Software evaluation for activity based costing systems (Part 1 of 2)
I am back with the next blog on profitability analysis and activity based costing (ABC). For the benefit of new readers, I blog on profitability analysis and ABC and you can click here to view the previous blogs on related topics.
First of all, my sincere thanks for your comments on my previous blog - How can IT help in implementing Activity Based Costing? It's really good to get the views from practitioners. One common view in these comments is that the output of ABC system should be relevant and must assist in future decisions. I completely agree to this. It makes all the more important for the business to perform due diligence in identifying the right purpose and the right software for their ABC system. The other view is ABC hasn't translated from concept to practice for large number of companies. I believe this will change over time as the ABC software evolves further to deliver more value in terms of relevant and insightful information it provides at a lesser TCO.
This blog is to evaluate the ABC software. Being an SAP consultant let me start with SAP's offerings in this area. SAP Controlling or SAP CO is SAP's flagship module with a comprehensive offering. It provides almost everything that is needed for costing and profitability analysis. SAP CO-ABC is the sub-module dedicated for activity based costing and SAP CO-PA for profitability analysis.
The other SAP offering in this area is SAP BusinessObjects Profitability and Cost Management or SAP PCM. Unlike SAP CO, SAP PCM is a new addition to SAP's kitty. It inherited PCM when it acquired BusinessObjects in 2007. Historically, PCM was the flagship product of ALG software.
SAP CO is one of the core modules of SAP R/3 and is suited where ABC system is needed to be part of transactional system. The benefits it offers are seamless integration with ERP system as well as single system fulfilling all the costing requirements. This saves on additional license cost as well as overhead of maintaining an additional system. At the same time, it takes significant efforts by SAP consultants to configure SAP CO-ABC. This makes it more suitable for a requirement where the ABC rules are almost static and doesn't need frequent changes. The SAP CO-ABC output can be analyzed in SAP CO-PA or in SAP BW.
In Contrast, SAP PCM is an add-on tool and is suited where ABC system is needed to be part of analytical system. It is suitable where there are multiple SAP instances or disparate source systems - be it SAP or non-SAP. In fact it is source system agnostic and can work with any source system. Modeling of ABC engine in PCM is easier than that in SAP CO-ABC and can be modified by business users to keep pace with the changing business rules. PCM provides number of predefined functions which can be used for quick and meaningful analysis. The ABC output can be reported in books created in PCM itself or using the preferred reporting tool of the organization. The added benefit is the what-if analysis features provided by PCM.
This gives a snapshot of the SAP's offering in the ABC area. In the subsequent blogs, we will focus more on the analytical ABC software. In the mean time, please let me know your views.
