There are many benefits to SAP S/4 HANA for existing SAP customers. However there is the inevitable challenge of migrating and upgrading existing systems. Especially in a complex legacy landscape this can be a risky and costly Endeavor. In this post I will explore the benefits and challenges of using “Central Finance” as a stepping stone to an S/4 HANA implementation.S/4 HANA in brief
SAP
is in the process of releasing components of S/4 HANA for customers. Simple
Finance is the first functional component with Simple Logistics expected in the
near future. The vision behind this new tool is that SAP has re-engineered
their business application suite to take full advantage of the performance
benefits of the HANA database. This enables a tool that works more truly in
“real time” and integrates operational reporting with business process. The
main architectural difference is a radical simplification of the data base
structures removing aggregates. This reduces the database footprint; but more
importantly allows “HANA Live” reports to function in real-time.
SAP Central Finance
One
element of the SAP S/4 HANA story that has been exciting interest amongst clients
is “Central Finance” (previously known as central journal).Central Finance is
not a new product from SAP; nor does it really provide functionality that was
previously unavailable, but it can be seen as an approach to adopting SAP
S/4 HANA. The approach, instead of forcing customers to migrate to the SAP HANA
Database and the S/4 application, allows finance documents to be replicated
into a new Central Finance instance that running on S/4 HANA. This is
particularly relevant in an organization where there are multiple older SAP ERP
instances or other Finance applications outside of SAP.The story goes like
this: “Central Finance” exploits SAP HANA’s real-time capabilities to replicate
financial documents into the central instance as they are posted, giving a real
time organization-wide finance view. There is minimal impact to the underlying
source systems which are Central processing (e.g. cross system allocations and
inter company reconciliation) can be immediately moved to the central instance
achieving immediate benefits, but further functionality can then be migrated
piece by piece into the central instance: credit control, and outgoing payments
would be good early candidates, because of the potential financial benefits of
consolidating these activities. Eventually all finance functionality can be
moved into the central instance and the source financial systems turned off.
This presents a lower risk approach to migrating to S/4 HANA at least from
older source platforms.
Central Finance Approach – Challenges
From
a business perspective there is a challenge around how to justify the
additional cost associated with a central finance approach. The additional cost
is associated with the fact that there will be two systems running to reflect
financial transactions rather than a single one. This means that for a period
of time it is necessary to maintain and support both legacy and new central
finance system.The central finance system will be running on SAP HANA, so the
license uplift will already have been incurred before existing systems and
hardware are decommissioned. This cost needs to be weighed against the benefits
of the transparency of having financials in a single location and the risk
mitigation associated with the gradual upgrade to S/4 HANA functionality. The
business case therefore has to be carefully weighed.Many of the IT benefits of
moving to SAP S/4 HANA are associated with the smaller footprint that comes
from removing aggregate tables. For this reason, the business case associated
with a central finance migration should rely more heavily on business benefits
rather than cost reductions in IT.
Technical Complexity
As
well as continued maintenance on the central finance system and the source
systems; a number of other components are necessary; including the SLT server
which is best hosted on a separate instance, as well as associated updates to
the source systems. These include installing data replication components at the
technical level, but also a number of functional level upgrades. Whilst SAP argues
that the impact on source systems is “minimal”, a number of SAP notes need to
be imported into the source systems in order to allow documents to be
replicated from source to target. If all source systems are on recent releases
and support packs are up to date then this shouldn’t be a challenge, but if not
there are can be a large number of dependencies. This can quickly lead to a
situation where source systems will need to be comprehensively regression
tested adding cost and risk to the project.
Required Capabilities
There
is a need for a capability to be built in the SLT server. This is relatively
straightforward and should be absorbed into the existing BASIS provider, but
further competence in Master Data Governance (MDG) must also be built, both technical
and from a business perspective. This is a great opportunity to address a
common weakness in master data in the organization, but it has to be seen as
part programme. If the mappings in MDG are tacked on as an afterthought there
is a risk that benefits will not be achieved.
Architectural Concern on the Central
Finance Approach
It
moves away from the ideal of a single source of truth. Financial statements
could in theory be drawn up in one of two locations either in the source
systems or in the central finance system. If financial statements are drawn up
from the source systems potentially the outcome of allocations or
reconciliations performed in the central system need to be passed back into the
source systems. If statements are derived from the central systems, the system
of record may have changed, and in this case integration to consolidation
systems may also need to change.Central Finance represents an intriguing route
to ERP system consolidation and migration to SAP S/4 HANA at low risk. It
delivers benefits throughout the project, however the devil is in the detail
and the following items should be clearly addressed
- Business case clearly balancing the cost of working in multiple systems against th benefits.
- Budget for patching and regression testing source systems.
- Clear Master Data Governance Strategy and capability plan.
- Architectural and integration plan for the consolidated solution.
The Central Finance route won’t be for everyone, but in
cases where an over-complex SAP estate exists on a variety of source versions,
it may prove to be the most effective mechanism to generate some of the
benefits of SAP S/4 HANA at an early stage, while (eventually) simplifying the
overall estate.Want to learn complete details and implementation of SAP
S/4 HANA, then join Learn IT Training today.
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