Balance-Sheet and Cash-Flow Planning with SAP NetWeaver BI

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1 SAP BI concepts, technology, and best practices October 2008 Volume 6 Number 9 Balance-Sheet and Cash-Flow Planning with SAP NetWeaver BI by Rajasekhar Gummapadu, Manager, Deloitte Consulting LLP Balance-sheet and cash-flow planning helps you get your cash picture under control. Learn how to design a solid, flexible SAP NetWeaver BI data model for balance-sheet planning. Examine the five key steps required to create balance-sheet planning and cash-flow planning. 10 >>inside How to Create a Generic Retractor in Integrated Planning Although global and larger organizations are interested in knowing their consolidated shortterm and long-term cash positions (based on their operational income statement and capital planning), it s even more important for SAP NetWeaver BI planning resources to know these positions. They need to understand how to implement balance-sheet and cash-flow planning by using SAP NetWeaver BI functionality. The main objective of building the balance-sheet planning application is to generate a long-term cash-flow plan. You can use SAP NetWeaver BI Integrated Planning to implement a global, integrated planning solution for balance-sheet and cash-flow planning. >> Key Concept Balance-sheet and cash-flow planning using SAP NetWeaver BI Integrated Planning enable you to look to your company s financial future, such as key financial ratios, accounts payable, accounts receivable, sales projections and costs, future earnings, and shortterm and long-term cash positions. These financial projections aren t just for global organizations anymore Quick Tip Avoid the SID Generation Error While Activating Data in a DSO SAP NetWeaver BI 7.0 Improve Query Performance and Visibility with BI Statistics It s common to implement income statement planning to monitor operational efficiency and to project an organization s future earnings. However, in today s global and more competitive business environment, you also need to know the effect that this operational plan will have on future balance sheet items and cash flow. Why would you want to implement balance-sheet and cash-flow planning? For any of a variety of reasons including: projecting your key financial ratios; estimating your accounts payable and accounts receivable positions based on sales projections and cost of sales; estimating the interest income and expenses for the planning period and seeing how they will affect your future earnings; determining the cash-flow structure to verify the organization s borrowing and paying capability; effectively managing your cash; maximizing the returns on your short-term cash investments; and effectively managing your balance sheet. search the online knowledgebase or These benefits aren t free, however. You must meet some business and technical challenges to achieve this implementation. The biggest challenge is simulating the double-entry system in the >>continued on page 4

2 >>continued from cover planning solution. Transaction processing in SAP Financial Accounting (FI) and SAP Strategic Enterprise Management Business Consolidation (SAP SEM-BCS) uses the double-entry method when posting journal entries. Income statement planning uses the single-entry concept. For example, to increase the expense amount, you adjust the amount for any expense account without specifying whether to pay that expense increase in cash or credit. Another challenge is creating an iterative balancing functionality to calculate the balance sheet assets and liabilities. Like account determination rules that handle the double-entry system for credit transactions, cash balancing evens out the assets and liabilities and then posts the difference to the cash account, assuming that all other transactions are cash. Other challenges include the assumptions used to calculate accounts payable and accounts receivable, a complex payment structure for the interest payment on each debt instrument, and the establishment of other calculations, such as interest, dividends, and re-classifying short-term payments on long-term debt to current liabilities. The Data Model Since no robust standard content is available for balance-sheet and cash-flow planning, it s important to design a solid, flexible, SAP NetWeaver BI data model for balance-sheet planning. Here are some things for you to consider while designing the data model: Align the data model with the SAP SEM-BCS data model for real-time reporting Include objects such as version (0BCS_ VERSION) and the reporting value type (0VTYPE) for flexibility in multiple scenarios and versions of planning data Use the navigational attributes of reporting instead of including the InfoObjects in an InfoProvider (for example, region details) Include the balance-sheet and cash-flow planning InfoProvider in SAP SEM- BCS to give you multi-provider realtime reporting with actual data Partition the balance-sheet and cashflow planning InfoProvider for faster performance in the planning application. To achieve the functionality you need, you must create a real-time InfoProvider to host the data for balance-sheet-planning and cash-flow planning. Depending on your requirements, you might also need to create some custom InfoObjects, such as ZFP_BSML and ZCS_ITEM. Since these objects won t be available in the source systems, you must maintain master data for them in the SAP NetWeaver BI system. The following points further explain the custom objects used in the model: Balance sheet manual line items (ZFP_ BSML): In balance-sheet planning, you need to plan one level below the consolidated item (0CS_ITEM) so you can set up multiple lines for each account Reference consolidated item (ZCS_ ITEM): This InfoObject establishes the account determination rules that map income statement accounts to balance sheet accounts Timing fiscal year/period (ZFP_ CTFIP): This is the InfoObject that is the reference for the fiscal year/period (0FISCPER). You use it to establish timing rules for paying accrued interest on departmental instruments. Cash-flow item (ZCASHITEM): Cashflow accounts are the solution for cash- From account To account Rule January Table 1 Example of an account determination rule flow planning. This item holds the master data for all of the different cash-flow categories. Planning rates (ZFP_RATE): This is the key figure that is used to maintain such planning rates as interest rates, swap rates, and account determination multipliers In addition to these custom objects, the following InfoObjects can be helpful: ZPLANYEAR provides the capability to plan multiple years; ZROUND lets you create scenario capability; and 0VERSION enables you to keep track of budget, forecast, and prior forecast data. The Five Key Steps Now that you re aware of the data model, I will go over the five key steps required to create balance-sheet planning and cashflow planning: Step 1. Integration with SAP SEM-BCS. This step extracts the opening balances for SAP SEM-BCS. First, you need to determine the integration existing between the balance-sheet planning application and SAP SEM-BCS to get your opening balances. I recommend that you physically move your opening balances to the balance-sheet and cash-flow planning InfoProvider because you use them extensively in the functions that help you enhance performance. To do this, you create a simple copy-planning function in the Planning Modeler of SAP NetWeaver BI Integrated Planning. Step 2. Account determination rules. This step finalizes the account determination rules that map the balance sheet accounts to the profit and loss accounts. It also sets up the planning function that calculates the balance sheet amounts to simulate the double-entry system. Using the account determination rules, you estimate 2008 BI EXPERT Reproduction prohibited. All rights reserved.

3 October Figure 1 Balance sheet rules the balances for the balance sheet accounts. DATA FITM TYPE 0CS_ITEM. DATA TITM TYPE ZCS_ITEM. DATA XITM TYPE 0CS_ITEM. DATA YITM TYPE ZCS_ITEM. DATA RATE TYPE F. DATA AMT TYPE F. DATA REG TYPE ZREGION. DATA RREG TYPE ZREGION. DATA MADJ TYPE ZFP_BSML. DATA RMADJ TYPE ZFP_BSML. DATA SLICE TYPE ZSLICE. DATA BSDT TYPE ZFP_BSDT. DATA RFTM TYPE ZCS_ITEM. FOREACH FITM,TITM,MADJ. XITM = TITM. YITM = FITM. RATE = {ZPL_RATE, FITM, TITM, ,MADJ,#}. IF RATE <> 0. FOREACH RMADJ, SLICE,BSDT,RFTM IN REFDATA. AMT = AMT + {0CS_TRN_LC, FITM,RFTM,BSDT,RMADJ,SL ICE}. {0CS_TRN_LC, XITM, YITM, ,MADJ,1} = AMT* RATE. AMT = 0. RATE = 0. Figure 2 Code for the planning function For example, if the fuel expenses (profit and loss account: ) are $10,000 for the month of January, half of it ($5,000) is on credit (credit account: ), and the other half ($5,000) is paid in cash, then the account determination rule is as shown in Table 1. This model uses the Balance Sheet Rules input-ready report, as shown in Figure 1, to maintain the account determination rules using the InfoObjects, the consolidated item (0CS_ITEM) as To Account, the reference item (ZCS_ITEM) as From Account, and the ZFP_RATE key figure to partially or fully allocate this amount to one or more balance sheet accounts. These rules map the income statement accounts to the balance sheet accounts to create the double-entry system in the planning environment for credit and accrued transactions. Using this methodology, you can also allocate the amounts on one balance sheet to another balance sheet account (e. g., by reducing the depreciation of the property, plant, and equipment, and increasing the depreciation reserve section by the same amount). The planning function in Figure 2 reads the income statement planning information to create the balance sheet amounts For group rates on electronic access, call

4 based on the account determination rules. You create this planning function using the formula extension functionality in SAP NetWeaver BI Integrated Planning. In the example in Table 1, the rule function reads the profit and loss account information for account , which is $10,000, and multiplies it by 0.5 from the rule number for January. Then, the rule function posts the calculated amount to balance sheet account An example of a posted record is shown in Table 2. Step 3. Establish cash balancing. This step finalizes the planning calculations for interest, dividends, accounts receivable, accounts payable, and the cash-balancing functions. The basic accounting rule for the balance sheet is that assets and liabilities must balance. You can set up transaction systems to perform this balancing automatically, but during planning, you have to manually estimate the accrued balances based on income statement activity, assuming that the activity used cash. In other words, you need to balance your assets and liabilities and then post the difference to the cash account. For example, in the account determination rule section, the balance of $5,000 paid in cash creates the difference between the assets and the liabilities on the balance sheet. When the cash-balancing function executes, it makes the adjustment in the cash account. However, in most complex organizations it s not that simple because cash balances have many restrictions. For example, if you assume that an organization wants to have a minimum cash balance of $5 million on hand at all times and its cash balance goes below this amount, you need to borrow from credit lines. Conversely, if the company accumlates excessive cash beyond $5 million, then the system should invest that cash in high interest-yielding sources. Cash-balancing involves the following activities: Balance your assets and liabilities and post the difference to cash Verify whether your minimum cash requirements are met, and then borrow if you have a deficit or move cash to investment accounts if you have an excess Calculate your interest expense for additional loans or your interest income on any new investments Calculate your retained earnings and adjust your balance-sheet planning Cash balancing is an iterative process. It needs to run multiple times to equalize the assets and liabilities on the balance sheet for all the planning periods. For some examples of the formula for retained earnings calculation, see Figure 3, which was created using the formula extension functionality in SAP NetWeaver BI Integrated Planning. In addition to the cash-balancing functions, you also need to define the Account Reference account Amount functions for accounts receivable, accounts payable, interest, dividends, or any other specific calculations that your organization might want to incorporate into its balance sheet planning. The formula extension functionality in SAP NetWeaver BI Integrated Planning is very flexible, allowing you to create these kinds of calculations. Figure 4 shows sample formula code for the calculation of the accounts receivable amount based on sales and the days-sales-outstanding assumptions. Step 4. Cash-flow rules layout and calculation function. This step finalizes the cash-flow rules layout and the calculation functions. Since generating long-term cash-flow planning is the key reason for using a balance-sheet planning application, cash-flow planning requires going through the following stages. First, you define the relevant master data for ZCASHITEM, including its hierarchy. ZCASHITEM plays an important role in building cash-flow planning Table 2 Example of posted record with account determination rules function DATA CSTM TYPE 0CS_ITEM. DATA BSML TYPE ZFP_BSML. DATA SUM TYPE F. DATA SUM1 TYPE F. FOREACH CSTM,BSML. SUM={0CS_TRN_LC,CSTM,BSML}. IF CSTM >= AND CSTM <= SUM1=SUM1+SUM. {0CS_TRN_LC, ,100009}=SUM1 Figure 3 Example formulas for retained earnings calculations 2008 BI EXPERT Reproduction prohibited. All rights reserved.

5 October DATA CSTM TYPE 0CS_ITEM. DATA BSDT TYPE ZFP_BSDT. DATA SUM TYPE F. DATA FYP TYPE 0FISCPER. DATA MD TYPE F. DATA AMT TYPE F. DATA DSO TYPE F. DATA BSML TYPE ZFP_BSML. DATA PER TYPE 0FISCPER3. DATA PC TYPE 0PROFIT_CTR. FOREACH FYP. PER = SUBSTR(FYP,4,3). IF PER <> 014. SUM=0. FOREACH CSTM,BSDT,BSML,PC. IF CSTM >= AND CSTM <= AMT = {0CS_TRN_LC,CSTM,FYP,PC,BSDT,BSML}. SUM = SUM + AMT. DSO = {ZPL_RATE,#,FYP,#,100005,#}. MD = ATRV (0NUMDAY,FYP). *MESSAGE W001 (/MSG0) WITH SUM FYP MD. Figure {ZFP_BLNLC, ,FYP,#,#,100010} =((SUM/MD)*DSO*-1). Accounts receivable calculation because it hosts master data for the cash items required to present cash flow. Some examples of cash-flow items are depreciation net profit, property, plant, and equipment. After you create all of the relevant cash items in master data, you establish the cash-flow hierarchy, which depicts the organization s cash-flow structure. Look at the example of hierarchy with master data in Figure 5. You can create the hierarchy using transaction RSH1 (edit hierarchy initial screen) in SAP NetWeaver BI. Next, define the cash-flow rules (Figure 6 on the next page). These rules map the balance sheet accounts to the cash-flow items, establishing a relationship between the two. Therefore, changes in a particular balance sheet item also represent the cash effect on the cash-flow item to which it is mapped. These cashflow rules are maintained in the system using the input-ready report shown in Figure 6. This report is created using SAP NetWeaver BI Integrated Planning. Then, you create the planning function to generate the cash-flow amount. This cash-flow rules function calculates the cash amount. You can use the formula extension function in SAP NetWeaver BI Integrated Planning to generate the cash flow (Figure 7 on the next page). This function calculates the change in the balance sheet account for a particular fiscal year period and then posts it to the cash item to which it is mapped. Figure 5 Cash-flow hierarchy on ZCASHITEM InfoObject Next, you need to build the cash-flow report to present the cash flow. The cash-flow report is created using ZCASHITEM and the cash-flow hierarchy in BEx Query Designer (Figure 8 on page 9). You can create various versions of this report to display the cash flow by year, month, and quarter. Step 5. Create an integrated application. The final step is to create an >>continued on page 9 For group rates on electronic access, call

6 Figure Cash-flow rules DATA XITM TYPE 0CS_ITEM. DATA CITM TYPE ZCASHITEM. DATA RATE TYPE F. DATA AMT TYPE F. DATA MADJ TYPE ZFP_BSML. DATA SLICE TYPE ZSLICE. DATA BSDT TYPE ZFP_BSDT. DATA MADJ1 TYPE ZFP_BSML. FOREACH FITM, CITM, MADJ. RATE = 0. RATE = {ZPL_RATE, FITM, CITM, ,MADJ,#}. IF RATE <> 0. IF MADJ <> #. FOREACH SLICE,BSDT IN REFDATA. AMT = AMT + {0CS_TRN_LC, FITM,#,BSDT,MADJ,SLICE}. {0CS_TRN_LC, FITM, CITM, ,MADJ,1} = AMT* RATE * -1. AMT = 0. Figure Cash-flow amount calculation planning function BI EXPERT Reproduction prohibited. All rights reserved.

7 October Figure 8 Cash-flow report >>continued from page 7 integrated application using the inputready report-planning functions that I discussed in the earlier steps. SAP NetWeaver BI Integrated Planning has two ways of putting together the planning application: a Microsoft Excel-based application using BEx Analyzer, or a Web application using the BEx Web Application Designer. As you saw in Figures 1, 6, and 8, you can use various standard Web items such as tab pages, dropdown boxes, and button groups in BEx Web Application Designer to create the Web-based application following the requirements of your user group and business logic. You use the workbook functionality in BEx Analyzer to create the Excel-based planning applications. You can integrate these applications with SAP NetWeaver Portal to provide role-based access to the users. It is very important to consider the users requirements and skill sets before you decide which type of application (Excel- or Web-based) is right for your balance-sheet and cash-flow planning system. n Rajasekhar Gummapadu is an SAP practitioner with more than eight years of cross-functional experience, more than half of which is focused in SAP implementation. He has strong technology and functional experience with SAP ERP solutions in the area of Business Planning and Simulation (BPS), SAP NetWeaver BI, SAP NetWeaver BI Integrated Planning, Business Consolidation (SAP SEM-BCS), Business Planning and Consolidation (SAP BPC) and FI/CO. Raj serves as the functional and technical lead in the area of financial planning and reporting-related implementations. He has successfully completed multiple implementations as project manager by using his knowledge to bridge the gaps between the business and IT goals. Raj is a qualified Chartered Accountant (India) and a Certified Public Accountant (USA). You may contact him via at [email protected]. For group rates on electronic access, call