Finext is dedicated to providing tools for the office of the CFO - helping to empower finance professionals with next-generation tools. Our Cost and Profitability team leverages SAP Profitability and Performance Management (PaPM) as part of its toolkit to help businesses understand customers, costs, and performance. PaPM handles distributed data sources, performs complex calculations, and reduces calculation times to mere seconds - giving businesses real, live insight into profitability and performance. We interviewed Alwin Dooijeweerd, Senior Business Analysist at Finext to discuss SAP PaPM, its role in financial departments, and how it fits into our portfolio.
What is SAP PaPM
Profitability and Performance Analytics takes on the role of managing profitability calculations at a large scale. Previously, businesses would use Excel or another simple tool to handle this data.
Today, cloud tooling means distributed data sources and high volumes of data. PaPM can take in that data from SAP and non-SAP sources, perform complex calculations at volume, and leverage multi-method reporting to provide insights into even the most complex performance and profitability questions. Plus, PaPM pushes results back to either the original source systems or to a new platform.
"PaPM actually started out as a collaboration between Nexontis (a subsidiary of msg) and SAP - an insurance company client wanted to calculate profitability per policy. You can imagine, with the huge number of policies within an insurance company, that was a lot of data. So, they developed in the SAP HANA environment." Says Alwin, "That tool was then leveraged for performance and profitability management as SAP FS-PER and then rebranded into PaPM."
Today, it's a maturing product with over 6 years under its belt, it also functions as either a standalone product or as an add-on to your existing SAP S/4HANA system.
Why PAPM?
PaPM is a calculation tool that you can use to analyze the profitability of products, M&A activities, customers, and markets. It can help businesses set targets, analyze profitability, and make business decisions based on data.
"PaPM enables formal and sophisticated calculations to a level not previously supported by SAP. PaPM shifts the focus to data, using standardized calculations - which, for SAP users who typically have significant amounts of data, really stands out from other alternatives on the market."
SAP PaPM works on HANA, without its own data storage, so you pull from source systems. That reduces time-consuming and error-prone data replication - while allowing you to pull data from all your sources either via direct SAP source systems or API. And, because you're always calculating with the same SAP standards, you can perform those calculations in minutes or even seconds.
"If you want to influence costs or profitability, you have to look at data on more than an entity/business unit/corporate level. "
"If you want to influence costs or profitability, you have to look at data on more than an entity/business unit/corporate level. Creating visibility into profitability per product/item/sales region means looking at data points like sales, direct costs, sales expenses, marketing expenses, and general offset expenses. Having the sophisticated tooling to do so will allow you to get a good view of what costs should be - so you can start setting profitability goals".
"Because PaPM allows you to perform those calculations in a few minutes at most - you can recalculate as-needed to adjust predictions and insight on an as-needed basis so you can continue to see how these adjustments influence outcomes."
Choosing a Profitability and Performance Solution
SAP PaPM is just one of a number of profitability and performance management tools. Most of them are a best fit for different types of organizations.
"Depending on the company and their needs, we use other tools like BBM, Oracle Iberian, etc., as well as PaPM. Even if you're on SAP, PaPM might not be a best-fit, so we always conduct a needs analysis to ensure you get a good fit." Says Alwin, "For example, some companies have an overload of overhead costs - allocating those costs is very important. You might want to go with Iberian for that use case. On the other hand, if you have a lot of data across multiple databases, the number of products supported and the number of calculations supported is more important - and that's where PaPM really stands out."
"Most SAP customers have a lot of data, with ERP systems in place and a lot of sales data - PaPM is often a good fit because it's designed for that use case. However, you might have a different situation, so we'll always look at your needs before recommending a tool."
Getting Started with PaPM
Getting started with PaPM means getting your setup right and from day one.
"Once you have your formula(s) in place, you can use those to compare results over the longer period.
"Once you have your formula(s) in place, you can use those to compare results over the longer period. But, if you have to go back and tweak and or make changes later, you can't compare new calculations to the old. So, you really want to get setup right the first time". Alwin adds, "That also plays into the fact that you really don't want to have to question whether the calculations are correct. These outcomes are going to C-level, to the board of directors, they're being used to make real business decisions, you want to question what the data means for the company - not whether the data is valid."
At Finext, we aim to help you develop those formulas with the controller, the strategic consultant, and the business consultant. You have to trust the data, which means you need a good formula."
If you'd like to learn more about SAP PaPM or which tooling best suits your organization's cost and profitability management needs, we're happy to help. Get in touch to schedule a call or coffee at our office.
