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Design for the future – simplifying a complex SAP Cost Model

Monday, 04 July 2022

Think180 were engaged to simplify the Finance SAP Cost Model including a complex and detailed cost allocation process for a leading Australian Power Company, in alignment with their SAP S/4HANA transformation and integration with Australian Energy Regulator (AER) compliance and reporting.

The Challenge: 

The existing SAP Cost Model presented a number of challenges that were constraining their capability to generate accountability based management reports across both operating and capital expenditure (incl. revenue). The management team in particular were challenged with the cost allocation processes.

The existing cost allocation process was extremely detailed and granular, and driven by the need to accommodate the complex reporting requirements of the AER, of which the business needs to comply with various service regulations. The original Cost Model that was implemented in the 90’s, presented a number of complexities, including:

  • A complex cost allocation process based on planned rates, not actuals; resulting in variances that could not easily be explained
  • A complex reporting hierarchy of reporting that was based on an outdated business model rather than an accountability model
  • Existing Cost Model design did not suit the increasingly complex reporting requirements of the AER

In short, it wasn’t fit for purpose. 

If you’re facing these same challenges, or are struggling to meet SAP AER regulatory compliance, reach out to us today. We have a proven track record of helping businesses and utilities with our Intelligent Regulatory Compliance offering. 

cost model

The Solution:

Think180 developed the following guiding principles for the new cost model:

  • Design for the future – The system was to be designed with automation and process efficiency as the priority.
  • No customisation – The new cost model was to be based on SAP Standard delivery. Any customisations would complicate it.
  • Value for money – The new cost model had to be designed with demonstrated prudency and cost consciousness.
  • Keep it simple – The new cost model was to be simplified, with minimal processing steps and pushing cost one way.

Finally, the most important objective was to find a solution that aligned all transactions and reporting with four key pillars:

  • Accountability
  • AER Service Category regulatory compliance
  • Business Activity (the type of work being performed)
  • Nature of the expenditure or revenue

Think180’s approach was simple and straightforward.

  1. The Design Phase involved planning and design of the new cost model which needed to align with SAP S/4HANA and SAP Analytics Cloud.
  2. The Discovery Phase included several months of workshops and interviews with both senior leaders, general managers and the finance team to discover and establish the main pain points of the existing model.
  3. The Build Phase was aligned with the ongoing program of work, and had to fit around other major projects, including moving to SAP S/4HANA.
cost allocation

The Outcome 

The new SAP Cost Model was significantly simplified and delivered a new level of capability for the Finance and Regulatory Teams:

  • Overall simplified cost and reporting model, with less system complexity
  • Hierarchy of reporting based on accountability across capex and opex
  • True alignment of their plan, budget and actuals for reporting
  • No noise or unnecessary complex allocations
  • Variances are now manageable and more easily reconciled
  • Design accommodates and simplifies AER reporting and regulatory compliance

The key objective of aligning reporting attributes across planning, budgeting and actuals as well as enabling drill-down reporting was successfully achieved.

The Executive Team, Finance and the AER reporting team now have the visibility and foundational toolset to drive the business into the future.

If your SAP Cost Model and Cost Allocation Processes are not meeting your desired business outcomes, reach out to us. We would love to discuss your challenges and help you to achieve better outcomes.