WBS or for each sales order item. Drop-down reporting is guaranteed.

The responsible cost center is the once, which will allocate actual activity quantity to the WBS. The profit center should be the same – in the cost center and WBS.

At first, the WBS is created by selecting Create. Next, the field Processing of the WBS is set to Released . Then we continue with Edit to complete the WBS master data.

The header of the WBS shows, that the indicator for project stock is set. Project inventory can also be maintained during the service process, for example for spare parts or wearing parts that need to be replaced.

The general information contains the organizational assignment of the WBS to the company code, controlling area and profit center. The organizational assignment must be compatible with the sales order item. The necessary compatibility also applies to the cost center that bills its service to the WBS as part of an actual service billing. The cost center that provides the service is usually also assigned to the WBS as the responsible cost center. However, it is also possible that several different cost centers provide a service for the WBS; the assigned responsible cost center is not a restriction in this case. The assignment of plants to WBS enables the definition of a project structure across multiple WBS-elements according to plans.

Here we explain the posting logic behind the revenue recognition key EPMFC. This revenue recognition key relates to Enterprise Projects (EPPM scenario) where a project with revenue is assigned to one or multiple sales order items. Revenue is recognized based on the cost-based percentage of completion (POC) method.

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Revenue Recognition Methods for Revenue-Carrying Enterprise Projects

In general, planned costs and planned revenue are maintained for the Enterprise Project. After assigning the revenue recognition key EPMFC to the project, Event-Based Revenue Recognition triggers postings in Financial Accounting accordingly.

Let’s assume that the following parameters are defined for your project:

• Planned cost: EUR 600
• Planned revenue: EUR 1,000

The following graphic shows you the process steps for this method and the corresponding postings:

In event (1), upon time confirmation, the activity allocation is debited and credited to the Activity Allocation account. The revenue calculation is derived from the item category of the sales order item. The concept of cost based POC calculation divides actual costs with planned costs to calculate the POC. This results in the respective revenue recognition posting. In this scenario, a POC of 50% is calculated. Consequently, 50% of the planned revenue needs to be recognized simultaneously upon time confirmation. The Accrued Revenue account is debited by EUR 500 and the Revenue Adjustment account is credited by EUR 500 in event (1a).

According to the billing plan in event (2), a billing proposal of EUR 1,000 is released by the project manager. The invoice of EUR 1,000 is created and sent to the customer. A journal entry is created for the invoice in Finance debiting the Receivables account and crediting the Billed Revenue account with EUR 1,000.

The posting of the billing document triggers Event-Based Revenue Recognition which leads to the update of the Deferred Revenue and Revenue Adjustments accounts by EUR 1,000 as seen in event (2a). This is because the revenue for the activity allocation has already been recognized.

In event (3), which can be done in the Run Revenue Recognition - Projects app, Event-Based Revenue Recognition revalues the balance sheet position for the project. The accrued and deferred revenue of EUR 500 are netted against each other. The period-end closing also calculates the currency effects depending on the chosen currency handling.

The WBS element can be part of a WBS hierarchy. The WBS element hierarchy is to be created as a global hierarchy with the type WBS element hierarchy. Within a WBS element hierarchy, the WBS elements can be assigned to different company codes, plants and profit centers. However, all WBS elements in a WBS element hierarchy must be assigned to a single controlling area.