Capital Investment Management in SAP is supported by Investment Programs (which are the source of budget), Investment Measures (which receive a budget allocation for procurement) and Appropriation Requests, which serve as the link between the two. Appropriation Requests are typically used to capture budget item requests for next year, and to call-off budget in the current year. This post explores SAP Appropriation Request functionality, best practice implementation and why SAP Appropriation Requests are simply not enough.
SAP Appropriation Request Functionality
The key functionality provided by SAP Appropriation Requests is outlined below:
Appropriation Request types are primarily used to distinguish the required approval roles and process for the request, the relevant data fields to present and the target investment measure type (ie internal order or project). For example, request types are useful for distinguishing between complex capital investment projects (that have a project as a control measure), IT projects (that may simply utilize an internal order for control and have a different workflow) and non-routine maintenance projects (which leverage maintenance orders and are not capitalized at all). Whilst approval types can be used as a method of selection in the standard SAP transaction, it is not recommended to define request types by organizational assignment (eg by company code or plant), as these are attributes of the request that can easily be referenced for analysis, as is demonstrated by IQX CAPEX with SAP Fiori.
The reasons for an investment such as sustenance, growth, risk and compliance are captured in the appropriation request. Where multiple investment reasons motivate a particular investment, these reasons can be proportionately assigned by percentage for reporting purposes. However, as subsequent transactions in SAP investment management can only accommodate a single investment reason assignment, it is considered best practice to simply assign the primary motivating rationale. This primary investment reason will often drive the business case template, approval workflow and portfolio analysis.
Scale & Priority
Scale and priority are two further assignments that further classify requests. Scale is typically based on overall investment value and is often used to drive business case preparation requirements and approval stages. Priority provides an initial indication of relative urgency of the request, with risk and compliance initiatives often attracting a higher default priority than discretionary growth initiatives. The strategic initiative flag on an appropriation request further assists with the prioritization of initiatives that may not demonstrate required financial return on investment but are critical to the achievement of some larger strategy.
Appropriation requests carry some basic scheduling information such as planned approval date, start date, and investment capitalization date. Implicitly these dates can be used to reflect lead-times and project durations which are useful when planning the project portfolio.
Roles and Workflow Routing
Based on the request type, specific user roles are assignable. Typically, these would include at a minimum the applicant (requestor) and responsible person (delivery manager). Additional roles such as stage-gate approvers can be manually assigned or derived. SAP workflow can be configured to transition the approval routing and notifications to these roles.
Appropriation requests capture both the requesting and responsible internal departments. For example, a supply chain project (requesting profit centre) may be delivered by IT (responsible cost centre).
Investment Program Assignment
Appropriation Requests are assigned to a budget approval year. For call-off requests, this would be the current year. For wishlist items, this would be next year. In addition, the Appropriation Requests are assigned to an investment program. Separate investment programs may be utilized for capital and non-capital (eg high value non-routine maintenance) initiatives. Within the relevant program, an appropriate budget funding position is identified. Where an investment program is structured around the organizational structure, this investment program position can be derived based on matching organizational assignments.
Create and Assign Investment Measures
A key feature of Appropriation Requests is the automatic creation of measures. One or multiple measures can be created from a single Appropriation Request. If a measure has already been created, it can be assigned. Planned costs are transferred automatically from the request to the created measure.
Most initiatives may have alternative implementation alternatives. These are reflected in SAP as ‘variants’. Each variant comprises an investment and overhead cost profile, as well as projected revenues or cost savings. A preliminary investment analysis can be performed on these planned costs and benefits to provide standardized metrics including internal rate of return, net present value and payback period. Each variant can receive an assessment score and SAP ensures that only one variation can be submitted for approval at a time.
Appropriation Requests deal with planned costs only. The planned costs on an Appropriation Request can be rolled-up to the investment program, and then copied across as a baseline budget. Whilst budget can be distributed via Appropriation Requests to an underlying measure, and the amount budgeted can be shown in the Appropriation Request, technically it is the measure that is receiving the budget distribution.
Documents can be linked to an Appropriation Request variant utilizing the document management system.
As part of the annual budgeting and planning process, depreciation simulations can be executed for Appropriation Requests. This is based on the specified asset class of the approved variant, and the planned capitalization date.
Importantly (especially from the perspective of the requestor) is the status of a request. On submission, the status will change to ‘for approval’. Once the request is reviewed and prioritized it will be ‘approved’ overall. If multiple alternatives are proposed, one of the proposed implementation variants will achieve a status of ‘approved’. Once included in the investment program, the request may receive a user-status of ‘budgeted’. The critical status is ‘released’ and ‘replaced by measure’: this means the Appropriation Request has performed its role, and a project (or order) has been created for procurement activities to commence.
Can Be Deleted
Appropriation Requests can be rejected, and if desired permanently deleted.
Best Practice Implementation
Appropriation Requests fulfill a very valuable role as investment proposals/business case submissions for consideration in an organization’s annual budget. In this role, Appropriation Requests can be reviewed and prioritized first at a local management level, before being considered at an overall program level for inclusion in the overall investment program budget. The linkage of Appropriation Requests into an investment program enables early reconciliation of requested funding relative to top-down budget availability. With effective classification and variant assessment, competing requests can be compared, and an optimal portfolio of initiatives can be approved. When used as wishlist items, there can be many months between the request initiation and ultimate release of the related investment measure.
Appropriation Requests can also be utilized for current year unplanned initiatives. In this case, the Appropriation Request provides the perpetual store of the project justification and expected benefits. If an unbudgeted Appropriation Request is approved, and exceeding an annual budget cap is not permitted, it is often necessary to identify the substituted initiatives. This is normally achieved by actively managing the status, scheduling and value of the backlog of Appropriation Requests.
Appropriation Requests in context
The following diagram illustrates how Appropriation Requests are utilized in an integrated investment management solution:
As illustrated, Appropriation Requests begin the investment management process. They form the basis for the budget, and the investment measures themselves.
Note that in a modern solution design, the Appropriation Requests provide a useful store of information together with investment programs and measures. However, it is the interaction between these components as illustrated by the green objects in the diagram above that provide the real solution. This is most effectively utilizing SAP Fiori applications, such as those provided by IQX CAPEX.
Why SAP Appropriation Requests are not Enough
As described above, Appropriation Requests provide a useful store of business case justification and investment management functionality. There are, however, key gaps in SAP Appropriation Request functionality as described below:
Whilst Appropriation Request layouts can be configured, and internet access enabled, the primary reason for organizations not deploying SAP Appropriation Requests is the end-user experience. Especially for lower-value investments, multiple variations are often not proposed, and the structure of the Appropriation Request itself is too complex. Whilst some flexibility is provided by user fields, and further data model extensions are possible through customization, the classification and qualitative justification requirements of real-world business cases and expenditure requests are not effectively supported. And whilst entering Appropriation Requests directly into the system is cumbersome, it is the executive approval experience that typically invalidates their adoption. With SAP Fiori, however, it is possible to provide a much more user-friendly, seamless, and mobile end-user experience for both initiators and approvers. With IQX CAPEX, SAP Fiori applications are supported with a low-code form, process, and integration customization workbench to finely tailor the user-experience to the unique requirements of every organization.
Another key consideration is the participants in the process. Typically, the capital expenditure process will involve most senior managers in an organization whether as sponsor, manager, collaborator or approver. Not all these participants may currently be licensed for SAP back-end functionality. IQX CAPEX provides an online component to allow any user to submit a request, and with IQX OneList Approvals, any manager can participate in the approval process without necessarily requiring SAP interactive-user licenses.
Business Case Definition
Whilst SAP Appropriation Requests have a limited data model, the IQX CAPEX solution supports a very flexible data model to complement the core set of fields provided in the SAP Appropriation Requests, as well as a very flexible user-interface definition as described above. This flexibility allows the solution to be aligned to the data collection requirements for specific initiatives in an organization’s industry and jurisdiction. More effective business case definition helps ensure the optimization of the selected investment project portfolio.
Whilst partner functions can be manually entered on the face of an Appropriation Request, there is no standard support in SAP for an approval matrix to derive required roles and assignments dynamically based on the attributes of a request (such as value, reason, risk and return). Within IQX CAPEX, extensive use is made of approval matrices to ensure effective collaboration and approval of requests in accordance with company policy.
Budget Distribution and Release
Appropriation Requests are not themselves a store of budget. Budget is maintained first in an investment program and then distributed to measures for procurement and project control. The practical mechanisms to review and prioritize competing requests, convert these into a budget, handle budget substitution for unbudgeted requests, distribute budget from a position to a measure and release the measure is all functionality that would require manually processing steps in SAP. With IQX CAPEX, all these transactions are seamlessly automated by a set of intuitive Fiori applications.
SAP Appropriation Requests serve a useful role in requesting capital project submissions for a future budget year or in the current period.
Critically, standard SAP appropriations are not themselves a budget source or cost collector. Whilst the annual budget is normally developed on the basis of the approved business Appropriation Requests, and is reflected in the investment program, the budget needs to be ultimately assigned to an investment measure. Similarly, procurement costs are never assigned to an Appropriation Request, but only to the related measure. Even after an Appropriation Request is approved in SAP, there remains the need to trigger the activation of the investment measure itself.
IQX CAPEX delivers this missing piece in the SAP Investment suite: the Capital Expenditure Request. This triggers the distribution of budget to an investment measure and releases it for procurement activities to commence. Presented in SAP Fiori, IQX CAPEX is intuitive to use by project sponsors and easy to review by senior executives to accelerate and control your capital expenditure process.