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.

Mapping SAP New GL for FERC

Expanding on our post last month about the New GL and FERC data, today we're going to look at mapping the New GL for FERC, a serious consideration for utilities that are evaluating an SAP New GL migration. One immediate challenge is that all CO transaction codes for secondary movements have a single general ledger account assignment in the New GL. That would seem to be a limitation at first. Rather than focus on the GL account, however, a utility could use a pass-through GL account assigned to all secondary CO transactions, and then use SAP's functional areas to map to specific, four-digit FERC chart of account values.

Here's a practical example.  Let's say an internal order has primary costs of $100 and secondary costs of $30.  Both the primary and secondary costs are assigned the functional area of "583.0 Distribution Operations-Overhead Lines Expense." This could be shown (in an abbreviated way) as functional area "583.0 DM-Lines." We would then use a BAdI to add a long description through the New GL's extensibility features. The result of this functional area assignment is the posting to the correct FERC account via the CO object mapping. What's more, should the utility want to override the assigned functional area, it could simply change it during document entry. This flexibility would give corporate accounting the option to assign any natural account to any FERC account—with appropriate authorization and controls, of course.

Utilities looking to separate the core functions of supply, generation, transmission, and distribution into segments should also consider activating profit center accounting and segmentation.  Since most utilities running FERC have already assigned regulatory indicators to CO objects such as PM and internal orders, these existing assignments could be used to load the initial functional areas using our FERC conversion BAdI described above. In some cases, there might be thousands of CO objects to be mapped to functional areas.  Leveraging the existing regulatory indicators would make the conversion effort far less daunting a task than mapping each one individually.

Since segments are derived from profit centers, and profit centers are derived from CO objects, the building blocks would already exist to determine the correct segments.  For a utility wanting to convert to IFRS, we could consider segments to be equivalent to traditional lines of business. The CO design in place may already use assessments or settlements to determine the line of business. Given that, it would be important not to start from scratch, but rather to build on the current design and leverage the links already developed in the cost flow model in CO.

Mobility and SAP for Utilities

As signposted in the first day's keynotes, mobility was a recurring topic during the 2011 SAP for Utilities conference in San Antonio. Deloitte's Lee Ditmar and Mark White presented a well rehearsed message (and super slick Keynote deck) about going beyond the "veneer" of mobility to offer new operating models and services—plus including other information workers in addition to field teams alone. Again, this sounds terrific but highly aspirational; we'll be giving further thought to practical, real world examples that utilities would actually consider implementing. In fact, we'll be doing this next week at Sonoma County Water Agency, as part of our Fleet Management project.

Other notable take-aways: Mark's advocacy of single task-oriented mobile apps that deliver obvious results is another valuable best practice. And we also liked their characterization of descriptive, predictive, and prescriptive analytics—a good framework in which to think about data and actionable behavior in the workplace.

Conveniently enough, Adolf Alesch from IBM closed the loop on some of this theory later on in the conference with his presentation on Mobility Moments℠. He gave a great example of a mobile app that would enable a field team to photograph a transformer, for example, and connect the image and related GIS data to the SAP Asset Master in order to get real-time maintenance records. This "augmented reality" scenario combines a utility's system of record with its system of engagement to generate greater efficiency and better customer service.

GIS and SAP for utilities - MTEMC and Aquarion Water

Building on last year's great presentation by the City of San Diego, the 2011 SAP for utilities conference included several new examples of GIS' positive impact on utilities' operations and customer service. Middle Tennessee Electric Membership Cooperative (MTEMC) spoke about their integration of GIS and SAP EAM, in which they use GIS for design and SAP for orders, accounting, Compatible Units, and materials. This configuration allows engineers to work more efficiently by staying in GIS instead of switching frequently between the two applications.

MTEMC focused on automating work orders and pick-lists for construction projects; automating fixed asset and expense accounting for GIS-generated projects; and standardizing order create, time and cost collection, and project accounting. By starting with these core elements—for example, two work order templates to cover simple jobs and complex projects‐MTEMC was able to eliminate data chasing and deliver automated, real-time views of inventory. Amidst all of the technical explanations and ambitious goals, Chip Pinion gave a little reality check by noting that, "Linemen want to be linemen, they don't want to work on computers."

Another good example of GIS and SAP was presented by Mark Fois from Aquarion Water, which uses GIS to note critical customers that can be seriously impacted by scheduled maintenance and unplanned events, such as main breaks. Aquarion uses GIS to map designated customers, such as schools, hospitals, and toxic chemical-producing businesses such as hair salons, and keeps this data fresh by contacting customers annually and updating records when move-ins and move-outs occur.

SAP for Utilities kicks off

Chris Ball's welcome message had a couple of good points about innovation, one of which we interpreted as being that the customer experience of an innovation is just as important as the innovation itself. Great to highlight this. But presenting smart grid and electric vehicles as "disruptive" tech seems a bit aspirational to us at this point. Mobility solutions for sure, though. And it was cool to see screen shots of old SAP R/2 and R/3 interfaces.

Bob Corteau went on to discuss growth, and, reiterating the mobility theme, the concept of "managing anywhere." Compiling information from individuals, new enterprise apps, and external sources will facilitate quick decisions, increased productivity, and better results. His imperative to "sweat your assets" — pursue short-cycle projects, collect data, show a return — is our typical approach to client projects.

So, the emphasis on leveraging new technology sounds great in theory, and we're hoping to hear some concrete, real world examples in the coming sessions. Utilities typically move methodically, so, beyond field teams responding to (or striving to preempt) trouble, we wonder how the ability to make rapid decisions will fit into that context.

SAP New GL and FERC Data

We're on an SAP New General Ledger roll. Expanding on our prior posts (1, 2, and 3), we had some further thoughts about New GL migration strategy and FERC data. For utilities that have been on the Classic GL and IS-U/FERC module for many years, a New GL migration will certainly not be undertaken without careful consideration and risk management. We recently put together some top-level deployment scenarios that mitigate risk and provide a utility with different options before committing to a specific one for production.

This SAP New GL migration approach retains the existing FERC module, while concurrently developing a prototype of the New GL that shows FERC accounts posted to GL in real-time. We would show finance stakeholders how to render the FERC account assignments to actual New GL line items in the FAGLFLEXT (totals) and FAGLFLXA (transaction) tables. Based on our combined knowledge of the New GL and the existing IS-U/FERC module, we would build a model that shows the actual FERC accounts in the Functional Area field of the New GL. In addition, based on the utility's assignment of regulatory indicators to both internal and PM orders, we could use the actual CO object assignments to regulatory indicators to create a Business Add-In to populate the Functional Areas in the New GL for both primary and secondary cost element assignments. In cases where full FERC_C3 (Trace table rules) apply for assignment of A&G (e.g. account 923 Outside Services), we would deploy substitution rules to assign the correct functional area.

As a result of this prototype, the utility would see a direct integration of CO to FERC for all activity type charges, assessments, and overheads (all CO module allocations) to each FERC account. The utility would gain real-time FERC derivation at the point of document entry. We would also demonstrate how users could overwrite the FERC assignments (a feature some accountants may find useful) during document simulation prior to posting (e.g., transactions FB50N/FB50L).

But that's not all: we could also link all secondary costs to the New GL such that any transaction posted in CO would update the Functional Area postings to capture cost movements between CO objects that affect FERC account assignments in the Functional Area.

Through this migration approach, the utility would have the choice of maintaining its existing FERC module or deploying the real-time, fully integrated New GL solution by reviewing real-world test data before making a decision on which method to use in production. With our prototype, financial stakeholders would see how to present FERC account information as each source document is entered, thereby eliminating a month-end close process to run the FERC trace and drilldown. In addition, the accounting department would be able to override FERC derivation on the fly during document entry and simulation, a feature not available with the classic FERC module.

Why Migrate to the SAP New GL?

When SAP promotes a new solution, it is usually about something we haven't seen before. So when the New General Ledger solution was announced, we thought, "What could be new about something as basic as the general ledger?" Well, a lot actually. Expanding on our prior posts about the benefits of the New GL and SAP Migration Scenario 1, today we'll explore a few key reasons why a utility already running SAP would consider migrating to the New General Ledger.

First, let's be clear, if you're running the classic SAP FI-GL, you don't have to migrate to the New GL when you upgrade. SAP has made the election to migrate a separate project from an upgrade. If you're getting what you need today from Classic GL, then you can stay put. But before you jump to the conclusion that you just don't need it, here are a few observations and suggestions to consider.

If you've been running SAP for a few years, you probably already know that the Controlling module works together with the General Ledger. In some cases it doesn't. We're referring to the differences between primary and secondary cost elements. CO is used for cost accounting. In the New GL, parts of CO are resident in the New GL. For example, the functional area, profit center and segment are part of the new general ledger table now called FAGLFLEXT instead of the familiar GLT0. Why add these fields to the General Ledger? Well, with the coming of more regulation around the use of International Financial Reporting Standards (IFRS), companies will need base financials on a segment of the business to comply with SEC requirements. A segment can be shown directly in the New General Ledger.

What we really find intriguing is the melding of the traditional Controlling module with the traditionally separated FI-GL. Rather than relegate the FI-GL to merely tracking account balances with links to the CO documents, SAP put CO objects alongside FI-GL accounts in the same table. The result: no reconciliation differences between CO and FI. This in turn speeds-up monthly closing, and makes segment reporting much more streamlined.

Utilities running the IS-U/FERC module can continue to use it with the New GL. FERC will still use CO tables to run the flow of costs trace, trace post, and direct post. The FERC drilldown will continue to store source and final objects in FERC_D1 to support the FERC balances in the new FIGLFLEXT table. But with the New GL, utilities have yet another option: to use the New GL to derive functional areas equivalent to the operations, maintenance, administration and general, and customer accounts expenses to stay in compliance—for example, with Title 18 of the Code of Federal Regulation (CFR) Part 101 for electric utilities.

So what are the advantages to utilities? Well, the New GL offers a way to provide line item FERC accounting for every transaction. Rather than derive FERC at the close of each month, utilities can consider FERC derivation in real time at the point of document entry. Such real time posting to FERC is possible by linking the CO object to a functional area. When charged, the CO object (e.g., internal order, PM order, cost center, or WBS element) will assign the functional area linked to the CO object to a field on the new GL table FAGLFLEXT.

We were skeptical of this approach due to the fact that secondary costs aren't posted to the New GL. Well, indeed they can be, but not as you might expect. Since secondary cost elements result in a net zero impact to the FI-GL (with the one exception of capital orders settling externally) secondary costs can be mapped to a General Ledger account via the CO transaction code. That means that assessments, overheads, and settlement cost elements can be mapped to the New GL. This is important because the CO objects charged with a secondary cost element are assigned a functional area needed for FERC reporting. The functional area from the CO object is thus updated in the New GL.