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In SAP Project Management, two terms that are often discussed, both on-premises and cloud-based are: Internal Order and Project System Work Breakdown Structure WBS. Both options have advantages.
Understanding the differences is essential in optimizing project outcomes. In this blog, we compare Internal Orders and Project System WBS, exploring their definitions, benefits, features, and practical tips for implementation.
An internal Order is a cost object that allows you to track and control costs associated with activities or projects. It provides a means to allocate costs, monitor budget utilization, and generate reports for financial analysis.
A Work Breakdown Structure WBS is a hierarchical representation of project deliverables, tasks, and subtasks. It breaks down the project scope into manageable components, facilitating planning, scheduling, and resource allocation.
By utilizing Internal Orders, you can gain better control over project costs, ensuring that expenses are allocated accurately and monitored. This enables timely decision-making, cost optimization, and improved financial performance.
WBS provides a structured approach to project cost and revenue, planning and execution. It helps you define project scope including deliverables and dependencies, as well as allocating resources efficiently. WBS also enables enhanced communication and collaboration among project team members, leading to improved project outcomes.
1. Structure and Hierarchy
- Internal Order: A cost object that does not follow a hierarchical structure. It is typically used to track costs, and revenue, for a specific activity or project.
- WBS: Follows a hierarchical structure, breaking down the project scope into smaller, manageable components. It provides a clear overview of project deliverables and dates including detailed tasks, subtasks and their relationships.
2. Cost Control and Monitoring
- Internal Order: Provides a single charge code allowing cost tracking and monitoring. Costs can be charged to specific internal orders and later allocated or settled to cost centers, enabling accurate analysis of project-driven expenses in contrast to ongoing operational cost center costs.
- WBS: Each WBS can be a charge code and can directly track revenues and/or costs, however, WBS is better utilized to provide a framework for more detailed cost estimation and control at the lower level WBS or networks. By breaking down the project into smaller components (network activities), it becomes easier to estimate costs, plan requisitions and purchase commitments, monitor budget utilization, and schedule accurate delivery dates.
3. Resource Allocation and Planning
- Internal Order: Does not provide a direct mechanism for resource allocation, planning nor scheduling, beyond simple start and end dates. However, it can be used in conjunction with other SAP modules such as purchasing to track commitments and actual costs based on 3-way matches in addition to managing basic logistics effectively.
- WBS: Facilitates resource allocation and planning by breaking down the project into tasks with specific planned and actual completion dates. Each task within the WBS can be assigned to specific resources, ensuring efficient planning, scheduling, and utilization of available materials, equipment, and work teams.
The Project Planning Tool Decision Matrix provides an approach to help you choose which SAP project tool, Internal Order or WBS, to use based on your detail planning requirements, planning scenarios, and/or use with an external project management application as shown in Figure 1.
4. Reporting and Analysis
- Internal Order: Offers basic reporting capabilities, allowing project managers to generate reports on project costs, budget utilization, and variances. These reports provide insights supporting simpler funds tracking and cost center allocation and analysis decision-making.
- WBS: Provides extensive reporting features and serves as a foundation for detailed project status management, document management, and advanced reporting. By organizing and scheduling project tasks by deliverables, it becomes easier to track progress, assign detailed costs to the appropriate capital or expense asset, cost center, or sales orders, and support timely and meaningful project decisions.
Internal Order: Integrates with several modules, including Controlling (CO), Financial Accounting (FI), Purchasing (MM), and Investment Management (IM). This enables a integrated view of project costs, budget allocations, commitments, and financial performance.
WBS: Integrates not only with Controlling (CO), Financial Accounting (FI), Materials Management (MM), and Investment Management (IM) but more importantly with Sales and Distribution (SD), Logistics Execution (LE), Production Planning (PP), Plant Maintenance (PM), Project System (PS-Networks), and Human Resources (HR). This integration leverages the specific module functionality to ensure efficient communication and coordination between different project management functions.
Implementing Internal Orders and WBS requires careful planning followed by timely execution. Here are some practical ideas to consider:
1. Clearly define project scope and objectives before deciding which project type to use, either Internal Orders or WBS. This clarity will help in structuring projects appropriately and selecting the most suitable approach and tool.
2. Involve key stakeholders, including team members, sponsors, and clients, in the design and implementation process to ensure alignment with organizational goals. Their input and feedback will help in selecting the most appropriate project management approach and SAP project concept and ensure buy-in from all parties involved.
3. Regularly monitor and update the chosen project tool, either Internal Orders or WBS, to reflect changes in project requirements. Continuously review and update each as the project progresses. This will help you identify and mitigate potential risks, and ensure the project remains on track.
4. Train project team members on how to use Internal Order and WBS tools to maximize the benefits.
5. Leverage available SAP resources, such as user manuals, company experts, and online forums, to enhance your understanding and proficiency in using these tools.
6. Reporting and Analytics: Understand and utilize the available reporting and analytics capabilities of Internal Orders or Project System WBS to gain insights into project performance, budget capacity, resource utilization, and cost control. This data-driven approach will enable informed decision-making and initiative-driven project management.
Internal Orders and Project System WBS elements are valuable project management tools in SAP.
While Internal Orders focus more narrowly on cost control and monitoring, WBS provides a flexible multi-tiered, structured approach enabling detailed and process- integrated project planning and execution. The choice between the two depends on complexity, organizational requirements, and team expertise.
Understanding the differences and leveraging their benefits, will assist you optimize your project outcomes.
An activity type identifies activities provided by a cost center to manufacturing orders. The secondary cost element associated with an activity type identifies the activity costs on cost center and detailed reports.
Actual costing determines what portion of the variance is debited to the next-highest level using material consumption. All purchasing and manufacturing difference postings are allocated upward through the BOM to assemblies and finished goods. Variances can be rolled up over multiple production levels to the finished product.
Assembly Scrap allows you to plan for faulty or damaged assemblies.
Since no production process is perfect, some scrap is always produced. You can either scrap or rework assemblies and components that do not meet quality standards. Depending on the problem, you may scrap cheaper items and rework costly items.
Component scrap is the percentage of component quantity that does not meet required quality standards before being inserted in the production process. The plan quantity of components is increased. Component scrap is an input scrap because it is detected before use in the production process. You plan component scrap in the MRP 4 view and the Basic Data tab of the BOM item. An entry in the BOM Item field takes priority over an entry in the MRP 4 view.
SAP Goods Receipt Invoice Receipt performs a three-way match between the purchase order, goods receipt and invoice receipt.
You use the GR/IR clearing account to record the offset of the GR and IR.
You define which cost components make up a cost component split by assigning them to a cost component structure. Within the cost component structure, you assign cost elements and origin groups to cost components.
This is a material cost estimate used to calculate the standard price of a material. The cost estimate must be executed with a costing variant that updates the material master, and the cost estimate must be released. A standard cost estimate can be released only once per period and is typically created for each product at the beginning of a fiscal year or new season.
An origin group separately identifies materials assigned to the same cost element, allowing them to be assigned to separate cost components. The origin group can also determine the calculation base for overhead in costing sheets.
An accrual order enables you to monitor period-related accrual calculation between expenses posted in Financial Accounting and Controlling.
A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period-end.
Fixed assets are company-owned, long-term tangible assets, such as forms of property or equipment. These assets make up its day-to-day operations to generate income. Being fixed means they can't be consumed or converted into cash within a year.
An internal order monitors costs and revenue of an organization for short- to medium-term jobs. You can carry out planning at a cost element and detailed level, and you can carry out budgeting at an overall level with availability control.
The order type categorizes orders according to their purpose and allows you to allocate different number ranges and settlement profiles.
Periodic reposting is a posting aid that enables you to adjust postings made to your cost centers or business processes, internal orders, or WBS elements. It has the same result as transaction-based reposting. The results of transaction-based repostings have a direct effect on the actual costs of the sender and the receiver, whereas periodic repostings have a one-time effect on actual costs at period-end closing.
Postings relevant to Controlling (CO) such as telephone costs, postal charges, insurance, and so on are entered in Financial Accounting (FI) and posted to an allocation cost center or a business process. These are used exclusively for cost collection. This minimizes the number of different account assignments you have to make when entering data in FI. At the end of the period, the collected costs are reposted to the cost centers or business processes which incurred the costs by of means user-defined keys (fixed values or dynamic tracing factors)
Work in process (WIP) and variances are transferred to Financial Accounting, Profit Center Accounting (PCA), and Profitability Analysis (CO-PA) during settlement. Variance categories can also be transferred to value fields in CO-PA.
A standard hierarchy represents your company structure. A standard hierarchy is guaranteed to contain all cost centers or profit centers because a mandatory field in cost and profit center master data is a standard hierarchy node.
Statistical key figures define values describing cost centers, profit centers, and overhead orders such as number of employees or minutes of long-distance phone calls. You can use statistical key figures as the tracing factor for periodic transactions such as cost center distribution or assessment. You can post both plan and actual statistical key figures.
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In this type of internal order, the cost center is maintained in the order as the real cost object. When a transaction is posted to this type of order, the real cost is incurred by the cost center and the internal order maintains a statistical balance.
Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.
SAP Fiori is a web-based interface that can be used in place of the SAP GUI. SAP Fiori apps access the Universal Journal directly, taking advantage of additional fields like the work center and operation for improved variance reporting.
Work in process (WIP) and variances are transferred to Financial Accounting, Profit Center Accounting (PCA), and Profitability Analysis (CO-PA) during settlement. Variance categories can also be transferred to value fields in CO-PA.
A settlement profile contains the parameters necessary to create a settlement rule for manufacturing orders and product cost collectors and is contained in the order type.
A settlement rule determines which portions of a sender’s costs are allocated to which receivers. A settlement rule is contained in a manufacturing order or product cost collector header data.
You need setup time to prepare equipment and machinery for the production of assemblies, and that preparation is generally the same regardless of the quantity produced. Setup time spread over a smaller production quantity increases the unit cost.
The process of recording actual costs for cost objects, such as manufacturing orders and product cost collectors in cost object controlling, is called simultaneous costing. Costs typically include goods issues, receipts to and from an order, activity confirmations, and external service costs.
Source cost elements identify costs that debit objects, such as manufacturing orders and product cost collectors.
A source list is a list of available sources of supply for a material, which indicates the periods during which procurement is possible. Usually, a source list is a list of quotations for a material from different vendors.
You can specify a preferred vendor by selecting a fixed source of supply indicator. If you do not select this indicator for any source, a cost estimate will choose the lowest cost source as the cost of the component. You can also indicate which sources are relevant to MRP.
The standard price in the Costing 2 view determines the inventory valuation price when price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.
You supply component parts to an external vendor who manufactures the complete assembly. The vendor has previously supplied a quotation, which is entered in a purchasing info record with a category of subcontracting.
Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.
The efficiency and speed of the SAP HANA in-memory database allowed the introduction of the Universal Journal single line-item tables ACDOCA (actual) and ACDOCP (plan). The Universal Journal allows all postings from the previous financial and controlling components to be combined in single items. The many benefits include the development of real-time accounting. In this book, we discuss both period-end and event-based processing.
The valuation class in the Costing 2 view determines which general ledger accounts are updated as a result of inventory movement or settlement.
The valuation date determines which material and activity prices are selected when you create a cost estimate. Purchasing info records can contain different vendor-quoted prices for different dates. Different plan activity rates can be entered per fiscal period.
The valuation grouping code allows you to assign the same general ledger account assignments across several plants with Transaction OMWD to minimize your work.
The grouping code can represent one or a group of plants.
You use valuation types in the split valuation process, which enables the same material in a plant to have different valuations based on criteria such as batch. You assign valuation types to each valuation category, which specify the individual characteristics that exist for that valuation category. For example, you can valuate stocks of a material produced in-house separately from stocks of the same material purchased externally from vendors. You then select procurement type as the valuation category and internal and external as the valuation types.
The valuation variant is a costing variant component that allows different search strategies for materials, activity types, subcontracting, and external processing. For example, the search strategy for purchased and raw materials typically searches first for a price from the purchasing info record.
This valuation variant allows a choice of cost estimates to valuate scrap and WIP in a WIP at target scenario. If the structure of a routing is changed after a costing run, WIP can still be valued with the valuation variant for scrap and WIP resulting in a more accurate WIP valuation.
In the context of multiple valuation and transfer prices, you can define the following views:
– Legal valuation view
– Group valuation view
– Profit center valuation view
Operations are carried out at work centers representing; for example, machines, production lines, or employees. Work center master data contains a mandatory cost center field. A work center can only be linked to one cost center, while a cost center can be linked to many work centers.
Work in process (WIP) represents production costs of incomplete assemblies. For balance sheet accounts to accurately reflect company assets at period end, WIP costs are moved temporarily to WIP balance sheet and profit and loss accounts. WIP is canceled during period-end processing following delivery of assemblies to inventory.
An internal order monitors the costs and revenue of an organization for short- to medium-term jobs. You can carry out planning at a cost element and detailed level, and budgeting at an overall level with availability control.
The moving average price in the Costing 2 view determines the inventory valuation price if price control is set at moving average. It is updated during goods receipt and invoice receipt.
The periodic unit price is the price that changes within a period as a result of goods movements and invoice entries. If you have the material ledger active you can use this price to valuate a material after the closing entry at the period end.
A PA transfer structure allows you to assign costs and revenues from other modules to value and quantity fields in Profitability Analysis.
A process order is a manufacturing order used in process industries. A master recipe and materials list are copied from master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work step that defines the detail of one part of the production process using the primary resource of the operation.
In process manufacturing only phases are costed, not operations. A phase is assigned to a subordinate operation and contains standard values for activities which are used to determine dates, capacity requirements, and costs.
A production order is used for discrete manufacturing. A bill of material and routing are copied from master data to the order. A sequence of operations is supplied by the routing, which describes how to carry out work steps.
An operation can refer to a work center at which it will be performed. An operation contains planned activities required to carry out the operation. Costs are based on the material components and activity price multiplied by a standard value.
Production variance is a type of variance calculation based on the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity delivered to inventory. You calculate production variance with target cost version 1. Production variances are for information only and are not relevant for settlement.
The standard price in the Costing 2 view determines the inventory valuation price if price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You typically value manufactured goods at the standard price.
Variance analysis involves comparing actual with target costs and dividing the balance into variance categories.
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John Jordan is a seasoned SAP consultant with 20+ years of experience in SAP S/4HANA Controlling. As Lead SAP S/4HANA Controlling Consultant at ERP Corp, he specializes in seamless transitions to SAP S/4HANA, focusing on Product Costing, Material Ledger, and Margin Analysis.
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