Frequently Asked CapEx Questions2024-02-05T03:52:32+11:00


Find answers to commonly asked questions about CapEx Management

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Discover our SAP CapEx Management FAQs – your essential resource for navigating capital expenditure in the SAP ecosystem. Whether you’re new or experienced, find clear answers to common questions and explore additional resources linked within. Enhance your financial strategy with IQX Fiori Apps – ready-to-run solutions designed to effortlessly streamline your CapEx process.

CapEx Requests

How do I identify the best Capital Expenditure opportunities?2024-03-01T13:51:48+11:00

The secret to choosing the best projects to include in your capital budget is to start with a broad funnel and then quickly filter project proposals down based on a standardized evaluation, scoring and ranking methodology.

How do I evaluate and rank alternative project proposals?2024-03-01T13:55:27+11:00

The key dimensions to consider when ranking candidate projects are:

  1. Degree of strategic alignment
  2. Urgency of the project (risk of not doing)
  3. Standardized evaluation of project benefits including key financial metrics (Net Present Value, Internal Rate of Return and Payback Period)
  4. Project delivery risk (risk of doing)

All these dimensions can be weighted by investment reason to generate an overall project ranking score.

How do I optimize my capital budget?2024-03-01T14:01:44+11:00

All capital project budgets are invariably constrained by available financial capital, human resources, and risk tolerance. To optimize your project portfolio within these constraints you should:

  1. Consistently evaluate candidate projects to determine an overall ranking score.
  2. For each responsibility area, generate expected portfolio utility outcomes at various funding levels and generate an efficient frontier chart utilizing computer assisted technology.
  3. Identify optimal funding levels for each class of project, for example: sustenance, growth, and compliance.
  4. Submit Portfolio requests by area for centralized reconciliation and budget distribution.
  5. Perform a top-down budget distribution by responsibility area and investment reason in line with overall organization funding capacity.
  6. Allow area managers to refine their project portfolio selection within budget and resource constraints employing automatic project portfolio selection strategies as appropriate.
How do I reconcile my capital budget with expenditure requests?2024-03-01T14:06:26+11:00

Ensure that budgets are based on defined initiative lists (appropriation requests). When raising capital expenditure requests, link requests to the related budget requests. If a capital expenditure request is unbudgeted, first raise a budget request and re-perform annual business planning, assigning budget to the new project if deemed to be more essential. Following budget reallocation, the expenditure request can be raised as budgeted and follow an expedited management approval workflow.

What is the difference between budgeting and planning?2024-03-01T14:09:31+11:00

Budgeting is the apportionment of available funding amongst various sources of demand. Capital Budgets are intended as fixed constraints to expenditure and are normally allocated annually. Planning is the forecasting of likely expenditure. Capital expenditure plans provide a more granular expectation of costs over time, typically monthly, and slight variations to plan are normal. SAP facilitates the allocation of budgets to individual investment measures (projects and internal orders). SAP reporting allows actual project performance to be monitored with reference to both allocated budgets and expenditure plans.

How do I link Authorizations For Expenditure (AFE) approvals with my procurement activities?2024-03-01T14:17:20+11:00

High value project expenditures require executive management authorization. When this approval is granted, budget is allocated to an investment measure (project or internal order). Purchase Orders are then assigned to these investment measures as commitments. Actual costs are accumulated on these investment measure on receipt of the ordered goods or services. If supplier invoices vary from the purchase order values, these variances can be accepted, and also accrued on the investment measure. On project completion, the accumulated costs on the investment measures are settled to a corresponding Fixed Assets.

Project Controls

What are the benefits of projects vs internal orders for capital project control?2024-03-01T14:14:28+11:00

In SAP, both internal orders and projects are commonly used for control of project expenditure. Both operate as primary cost collectors to monitor projects expenditure to budget. Planned expenditure can be forecast for both internal orders and projects, and the final project costs can be settled to produced fixed assets. For consistency, many organizations choose either internal orders or projects. Internal orders are more simple to set-up, use and report on. If most of your capital expenditure involves direct asset purchases (for example, new forklifts), internal orders are normally sufficient.

Projects provide for more granular cost control and scheduling. If you execute higher-value projects that may involve creation of multiple assets or that span multiple periods (for example, a new manufacturing plant), use of projects is highly recommended. Ideally, your capital expenditure management process should be flexible enough to use both objects: providing simplicity when sufficient, and complexity where required.

What is the best practice for structuring WBS elements?2024-03-01T14:49:05+11:00

Work Breakdown Structure (WBS) elements are used for financial planning and control of projects. WBS elements function as primary cost collectors in a similar way to internal orders but are contained and related within a single project definition. The hierarchical nature of WBS elements facilitates effective activity and cost breakdown. Whilst network activities provide the most granular work allocation and schedule tracking control for project execution, WBS elements provide the primary financial cost control. Budgets can be assigned to higher level nodes of the WBS structure, and thereby enforce cost discipline at the appropriate level. The total project budget is first distributed to the top-level node of the project hierarchy from the investment program. It can then be further distributed to primary WBS elements.

To facilitate work-in-progress valuation and end-of-project asset valuation, the best practices is to align your WBS structure at level 3 with your target fixed assets. For example, the WBS structure for a new site office, may include WBS elements for land, building, and equipment. If lower level WBS elements are required for more granular project management and cost control, they can be defined at level 4, and budget or plans distributed down accordingly. Many organizations have a standardized coding system for their WBS structure relating to primary asset categories at which they wish to track capital work in progress and planned depreciation. This is facilitated in SAP by the default assignment of an investment profile to the elements to automate the asset-under-construction accounting.

How to best track Capex and Opex costs in SAP Projects?2024-03-01T14:41:08+11:00

WBS hierarchies are normally structured to segregate capital expenditure (CapEx) and operational expenditure (OpEx) at level 2. Large projects will typically incur both types of costs and the budget for each is tracked separately. OpEx costs are settled monthly to responsible cost centers. CapEx costs are capitalized – initially as assets-under-construction, and on project completion are settled to the delivered fixed asset. This difference in accounting treatment is determined by the settlement profile assigned to the WBS element.

How to handle contingency on capital projects?2024-03-01T14:37:32+11:00

Project costs are based on estimates. Most-likely cost estimates will be exceeded approximately 50% of the time. Contingency is normally added to the most-likely estimated cost to ensure that adequate budget is allocated for successful project delivery. It is expected that this contingency provision is only sometimes required. Adding the contingency amount to the project budget up-front may limit the opportunity to control the release of contingency. Within SAP, the best way of handling contingency is to include contingency at the top-level of the project and only distribute best-estimate budget requirements to lower-level WBS elements. In that way, budget availability control can be enforced at procurement at the best-estimate value. If contingency budget is occasionally required to be accessed, a contingency release process can be initiated, appropriately justified, approved, and distributed to the account assignment WBS elements as required.

How do you manage forecasts in SAP Project Systems?2024-03-01T14:32:45+11:00

The best way of managing forecasts in SAP is to use planning versions. Forecasts are typically produced monthly, and controllers value the analysis of forecasting trends to identify unrealistic forecasting behavior. The most common concern is that project managers frequently forecast unrealistic acceleration in the future to compensate for delays in the past. In practice, these delays are seldom recouped, and forecasts tend to be un-realistically optimistic. To facilitate the trend analysis of periodic forecasts, separate planning versions are typically used for each forecasting period. For example, F6 may be the half-yearly capital expenditure forecast. SAP functionally facilitates updating each planning version with actual costs to date, and then capturing anticipated future costs.

What is the difference between project budget and plan in SAP Projects?2024-03-01T14:24:51+11:00

Project budgets impose a strict constraint to expenditure enforceable via budget availability control settings. Project budgets may be constrained overall or per fiscal year. Budgets may be distributed down to lower-level WBS elements to control expenditure at a granular level. Changes to project budgets are controlled by differentiating the original budget from supplements and returns. Project plans represent the planned expenditure. Project plans are typically less restrictive than budgets, although as of S/4HANA, planning versions can also be used to enforce availability control. As opposed to project budgets which are annual, project plans can be maintained by month. Planning can be done overall or at individual cost element level. Changes to plan expenditure are handled by using different planning versions.

Project Procurement

How do I achieve the expected benefits from invoice scanning?2024-03-01T14:20:43+11:00

More invoices will have purchase order numbers assigned if the purchase orders are created sooner and provided to vendors prior to work being undertaken. Delays in vendor setup and delays in raising purchase orders can result in urgent work being done or goods delivered prior to formal purchase orders being raised. The IQX Project Procurement solution will ensure that vendors are validated and set-up faster so the purchase orders can be raised more easily and sooner, thereby helping to ensure that supplier invoices reflect valid purchase orders.

How can I increase spend under management?2024-03-01T15:12:32+11:00

Spend under management refers to the volume and value of procurement based on pre-negotiated supply contracts where rates are preferential or incorporate rebate agreements. The main way to achieve this is to deliver real savings to the business by negotiating highly beneficial agreements from combing the full purchasing power across the organization. To ensure visibility and usage of these agreements, the system should automatically prompt users to buy off these contracts where they exist.

How do I release a blocked invoice for payment?2024-03-01T15:10:42+11:00

Vendor invoices are blocked for payment for a number of reasons, and the resolution will vary as outlined below:

  1. If the invoice is blocked due to no receipt having been processed, then process the required goods or services receipt.
  2. If the invoice is blocked due to a price variance or quantity variance, then adjust the Purchase Order if you believe the quantity or rate on the purchase order was incorrect.

The IQX Procurement Solution enables these transactions to be easily processed via intuitive SAP Fiori applications.

How can we ensure vendor bank accounts are correctly entered in SAP?2024-03-01T15:16:02+11:00

The best solution is to avoid manual entry by in-house staff. Have the supplier enter their details and provide supporting banking documentation. Route these details and supporting documents for internal review. If details don’t match, reject the vendor submission. If the details are valid accept the provided details, but ensure all updates are automatically processed by the system. The IQX Procurement Solution combines internal SAP Fiori Apps with an online Vendor Portal to engage suppliers directly in submitting organizational details such as address and banking information, questionnaire responses, and certifications.

How can we ensure our vendors have necessary insurances and other required certifications?2024-03-01T15:09:43+11:00

When setting-up new vendors, require them to provide the necessary proof of coverage or valid certificates. This information is most effectively supplied by through an online portal. The portal should monitor expiry date and automatically alert the vendor when certificates are due for renewal. The organization should be informed when a vendor is no longer compliant, and their account should be blocked in SAP. The IQX Vendor Portal provides an efficient mechanism for engaging securely with suppliers to capture required insurance and other certifications.

How can we reduce headcount in Accounts Payable?2024-03-01T15:08:19+11:00

The best way to reduce headcount in accounts payable is to provide an easier way for business buyers (especially departmental and project managers) to capture their purchase requisitions and orders into the system, and to give suppliers self-service capabilities. Vendors should provide their own master data details, certificates, and responses to compliance questionnaires (modern slavery provisions, for example). Vendors should also be able to check their assigned purchase orders and invoice payment statuses to remove a lot of administrative queries from your Accounts Payable team.

Fixed Asset Management

How are IQX Asset Management Apps different to standard SAP Fiori apps?2024-03-01T15:03:14+11:00

Both IQX Asset Management and SAP Fiori apps are based on SAP UI5 JavaScript libraries and therefore look the same and are similarly launched from the Fiori Launchpad. Standard SAP Fiori apps typically target a single SAP transaction. IQX Asset Management apps differ from standard Fiori apps as they provide a highly configurable user interface, workflow process and SAP integration orchestration. This enables business users to capture the asset transaction details, have details supplemented or corrected by other stakeholders, and then on agreement update one or multiple SAP transactions. The process-management functionality of the IQX Asset Management apps is supported by the SAP-certified IQX AppBuilder Add-on.

How are assets capitalized on completion of a project?2024-03-01T15:01:25+11:00

At the conclusion of a project, accumulated costs are transferred from the project to the fixed asset master record. This process is known as cost settlement. The costs on a single WBS element may be transferred to one or multiple fixed assets. This allocation can be by fixed amount or percentage. These percentages can vary by time. Different expenditure types can be settled to different receivers. For example, some cost types can always be treated as operational expenditure. This specification of what expenditure is settled to which receivers, in what proportion, is defined by a settlement rule.

How do you update settlement rules on WBS elements?2024-03-01T14:59:16+11:00

The screen for maintaining settlement rules is accessed from within the project builder transaction via the menu path: More > Edit > Costs > Settlement Rule. Depending on how your project is structured, you may need to update the settlement rules on multiple WBS elements to collect all the capitalizable costs of a fixed asset. You will first need to create your fixed asset master record shell before you assign this in the settlement rules.

What are assets under construction (AuC)?2024-03-01T14:56:44+11:00

Where expenditure relates to a project, these development costs need to be transferred to capital work in progress monthly for financial reporting purposes. These costs can simply be accumulated on a balance sheet account by defining a balance sheet general ledger account as the cost receiver for periodic settlement. For a more granular analysis of significant capital work-in-process expenditure, temporary asset under construction (AuC) records can be created. These are a special class of assets within SAP that are not subject to depreciation. Where assets under construction are utilized, it is possible to report capital WIP for each asset under construction. On project completion, these costs are transferred from the interim AuC records to the final fixed asset master records.

How do I get my projects to automatically create assets under construction (AuC)?2024-03-01T14:54:39+11:00

Assets under construction are automatically created when an appropriate Investment Profile is assigned. Depending on the investment profile, the assets under construction can be assigned to a meaningful asset class such as building or software. The investment profile also controls the types of distribution allowed for settlement and whether settlement occurs on a summary basis or by cost element.

How do I forecast the planned depreciation of my capital works on completion?2024-03-01T13:45:55+11:00

By assigning an asset class and planned capitalization date to your project WBS elements, it is possible to determine expected future period depreciation charges.

Choose IQX for Your CAPEX Management Transformation

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