Profit Center Hierarchy - Cons of too many profit centers

[Former Member]

Hello,

My organisation is moving from 20 year old SAP to SAP Hana. We are having constant debates around the granularity of our standard profit centre hierarchy (i.e. what should be the lowest level to set up PC). The Head Office wants to have as less number of PCs as possible for easier Master Data maintenance whereas Business line managers want to have their own PC, which may result in thousands of PCs. One of their arguments is revenues cannot be posted in cost centres (whereas we are able to do it in our old system). How valid is their argument? What are cons of having too many PCs? Thanks in advance. Regards

[sanilbhandari · Accepted solution]

Hi

There is no correct or wrong answer to this.The structure of PC Hierarchy is entirely dependent on what kind of reporting capabilities you want. For one of the customers, I had worked with, they had profit centers at the level of a Brand and in addition to that they had plants created as profit center to enable reporting at the plant level as well. When we started a major transformation of Central Finance, the entire org structure was looked at again. The customer moved away from using just profit centers to using new capabilities like Segments and COPA for reporting at the line of business and brands. Using COPA essentially means, that you get your P&L at market segment level and both revenue and costs can be made to flow into COPA.

There is no technical restriction on booking Revenue at cost center level in S/4HANA as well. If you have a requirement, you can do it as well. It is all controlled through Cost Center master. However, is that a commonly followed practice, I would say no. Cost Center does not provide you reporting capability which a combination of Segment, COPA and PC would provide. So you might want to consider using COPA rather than just being struck to Cost Centers and PC. That said, specifically coming to your question of having too many profit centers and the cons of it, here are some that I can think of:

1. Master data maintenance especially in Logistics becomes a nightmare

2. Internal Controls with reference to SOX Compliance, Seggregation of duties etc is difficult

3. Using Profit Center planning is complicated compared to new functionality in areas like COPA introduced with S/4HANA

4. Data Corrections like Posting to wrong profit centers through logistics is difficult to correct when you have a stock in hand.With So many profit centers, the chances of that happening are compounded.

5. Internal reporting for your Business Managers is very cumbersome. You will be investing lot of transnational effort to create the reporting and make adjustments if required. This is further aggrevated if you have lot of inter business and inter company transactions. Some of the reporting capabilities are realized in much simpler way using tools like COPA etc

7. Transactional cost is high in case of more no of profit centers. This adds to manpower cost for your business as well reducing the ROI for S/4HANA

However, it entirely depends on your business requirements of reporting and the whole business case of moving toS/4HANA. There can never be 100% right or wrong answer for this question.

Regards

Sanil Bhandari

[Former Member · Accepted solution]

Thank you. I appreciate your time providing such a detailed answer.