Written by: Richard Frykberg

What is budgeting vs planning? The budget is what is authorized to spend, and no more. The planning is on what and when we expect to incur that expenditure. The distinction is subtle, and business users will tend to use the terms interchangeably. However, both concepts have unique value when applied effectively. This post addresses the similarities and differences between budgeting vs planning within SAP to assist you with applying both tools appropriately to manage and control your Capital Expenditure.

Common Budgeting & Planning Features


The primary object of both budgeting and planning is to coordinate, control and effectively allocate funding for Capital Expenditure. Coordination of an organization’s activities is achieved through strategic planning. Beyond committed business as usual expenditure, the allocation of funds to project initiatives is based on executive prioritization of investments to achieve the organization’s objectives. This agreed future expenditure is represented as budget or plan.

The primary difference is the degree of control exercised: with budgets, expenditure above the budget limit is typically prevented. These ‘hard’ limits are typically set in total or by year.  Plans on the other hand, represent a best-estimate forecast of actual expenditure, typically by nature (cost element) and month. Exception reporting of actual expenditure against both budgets and plans is a key control within most organizations.

Overall and Annual

Both budgets and plans can be defined on an overall (total expenditure) basis as well as on an annual basis. Internal validations in SAP ensure that the annual values cannot exceed the overall value. This expenditure profile over time recognizes the reality that larger investments, may span fiscal periods. For funding purposes, this actual expenditure profile over years is as important as the overall investment value itself. Only detailed cost element level planning on an investment measure can be defined by month.

Controlling Area

Given the key purpose of both budgets and plans, it is natural that the scope of a budget or plan is the controlling area: that group of entities that operate under central control with a common fiscal period and controlling currency. Additional complexities arise where for historical or technical reasons a large organization has been fractured into multiple controlling areas with differing fiscal years and currencies. Typically, non-standard reporting is required to effectively re-combine such data for reporting purposes. On the other hand, if two entities are combined in a single technical controlling area, but managed independently, it is still possible to budget and plan in each entity’s local ‘object’ currency and monitored accordingly.

Currency Translation

If budgeting or planning is performed in a currency other than controlling area currency, it will be translated to the common controlling area currency using a predetermined rate type. This expected future exchange rate is maintained centrally for consistent translation. Both actual expenditure variations and differing actual exchange rates will appear as variances in standard Capital Expenditure monitoring reports. By knowing the reference and actual rates, however, the exchange variations can be differentiated from actual expenditure variations with more sophisticated external reporting tools.

Integrated Planning

Planned expenditure on cost centres or non-capital projects or internal orders will typically be configured to roll-up into the organization’s overall planned profit and loss (P&L) statement. Planned costs on an investment project or order, however, will not hit the P&L until the investment is capitalized and depreciated over a number of future years.

So, whilst investment measure planning is useful to monitor monthly expenditure on an investment measure, care should be taken to ensure that the planned costs on investment measures are not directly integrated into the total operational result. In SAP, this indicator is set on the order type or project profile.

Control Objects

Appropriation Requests

Appropriation Requests are used to capture future period ‘wishlist’ items and the allocation of current year budgets to investment measures. Overall and annual planning is possible for appropriation requests, with a split between capital and overhead expenditure, per investment alternative (variant). These planned values can be used to roll-up to the investment program or down to the investment measure.

Detailed cost element and monthly planning is NOT possible on Appropriation Requests. Appropriation Requests can also NOT hold a budget: approved appropriation requests trigger the distribution of budget from an investment program to the investment measure, but the appropriation request itself never has a budget.

Investment Programs

Investment Programs are used to control an organization’s planned and budgeted capital investments for an approval year. Investment programs are hierarchical structures comprised of Investment Program Positions being both the branches and leaves. It is only the lowest level positions (the leaves) that are assignable sources of budget for funding investment initiatives.

Investment programs are designed to support top-down planning and budgeting: the values maintained at higher hierarchy levels do not need to be fully distributed to lower-levels. Conversely, plans and budgets maintained on the lowest level program positions or intermediate notes cannot exceed the values assigned to their superior nodes. SAP provides program maintenance functions that support the automatic totalling-up of positions and lower-level value adjustments to higher level nodes.

In addition, typically at the commencement of a planning cycle, plans and budgets can be rolled-up into an investment program from assigned investment measures. Planned investments on appropriation requests can also be rolled-up into the program. It is also possible to transfer plan values to budget values for an entire program or selected positions. Both plans and budgets are maintained on an overall basis, and by fiscal year. Neither monthly expenditure nor the split between capital and overhead expenditure is maintainable for plans or budgets in an investment program.

Investment Measures

Internal Orders, Project Work Breakdown Structure (WBS) Elements and Maintenance Orders can be used as Investment Measures to control investment procurement and asset valuation (cost settlement). Investment measures can be independently planned and budgeted. However, when used as part of an integrated investment management solution, additional functionality is available to ensure that budget is more tightly controlled. With the appropriate budget profile configuration, budget can only be distributed to investment measures from the assigned investment program positions.

This integrated budget management helps ensure that the investment program budget cannot be exceeded. In addition to overall and annual planning and budgeting, cost-element planning is available on investment measures. Cost element planning identifies the nature of the expenditure as well as the split between capital vs overhead is a primary application, and the monthly expenditure profile. This monthly cost-element planning is frequently referred to as the ‘forecast’. Investment measures are collectors of actual costs incurred through external procurement and internal cost transfers.

Extensive cost control over investment measures is possible, as an investment measure may have: an overall and annual budget, an overall and annual plan, a monthly plan by cost element, purchasing commitments and actually incurred costs! Investment measures are actively status-managed, and on technical completion the accrued costs are ‘settled’ to one or multiple fixed assets.

SAP Investment Budgeting

The unique aspects of investment budgeting within SAP ERP are outlined below:

Supplements and Returns

Only budgeting provides an analysis of increases and reductions in value. These supplements and returns of budget help explain to management any budgetary adjustments that occur during the analysis period. The justifications for any budgetary supplements or returns can be described in the corresponding transactional line items generated.


Only budgets can be distributed: from higher-level positions to lower-level positions in an investment program, or from the lowest levels of a program to the approved investment measures. This top-down cascade of an annual budgeted amount down through various responsibility levels and ultimately down to an operative investment measure reflects common operating practice and is a key feature of SAP Investment Management.

This budget distribution is done both on an overall basis and by year. Budget cannot be directly distributed between years: annual reassignment must first be executed using budget supplements on the source funding position, and then the budget can be redistributed accordingly.

Availability Control

The key reason for utilizing budgets as opposed to plans is to enforce procurement availability control: to prevent purchase orders being raised that would exceed the budget availability. Budget availability can be enforced on an overall basis, or by year for tighter budgetary spend control. Tolerance levels can be set that raise a warning when the budgetary limit is approached and can flex to accommodate minor variations in the actual cost up to a maximum value or percentage tolerance.

Budget Carry-forward

Available budget can be carried forward from one year to the next within an investment program ‘approval year’. This is particularly useful when a multi-year project is assigned to an investment program approval year, and not carried forward to the new investment program though closing the approval year.

Available budget can also be carried forward to a new investment program when opening a new approval year. This carry forward is initially statistical, with the carry forward budget shown for information only. Only supplements to the underlying measures can be processed from the new year’s investment program. If the original investment program is closed, however, the underlying investments measures are permanently reassigned to the new year’s program. From then on, budget can be directly managed from the new investment program.


Whilst limited budget vs actual reports are available in the standard system, these are fewer and less pervasive than comparable reports for planning.

Planning in SAP

The additional features available to planning are outlined below:


Versions play a very important role within planning. The initial plan, often referred to as the budget, is normally assigned version 0. Subsequent versions, typically used for reforecasting expenditure, are assigned unique reference numbers. Mature organizations may persist each reforecast, creating a total of 12 versions. This is useful to measure planning accuracy, by comparing each version (forecast) with actual costs and helping to identify areas of planning deficiency to continuously enhance the accuracy of expenditure profile forecasting.

Overall Planning vs Cost Element Planning

There are two variations of planning on investment measures: overall planning (in total and by year) and cost element planning. Overall planning is similar to budgeting in that it is not required to assign the plan to cost elements, as it is a higher-level control concept. Cost element planning, by contrast, is intended for more detailed cost variance analysis, and is performed by cost element.

The cost elements can be ‘natural’ accounts reflecting the nature of expenditure (eg consulting fees) or secondary ‘internal allocation’ accounts (eg internal labour). Typically, organizations leverage one general ledger account for capital costs, and it this account that is used for planning. The key difference with cost element planning is that the plan can be maintained by month. This makes cost element planning the appropriate tool for maintaining Capital Expenditure forecasts on a monthly basis.


For a mid-year plan to serve as an effective forecast of total annual expenditure it is necessary to update the plan version with actual cost to date. Standard transactions in SAP enable a planning version to be updated first with the prior version of the plan, and then have the period to date cost replaced with actual values. This allows managers to focus only on variations in their expenditure plan for the remainder of the year.

There is limited support in SAP for preparing a forecast: for example, future date procurement schedule lines cannot be easily incorporated in the forecast and managers are often expected to manually update the forecast by investment measure. Often external systems are relied upon to produce the forecast which is then summarized in Excel for upload.

Excel in Place

Whilst there is no standard mechanism for ‘uploading’ an Excel plan, Excel-in-place functionality makes it easier to plan directly in the SAP client with an embedded Excel worksheet (with limited functionality). It is also possible to copy and paste from an externally prepared forecast into the Excel-in-place worksheet.

Planning Integration and Independence

When creating an investment measure from an Appropriation Request it is possible to copy the overall plan across to the new measure. Once the Appropriation Request is released, however, the assignment from the measure is replaced with assignment to the investment program. There is no top-down plan distribution from investment programs to measures.

Rather, planning is seen as a bottom-up concept, and functions are available to periodically ‘roll-up’ plans from measures to the investment program. Planning is, however, fundamentally independent: unlike with budget distribution, there is no guarantee of reconciliation of plans between the program and the linked measures.

Planning Profiles (Distribution Keys)

One feature available within planning that assists with preparing monthly forecasts is the concept of a Distribution Key. This allows an overall annual amount to be spread over periods in relation to a relevant distribution pattern (for example equal, as-before, or seasonal).

A Modern and Practical Solution for Budgeting vs Planning

Within SAP, Budgeting and Planning are similar concepts but have important technical distinctions. In the context of Capital Expenditure management, both controls are useful. Budgets typically impose a strict limit on expenditure, whereas Plans are used for forecasting expenditure over periods, with some variations expected.

IQX CAPEX supports organizations towards correctly and effectively identifying the need for budgeting vs planning. With IQX CAPEX, budgets can be developed based on a roll-up of wishlist demand and top-down group allocations. Budgets are explicitly distributed to investment measures on Capital Expenditure approval. Periodic forecasts are represented by planning versions, and are automatically updated with actuals, and can be easily updated by project managers with reference to commitments and planned activities.

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