Finext helps the CFO by providing toolkits to get finance professionals ready with tomorrow's solutions. Our Cost and Profitability team uses SAP Profitability and Performance Management (PaPM) as part of this toolkit to help companies understand customers, costs and performance. PaPM processes distributed data sources, performs complex calculations and reduces calculation times to just seconds - giving companies real, live insight into profitability and performance. We interviewed Alwin Dooijeweerd, Senior Business Analyst at Finext to discuss SAP PaPM, its role in finance departments and how it fits into our portfolio.
What is SAP PaPM?
Profitability and Performance Analytics plays a role in performing profitability calculations with large amounts of data. Previously, companies used Excel or some other simple tool to process this data. Today, cloud tooling means many different distributed data sources with large amounts of data. PaPM can take that data from SAP and non-SAP sources, perform complex big-data calculations and leverage various reporting capabilities to answer even the most complex questions about performance and profitability.
Moreover, it is possible to send PaPM results back to the original source systems or to a new platform. "PaPM actually started as a collaboration between Nexontis (a subsidiary of msg) and SAP - a customer of an insurance company wanted to calculate profitability per policy. As you can imagine, given the huge number of policies within an insurance company, that was a lot of data. They developed a solution in the SAP HANA environment." Alwin says, "That tool was then used for performance and profitability management as SAP FS-PER and then renamed PaPM." Today, it is a mature product with more than six years of experience. It also functions as a stand-alone product or as an add-on to your existing SAP S/4HANA system.
Why SAP PAPM?
PaPM is a computational tool that allows you to analyze the profitability of products, services, customers and markets. It can help companies set goals, perform profitability analysis and make business decisions based on data. "PaPM enables advanced calculations at a level not previously supported by SAP. PaPM shifts the focus to data, using standardized calculations - which really sets itself apart from other alternatives on the market for SAP users who typically have significant amounts of data. "SAP PaPM runs on HANA, with no proprietary data storage, so you get the data from the source systems. That reduces time-consuming and error-prone data replication, while data can come directly from the sources, either through direct SAP source systems or through APIs. And because you always calculate based on 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 just an entity or business unit. Creating insight into profitability by product/article/sales region means looking at data points such as revenue, direct costs, cost of sales, marketing costs and general compensation costs across the value chain. Having the advanced tools to do this gives you a good idea of what the costs should be - so you can start setting profitability goals." - necessary to adjust forecasts and insights as needed.
Choosing a Profitability and Performance solution
SAP PaPM is just one of a number of profitability and performance management tools. Most are the best fit for different types of organizations. "Depending on the company and their needs, we use other tools such as Costperform, Oracle EPCM, etc., in addition to PaPM. Even if you use SAP, PaPM may not be the best choice. That's why we always do a needs analysis to make sure you get a good match." Alwin says, "For example, some companies have too much overhead; allocating those costs is very important, this is where a tool like Costperform might be a better fit. 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 and a lot of sales data. PaPM fits this well because it was developed for this purpose. However, you may have a different need, so we will always look at these needs before recommending a solution."
Getting started with SAP PaPM
Getting started with PaPM means you want to have the right setup from day one. "Once you have the desired formula(s), you can use them to compare results over a longer period of time. But if you make adjustments and/or changes later, you can't compare the new calculations to the old ones. So you really want to set everything up as well as possible the first time." Alwin adds: "That also plays into the fact that you don't really want to doubt whether the calculations are correct. These results go to the C-level, to the board of directors. They are used to make real business decisions. You want to question what the data mean for the company - not whether or not the outcomes are correct."
"At Finext, we support to set up the formulas together. Together with the controller, the strategic consultant and the business consultant. You have to rely on the data and therefore you don't want to doubt the calculation rules used."
If you would like to learn more about SAP PaPM or which tool best suits your organization's cost and profitability management needs, we would be happy to help!
