Differentiating Between Cost Centers and Overhead Projects

In this lesson, you will learn about the use of work breakdown structure elements (WBS elements) to structure projects, as well as why you may use them in addition to cost centers.

You previously identified the usage of cost centers when tracking overhead cost information. In the SAP S/4HANA system, projects can also be used to manage overhead costs.

Let’s find out which contexts the projects apply to. Why use another cost object? For what kind of analysis? When do you use cost centers and when do you use overhead projects?

When costs and revenues need to be followed up with a more horizontal approach, you should prefer to track costs and revenues by project. Often it makes sense to break the work of this project into multiple separate tasks and to set up a hierarchy for them: a transversal work breakdown structure (WBS).

A project can consist of multiple WBS elements or only one in the case of overhead projects.

Now that you know what a WBS element is, let's look at the main differences between WBS elements and cost centers:

• Cost centers track overhead cost information for areas of responsibility on an annual basis, without a specified end.
• WBS elements are used as cost objects each time you gather costs and revenues from a specific task related to a project the cost object life-cycle corresponds to the project life.

You now know that WBS elements represent discrete parts of the work linked to a project. They are used as cost objects each time you need to gather costs and revenues from a specific task related to a project.