Identify Controlling-Close Settlements 1

Terminal Learning Objective Action: Identify Controlling Close-Settlements Conditions: You are a Budget Analyst with access to a computer, the GFEBS training database, applicable GFEBS references, and awareness of Operational Environment (OE) variables and actors Standards: With a minimum of 80% accuracy, learners must demonstrate proficiency with: Determine the Controlling Close Process and it’s Relation to Settlement Rules Examine Reports Used to Facilitate Cost Variance Analysis 2

Key Terms Assessment * Distribution * Actual Price Calculation in Cost Center Accounting * Indirect Activity Allocation * Settlement * Overhead Calculation Statistical Key Figure (SKFs) * Template Allocation * Overhead * Key Terms associated with Controlling Close-Settlements: Actual price calculation in Cost Center Accounting: A GFEBS Period Closing function used to calculate actual rates based on actual costs and actual activities during a specified period.   Assessment: A type of value based cost allocation that provides summary level detail of primary and secondary costs.   Direct Activity Allocation: An allocation method where activity quantities are known and allocated based on a rate defined for the activity type. (Quantity Based) Distribution: A type of value based cost allocation that provides line item detail of primary costs. Indirect Activity Allocation: An allocation method where Activity quantities are not known. But they are determined by the system based on receiving tracing factors, weighting factors, or fixed quantities. Once the quantity is entered, allocation between sender and receivers takes place. (Quantity Based) Overhead: The overhead rate determines the extent the percentage-based or quantity-based overhead rate is applied to direct costs. It also specifies under which conditions (dependencies) the overhead rate is applied. Overhead Calculation: Overhead calculation is a cost accounting method that is similar to the cost assessment method (standard and actual costing using full costs). Costs are not split into fixed and proportional costs. The system calculates wage costs using the fixed hourly rates determined in cost center planning. This is to evaluate the activity quantity structure of the work plan. The SAP system then applies remaining overhead costs to cost collectors or products, using overhead calculation. Settlement: Settlements move costs from Internal Orders to other objects (e.g., Cost Centers or WBS Elements) based on specific settlement rules. Statistical Key Figure (SKFs): A Statistical Key Figure is a cost object that can be used as the basis for internal allocations, such as Distributions and Assessments. It represents the amounts or quantities, such as the number of employees, telephones, or computers in a particular department, or the number of square feet in a building. Target = Actual Allocation: A form of indirect activity allocation, used for cost centers and business processes. In this method, actual activity quantities to be allocated are not entered directly. GFEBS calculates this by using the plan activity inputs of the receivers. It also uses the operating rates of the cost centers receiving the activity type. Because Target = Actual Allocation is intended only for assigning actual values, activities to be allocated with this method must be assigned different activity type categories for planning and actual postings. Template Allocation: An allocation method for cost centers, activity types, and business processes that uses a template with weighting factors such as rates and percentages. (Quantity Based) Variance: The difference between planned vs. actual costs and/or outputs. Direct Activity Allocation * Variance * Target = Actual Allocation * 3

Sample Process Flow Chart: Cost Management Review FM Function Sample Process Flow Chart: Cost Management Chart located in Student Documents 4

Sample Process Flow Chart: Cost Management (Cont.) Performing Systems Review FM Function Sample Process Flow Chart: Cost Management (Performing Systems) Chart found in Student Documents 5

Controlling Close Process In Cost Management, the period end close process triggers a controlling close process. Costs are settled to their corresponding cost objects based on settlement rules that were established when the cost object was created. After costs are settled to their corresponding cost objects Variances are calculated based on planned and actual costs incurred to each cost object. Overhead and cost reports are analyzed to determine how the actual costs incurred during the period compare to the costs planned for that period. 6

Controlling-Close Process in GFEBS 7

Carry Out Account Settlement Cost posted on Internal Orders are settled back to other objects. Costs from an Internal Order are moved to other objects (e.g. Cost Centers or WBS Elements). Settlements rules are defined for Internal Orders when the Internal Orders are created. 8

Carry Out Account Settlement (Cont.) Internal Orders can be used for discrete events (with a fixed duration) or (recurring activities or tasks). This activity will initiate the settlement of costs from the Internal Order (Sending Object). Settlements are arranged in sequence to coordinate the movements of costs from the Internal Orders to other receivers (objects). 9

Distribution / Assessment There are some costs that must be distributed from cost object where the original posting was made to another cost object. Distribution: Is a type of cost allocation that provides line item detail or primary costs. Assessment: Is a type of cost allocation that provides summary level detail of Primary and Secondary costs. Overhead costs are often collected in an overhead cost collector, and then spread out across an organization’s components (Receiving Cost Centers) and outputs using predefined rules. 10

LSA #1 Check on Learning Q1: What process triggers a controlling close process? A1: Q2: T/F: Distribution is a type of cost allocation that provides line item detail or primary costs. A2: Show Slide #11: LSA #1 Check on Learning NOTE: Read and ask the following check on learning question and facilitate discussion on answers given. NOTE: The answer to each question will appear when you hit enter. Q: What process triggers a controlling close process? A: Q: T/F: Distribution is a type of cost allocation that provides line item detail or primary costs. 11

LSA #1 Summary 12

Variance Analysis 13

Calculate Variances on Cost Center and Business Processes Variance analysis enables manage to: Set planned costs by Cost Center, and Business Processes for a time period. Analyze differences between planned costs, actual costs by cost center, and business processes. Generate better costs plans, and for formulating budget requests Set tolerance limits for variances. - If a variance is above the tolerance limit set, the resource manager may examine ways to increase cost efficiency. ID potential business process improvements and to reallocate resources. 14

Variance Reports To facilitate variance analysis, several reports are used: Types of Variance Reports: -Cost Centers: Actual/Plan/Variance -Orders: Actual/Plan/Variance -Actual/Target/Variance 15

Variance Analysis Is calculated at the lowest level in the cost object hierarchy. Can be performed for individual periods or across multiple periods. Comparing cost variances over years enables operational and resource managers to evaluate progress in identifying their root causes of variance found. Plan Cost – Actual Cost = Variance (775,000.00 – 850,000.00 = -75,000.00 and the (% of difference) 16

Calculate Actual Price and Revaluate Assigned Quantities Several Army organizations charge other government organizations standard rates for work performed for example: - AMC charges standard rates for Depot Maintenance work - ATEC uses standard rates when charging customers to perform tests Real-time and accurate cost reporting allows leadership to reformulate standard rates so that they accurately reflect the cost incurred to perform a service. If the price of materials rises, organizations must be able to adjust their rates to reflect the increased cost they expect to incur. These rates are adjusted at the end of each period, but organizations can change as needed. 17

Perform Manual Posting and Corrections There are costs and pieces of non–financial data that are not stored in a system. Users can enter information in GFEBS manually to capture the full costs. - Foreign national payroll not interfacing with GFEBS will be entered manually. - Due to incorrect postings that occurred due to errors in interface files or other user errors. Only specific GFEBS users (defined by roles) will be able to manually enter postings and make corrections. 18

Cost Reporting Benefits Provides Resource and Operational manager’s greater visibility of resource usage Reduce the need for user defined data queries Provide managers with cost performance benchmarks Costs are analyzed by: Organizational Component Business Process The multiple uses of Reports: Drive management decisions Enable management to track costs at an operational level Generate data for high-level reports Two main types of reports: Cost by Reports (SSP, installation, IMCOM Regions, Brigade, and schools) Unit Cost Reports (Meals served, Repairs completed, Soldiers processed and supplies issued) 19

Update the Cost Model The Cost Model (CM) is refined and updated to reflect an organization’s business requirements. As the Army’s organizational structure and mission evolve: -Cost model is modified -New reporting requirements may arise -New master data elements may need to be added or changed -Cost allocation rules may need to be revised -Cost plans will be updated and improved The (CM) is a document maintained by DASA-CE. 20

Sending Cost Data to External Systems GFEBS sends certain Cost Data to external systems to facilitate cost analysis. Example: GFEBS sends cost data solely to The Medical Expense and Performance Reporting System (MEPRS) EASi system. 21

Conduct Practical Exercises 22 22

Walkthrough: Cost Centers: Actual/Plan/Variance Report T-Code: S_ALR_87013611 Conduct Practical Exercise 8.5 Use this procedure to generate a Cost Centers Actual/Plan/Variance report. This report can be generated by entering a cost center, a range of cost centers, cost center group, a cost element, range of cost elements, or cost element groups. A Cost Center Actual/Plan/Variance report is a standard ECC report that displays a side-by-side view of the actual and planned costs and their associated cost variance for a Particular cost center as well as a drill-down view of the originating transactions. Variance can be defined as the difference between planned and actual costs and/or Outputs. 23

Walkthrough: Orders: Actual/Plan/Variance Report T-Code: S_ALR_87012993 Conduct Practical Exercise 8.6 Use this procedure to generate Orders: Actual/Plan/Variance report. This report can be Generated by entering an order, range of orders, order group, cost element, range of cost elements, or cost element group. The Orders: Actual/Plan/Variance report is a standard ECC report that displays a side-by- side view of the actual and planned costs and their associated cost variance for a particular Internal Order as well as a drill-down view of the originating transactions. A variance can be defined as the difference between planned and actual costs and/or Outputs. 24

Walkthrough: Generate “Cost By” Report T-Code: There is not a transaction code for this transaction – instead the report is pulled out of BI Conduct Practical Exercise 8.7 Use Walkthrough User Procedure 5.1 25

Walkthrough: Generate “Unit Cost” Report T-Code: There is not a transaction code for this transaction – instead the report is pulled out of BI Conduct Practical Exercise 8.8 Use Walkthrough User Procedure 5.2 26

LSA #2 Check on Learning Q1: What happens to Internal Orders during the Controlling Close? A1: Q2: What are Internal Orders used for in GFEBS? A2: Q3: What is the Manual Direct Activity Allocation transaction used for? A3: Q: What happens to Internal Orders during the Controlling Close? A: Q: What are Internal Orders used for in GFEBS? Q: What is the Manual Direct Activity Allocation transaction used for? NOTE: Additional questions to ask the students; Q: What must have occurred in GFEBS before a Work Order can be settled to its corresponding cost object? Q: What happens to the ‘Sender’ and ‘Receiver’ cost centers (Funds) in a Manual Direct Activity Allocation? Q: Where and how often is cost analysis performed? Q: Internal Orders can be used for discrete events (with a fixed duration) or for. Q: What Army Office maintains the Cost Model (CM) in GFEBS? Q: What is the long text for the acronym “DASA-CE”? 27

LSA #2 Summary 28

Questions? 29

TLO Summary Action: Identify Controlling Close-Settlements Conditions: You are a Budget Analyst with access to a computer, the GFEBS training database, applicable GFEBS references, and awareness of Operational Environment (OE) variables and actors Standards: With a minimum of 80% accuracy, learners must demonstrate proficiency with: Determine the Controlling Close Process and it’s Relation to Settlement Rules Examine Reports Used to Facilitate Cost Variance Analysis 2