SAP New GL and Cost Models

We've commented before about the increasing interest we're seeing from utilities in migrating to the SAP New General Ledger. In the context of SAP's recent announcement that ECC 6.0 will be supported until 2020, we expect to see even more interest—and action—since utilities are under no immediate pressure to upgrade. Instead, they can focus on a New GL migration independent of future upgrade plans.

That said, we also notice that some utilities are focusing almost exclusively on the migration itself, and not enough on their underlying cost model. Some aren't thinking about it at all, while others separate, uncoordinated initiatives in the works. This is a serious mistake. Not to discount the care with which a New GL migration must be undertaken, but it's essentially a technical procedure that can be handled smoothly with proper preparation and coordination with SAP. In contrast, there is far greater benefit potential from reassessing the cost model and transitioning from a cost center-centric to order-centric model—in other words, abandoning the approach adopted during 1990's deregulation, and going back to what most utilities did in the 70s and 80s (when they had no choice and regulation was the only business model). Here are a few quick reasons why this makes so much sense:

1. Cost-centric models are ideal for what we think of as the trifecta of utility financials: budgeting, regulatory reporting, and possibly in the near future, IFRS.


2. Using the order as the central point means evaluating activity type pricing and unbundling rates, such that the cost of labor going into each order is very close to the actual rate of pay.


3. By documenting secondary costs in each order, they'll be fully supported and enable easier cost recovery. They will, as we like to say, provide one version of the truth.

We'll revisit this topic in November to discuss some realistic approaches to a managing a cost model project in conjunction with a New GL migration.