Written by: Richard Frykberg

Should you implement SAP Investment Management in S/4HANA? Two key drivers that should prompt a re-evaluation of SAP Investment Management (SAP IM) are:

1. Heightened focus on more effective capital expenditure management.

2. SAP S/4HANA upgrades provide a valuable opportunity to reassess the potential of SAP Investment Management functionality.

When capital was cheap, labor plentiful and technology change predictable, capital budgeting was straight-forward. However, the result of international conflicts, artificial intelligence, and spiralling interest rates has made the current operating environment unpredictable. Project costs and outcomes face heightened risks. Albeit, numerous opportunities await agile organizations throughout these challenges. To ensure success, organizations are re-evaluating their capex management process, prioritizing outcomes, and adapting their capital budget allocation to changing circumstances.

SAP customers upgrading to S/4HANA have a golden opportunity to re-evaluate their SAP solution’s scope and enhance their systems. With the benefit of hindsight and new technology capabilities, organizations can refine and modernize their operations.

Capital projects play a pivotal role in achieving strategic goals. These capital projects are managed in SAP using either SAP Project Systems or Internal Orders. To control costs effectively, budget limits are assigned to these projects. These budgets can be determined externally (in a spreadsheet, for example) and simply entered into the system, or they can be established within SAP, making use of SAP’s Investment management functionality.

This article will explore the benefits and limitations of SAP Investment Management in S/4HANA to assist SAP customers make this very important system design decision.

What is SAP Investment Management?

SAP Investment Management is a module that enables users to manage their capital investments and expenditures utilizing SAP as the single source of truth. Its functions support the planning, investment, and financing process, ensuring optimal utilization of resources and alignment with strategic objectives.

4 Key Functions of SAP Investment Management

The key functionalities provided by SAP IM for managing capital budgets and expenditure are outlined below:

1. SAP Investment Programs and Positions

At the center of SAP Investment Management is the Investment Program. An Investment Program is established for an approval year and typically consolidates all the capital budgets for a group of companies. The Investment Program is hierarchical, with each node referred to as an Investment Program Position. Investment Measures (Projects or Internal Orders) are ultimately linked to the lowest level Investment Program Positions. These lowest-level Program Positions normally correspond to an area of responsibility (such as a cost center or plant), but can also represent major programs of work, investment pools or even individual projects.

The Investment Program supports both top-down and bottom-up planning and budgeting. The roll-up of budget adjustments from the lowest level to the top is automated, however the top-down cascade of budget is normally manually processed.

2. SAP Appropriation Requests

Appropriation Requests in SAP Investment Management contain the business case for a project. Appropriation Requests will classify projects by investment reason (for example, Sustenance or Growth) and capture the expected capital (Capex) costs, overhead (Opex) costs, and expected returns. Standard financial measures such as Net Present Value, Internal Rate of Return and Payback period are calculated. SAP Appropriation Requests can be subjected to Workflow approval, and on approval, Investment Measures can be automatically created and planned.

3. Budget Distributions and Returns

The essence of SAP Investment Management is the allocation of budget to Investment Measures. The budget in the Investment Program is typically approved annually and defines the total capital budget available per Investment Program Position and by future fiscal year (normally a five-year capital budget planning horizon is configured). On the approval of Capital Expenditure Requests, the budget is distributed to recipient Investment Measures (using transaction IM52 in SAP).

Any project budget not utilized by a project can be returned to the Investment Program and re-allocated to alternative projects or positions.

4. Budget Availability Check

The key capital budget control in SAP is the Budget Availability Check. If properly configured, the budget availability check will prevent purchase orders from being raised and that would result in the budgeted project costs being exceeded. Budgeting is thus a much stronger control in SAP than planning, which simply allows for the monitoring of actual vs planned cost variances (but doesn’t prevent over-spend in the same way as budgeting does).

The Benefits of SAP Investment Management in S/4HANA?

SAP Investment Management is a mature core module of SAP and available to all customers. It has been implemented in many organizations because of the following five key benefits:

1.    Deep Integration

The primary advantage of leveraging SAP Investment Management is integration with down-stream project execution processes and analytics. SAP Investment Management can access key organizational structures (such as Company Codes and Plants) and important master data such as cost centers, internal orders, and projects. The creation of new projects from approved Appropriation Requests is automated, together with a transfer of planned costs.

2.    Budget Availability

SAP Investment Management helps ensure that the capital budget approved by management and reflected in the Investment Program is never exceeded and can be monitored in real-time. All project budgets can be configured to only receive budget allocations from the investment program. Budget availability is thus always reportable on the Investment Program as the Original Budget plus Supplements less Returns from and Distributions to projects.

3.    Multi-Currency

With large groups, budgets are normally prepared in multiple currencies but require group currency monitoring. SAP is inherently set up to accommodate complex multi-lingual and multi-currency conversions and reporting.

4.    Project Monitoring

With all Budgeting, Planning and Actual data in a single integrated environment, real-time, detailed, operational reporting is enabled to mitigate the risk of projects exceeding budget or schedule.

5.    Fail-safe Governance

As a core financial platform, SAP provides rigorous authorization and information management policies. All transactions are traceable. Business rules and validations are in one technology framework for timely administration and audit.

Limitations of SAP Investment Management in S/4HANA

Whilst SAP Investment Management is available to all customers, it is still frequently poorly utilized, or utilized only ‘behind-the-scenes’ for the following three key reasons:

1. User-experience

The most common objection to the broader adoption of SAP Investment Management is the end-user experience. With Capital Project approvals, we are typically engaging the most senior managers in the organization as process participants. Unfortunately, the preparation and presentation of business cases in SAP Appropriation Requests is simply inappropriate. Whilst Appropriation Requests have a core data model and a degree of configurability, they are typically unsuitable for direct access by end-users, especially when an organization is still utilizing the SAP GUI client.

Fortunately, SAP Fiori, SAP’s new web-based user-experience technology can help address this shortcoming. It is now possible to tailor the end-user experience of all participants including project managers and executive sponsors to more closely fit an organization’s information needs and business rules. Superfluous attributes can be hidden, and other important classifications and justifications appended to provide an intuitive and effective solution for capital budget management. And you don’t need to wait for S/4HANA to take advantage of Fiori – through the deployment of a front-end ‘gateway’ server or SAP Business Technology Platform (BTP) all SAP customers can take advantage of Fiori today and lead the way towards the ultimate adoption of Fiori in all areas.

2. Workflow

A key aspect of Capital Expenditure Management is executive review and approval. The workflow capabilities of Appropriation Requests are not flexible enough for most large enterprises, where variations in the approval process are required based on several capex request attributes including value, asset class, investment reason, budget status and financial metrics.

While the standard workflow capabilities of Appropriation Requests are limited, the good news is that SAP offers alternative workflow customization capabilities with SAP Business Process Management and SAP Workflow Management. With additional customization, it is possible to address even the most demanding workflow requirements.

3. Accessibility and Licensing

Capital budgeting and approval is a process that impacts all areas and most individuals within an organization, as everyone can have an idea, or recommend replacement of key assets at risk of failure. However, within some organizations, not all employees are SAP-licensed users, and therefore would not be able to interact with an SAP-based process.

Luckily, not all end-users will require full SAP licenses. By leveraging SAP’s Business Technology Platform services, many occasional users will be able to make CAPEX submissions and approve Capital Budget allocations without necessarily requiring full enterprise application licenses.

Functional Constraints of SAP Investment Management in S/4HANA

Whilst SAP Investment Management provides a capital project budgeting framework, it is also limited in the following five critical functional areas:

1. Project Portfolio Management

The front-end loading of project portfolios is not supported by SAP Investment Management. SAP Project Portfolio Management is the module for aligning capital programs to strategy with a more comprehensive business case scoring and evaluation process. However, there is no direct link between SAP PPM and SAP IM, and this is a source of process disconnect, when an adjustment to the project portfolio requires a budget adjustment and release.

With an overlay solution on top of SAP Investment Management it is, however, possible to incorporate scoring, ranking and automated investment program updates without requiring the deployment of SAP Project Portfolio Management.

2. Periodic Forecasting

Capital budgeting in SAP Investment Management is an annual concept. However, many organizations seek to manage capital budget allocations on a quarterly or monthly basis, and this is not possible with SAP Investment Management.

As a work-around, many organizations simultaneously create preliminary investment measures corresponding with their Investment Program Positions for more granular planning purposes. In this approach the budgeting concept remains annual, but expected cashflows are monitored leveraging SAP planning functionality (at a project or even at a cost element level).

3. Capital Expenditure Requests

Whilst Appropriation Requests can be used as Capital Expenditure Requests, they typically don’t provide sufficient qualitative or financial detail. When Appropriation Requests are used, they typically represent the wish list items that departments submit for inclusion in the Investment Program, and not the actual authorization for expenditure (AFE) request.

However, leveraging SAP Fiori and SAP Workflow, a customized solution can be delivered within SAP that provides the expected approval capability and automates project creation and budget distribution.

4. Capex vs Opex Splits

Capital budgets in SAP Investment Management are conceptually designed to accommodate the capital cost component of projects, with the overhead components being planned on the responsible cost centers. Where an organization desires to budget total project costs, the investment program does not effectively support the segregated treatment of the Capex and Opex project cost components.

While budgets technically cannot be split between Capex and Opex in the investment program, this split can be retained in different WBS elements of the related measures, ensuring a distinction between Capex vs Opex.

5. Effective Budget Control

Budget availability checks are not as effective as anticipated. Most organizations tend to focus on annual budget cycles, and do not typically provide budget allocations for future years. However, because of long lead-times on capital equipment, purchase orders often need to be raised for those future years. Consequently, annual budget availability checks are frequently rationalized to ‘overall budget’ availability checks. As these do not prevent budget over-runs on an annual basis, organizations must nevertheless rely heavily on project forecasts and project performance monitoring controls.

With more efficient budget amendment and transfer functionality enabled by custom Fiori applications and tailored workflow, inefficiencies in the budget allocation (both by project and by year) can be more readily resolved, and consequently tighter budget availability controls enforced.

Re-evaluating your Investment Management System

If you run SAP, now is a good time to reconsider the Investment Management functionality available in your system. In a time of unprecedented uncertainty and opportunity, there is a major focus on delivering more value from your projects through effective allocation of scarce human and capital resources. Both SAP ERP and S/4HANA provide the core functionality to capture capital appropriation requests, administer investment programs and distribute budget to projects for effective cost control.

If SAP is your core business technology platform, leveraging this capability makes complete sense. The primary objection to the adoption of SAP Investment Management has been usability and workflow enablement. SAP Fiori addresses the user-experience and SAP Workflow Management can provide the workflow capabilities on top of this core functionality. SAP customers have the choice of building their own solutions using these new technology components, or consider using IQX CAPEX, a suite of workflow-enabled Fiori apps that support the end-to-end capital expenditure (CAPEX) management process.

If you predominantly run SAP for project execution, but also have a significant number of entities not running SAP Financials, you haven’t selected Fiori as your primary end-user experience, or require more sophisticated business case analysis, then you should consider a tightly integrated, bolt-on solution for capital budgeting such as Stratex Online.

Stratex Online provides an enterprise-wide platform for investment proposal submission, evaluation, and project portfolio selection as an online service. Stratex Online is accessible by anyone in the organization (whether they are an SAP-user or not) and provides an efficient and effective solution for business case preparation and project ranking. A single source of truth eliminates unnecessary spreadsheet manipulation in the collation and monitoring of the budgeted project portfolio. Approved capital expenditure requests are tightly integrated to SAP for project creation, budgeting, and asset creation.

Irrespective of your choice for Investment Management, the IQX Project Execution Fiori-app suite can be accessed for Project Creation, Project Procurement, Vendor onboarding, Project Completion and Asset Management.

When considering capital budgeting solutions, options like IQX CAPEX and Stratex Online provide advanced functionalities for business case analysis, project portfolio selection, and seamless integration with SAP. It’s important to choose a solution that aligns with your organization’s specific needs and maximizes the value of your capital budgeting process.

Whether you choose to build-your-own solution or implement packaged IQX solutions, IQX Business Solutions has the functional and technical expertise to guide and assist you manage the critical capital expenditure management process.

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