SAP Profitability and Cost Management

SAP Profitability and Cost Management (PCM) help organizations gain a deeper understanding into causes and effects of costs and profitability by zeroing in on performance issues across products, customers, and channels. It gives users the power to act decisively – with a clear understanding of how decisions will impact the bottom line.

SAP Profitability and Cost Management can provide this insight, using an Activity Based Costing (ABC) approach to help you model your business according to the activities that it carries out. With PCM, you can quantify and understand how changes in resources and business drivers affect your costs and profitability. Once you have a model that accurately represents the way that activities consume resources, you gain a realistic view of the true cost of carrying out each activity. Furthermore, your model also shows how your outputs – products, customers and channels – consume activities, and hence delivers a realistic view of the true cost of delivering any given product to any given customer, through any given channel.

PCM addresses three key cost management challenges that businesses typically face:

IDENTIFYING BUSINESS DRIVERS

Companies need a clear view of the factors that drive costs in order to manage them. For example, how much does it cost to serve each customer, and what contributes to the cost to serve? This is an area where many companies struggle to gain sufficient visibility. The process of developing your ABC model in PCM pinpoints the appropriate cost drivers, and gives insight into the drivers that are most significant to the business.

COST ALLOCATION

Many businesses are hampered by unwieldy cost allocation methods, which tend to be developed in-house and are often spreadsheet-based. Such systems are unlikely to reflect the complexity of the company’s operations, or allocate costs with the necessary clarity, precision and granularity.  Cost allocation often lacks credibility within the organization as a result. PCM, on the other hand, is a dedicated modelling tool that allows complex and realistic models to be built, without sacrificing clarity or flexibility.

FLEXIBLITY

Cost management systems frequently lack the agility to flex with the needs of the business.  With PCM, models can easily be adjusted in line with changes to the company’s operating model, product portfolio, cost centers and customer base. More sophisticated PCM models can be built to allow ‘what-if’ scenario modelling, which calculates the cost implications of organizational change.

BEST PRACTICE

Allocating costs to the activities that drive them is not only a more accurate and reliable approach; it also enables companies to identify best practice within the organization, and discover where there is scope to further reduce costs.

PCM provides visibility over which parts of the organization are carrying out which activities more expensively, or more efficiently than their peers – and why. This means that less efficient cost centers can learn how to minimize costs from the best performers.

In addition, a quicker, more accurate and more agile system uses less time and resource. This frees people up from data crunching, enabling them to focus on making the right decisions to improve operational efficiency.

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