Objectives
What is Central Finance? That question has been coming up a lot. The term Central Finance is used in different context and the meaning usually depends on the context. This can lead to different understandings and expectations. Many times I also get questions like “Can I do this or that in Central Finance?” I think it is important to know what can be meant when someone talks about Central Finance. That is why in this blog I will try to answer typical questions around Central Finance. I will share my views on the different meanings of Central Finance and give you more insights into:
- Is Central Finance a system, a product or a solution?
- Is Central Finance a transition scenario to SAP S/4HANA?
- What is Central Finance in a nutshell.
Different views on Central Finance
Central Finance as a system
Let me start with a commonly used short description: SAP S/4HANA for central finance foundation (also known simply as “Central Finance”) is a S/4HANA system installed as side-car, receiving financial accounting transactions via real-time replication from SAP or non-SAP ERP source systems. So in this context Central Finance is a S/4HANA system.
Central Finance as a product
From a product point of view the software solution Central Finance is more than a S/4HANA system. It is based on S/4HANA but it comes additionally with a set of enabling technologies (like logging, replication, mapping, posting, error correction and reconciliation) and uses SLT, MDG, AIF and ALE/IDOC. It also requires minimal adaptions on source side to technically enable the source system to be connected to Central Finance. (More details I will explain later.)
Centrally deployed ERP systems for Finance have been around for a long time. Central Finance allows you to run one central platform for corporate finance across distributed landscapes. It is explicitly designed for the needs of enterprises that have multiple ERP systems in their landscape, as well as a central finance and controlling department serving all business divisions. The capabilities of the solution make it a perfect fit for a divisional setup with operational finance on the divisional level, and central financial reporting and consolidation on the corporate level. [source: Mapping Your Journey to SAP S/4HANA – A Practical Guide for Senior IT Leadership]
Central Finance as a solution
While reporting is a key value driver, the Central Finance software solution evolved from a pure advanced financial reporting system to a central transformation platform where you can execute financial processes centrally. As Central Finance is running on S/4HANA, it allows any enterprise, SAP or not, to start using S/4HANA Finance innovations. Thus, Central Finance provides a transformation platform for the digital business. In this context Central Finance is often referred as solution, that is based on the Central Finance product and includes also complimentary functionalities of S/4HANA and maybe complementary software solutions like:
- SAP Advanced Compliance Reporting (ACR) for statutory reporting,
- SAP Group Reporting for Consolidation,
- SAP Credit Management,
- SAP Collections Management,
- SAP Dispute Management,
- SAP Cash Management,
- SAP Analytics Cloud (SAC) for planning and/or analytics,
- SAP Cash Application that provides intelligence based on machine learning for your invoice and payment matching process,
- SAP Intelligent Robotic Process Automation that can automatically replicate tedious actions that have no added value
- and many more.
In a nutshell the picture illustrates the views of Central Finance as explained above:
- SAP S/4HANA as the system where Central Finance is running,
- SAP S/4HANA for central finance foundation (aka Central Finance) as a product, that is based on SAP S/4HANA and comes with additional functionalities and
- Central Finance Solution that covers additional aspects and the full scope for a Central Platform for Corporate Finance.
As the Central Finance system is a complete S/4HANA system, it can also be used to run business processes, including logistics (MM, SD, PP, etc.) for company codes that are native to the system (eg Company Code 0002). You can replicate financial postings from source systems into the Central Finance system for some company codes (eg Company Code 0001) and also run your normal business processes for other company codes that originate in your S/4HANA system, all within the same client (SAP Note 2184567, question #33). This scenario is illustrated in the following picture and shows only one possible scenario for a process split.
There are also other possible scenarios how you can split processes in Central Finance. In the end the design of your business processes depending on your business requirements makes your specific Central Finance Solution. Of course it is recommended to do a proper analysis and evaluation which business processes can and/or should be run for which company codes in Central Finance and/or in the source systems only.
Central Finance as a transition scenario to SAP S/4HANA
Central Finance is one important implementation approach towards an SAP S/4HANA-based digital core. Companies looking for a Central Finance platform can start with SAP S/4HANA for central finance foundation and plan the system conversions of each of the source SAP ERP instances later on. In this typical scenario you can transition with Central Finance to a centralized SAP S/4HANA with minimal disruption to your current system landscape.
In such a scenario Central Finance can be a “first stepping stone” in a transition to SAP S/4HANA, but not just in any landscape. As already mentioned, Central Finance is explicitly designed to run one central platform for corporate finance across distributed landscapes. Companies with a single SAP ERP instance should first focus on the standard transition scenarios to SAP S/4HANA:
- System conversion
- New implementation
- Selective data transitions
A transition with Central Finance to S/4HANA requires proper diligence and it is important to understand the capabilities and limitations in Central Finance (e.g see SAP Note 2184567, questions #7,10,12,13,14 and 35). For the SAP S/4HANA transition options a practical guide is available: Mapping Your Journey to SAP S/4HANA – A Practical Guide for Senior IT Leadership.
What is Central Finance in a nutshell
This was a quick overview and introduction to Central Finance. Let’s have a look into the capabilities of the software solution in more detail. For further details I recommend the SAP Help and the FAQ note for finding answers for Frequently Asked Questions on Central Finance:
I strongly recommend to have a look into this Central Finance FAQ note. The note is updated regularly and provides information about:
- Central Finance and its licensing
- Functionalities in scope and limitations
- Administrator’s Guide for Central Finance in S/4HANA
- Required tools and many “How to” questions are addressed
System landscape
As already said, SAP S/4HANA for central finance foundation is architecturally a new S/4HANA system receiving financial accounting transactions via real-time replication from SAP or non-SAP ERP source systems. Some source releases are supported out-of-the-box – others require additional effort – see SAP Note 2184567, question #5. For third-party system integration see SAP Note 2462424.
The graphic shows a simplified overview of Central Finance from a system landscape view. In a typical set-up, multiple source systems are connected to one SAP System Landscape Transformation (SLT) Replication Server which is connected to one Central Finance S/4HANA system ( SAP Help – Central Finance System Landscape).
The SAP S/4HANA Central Finance system receives financial accounting transactions via real-time replication from SAP or non-SAP ERP systems with a set of enabling technologies, mainly:
- Initial Data load (for historical data migration) and simulation
- Data Logging (SAP source systems)
- Real-time Replication (SAP SLT)
- Business Mapping (MDG mapping tables)
- Inbound posting
- Error correction with Application Interface Framework (AIF)
- Data Reconciliation
Central Finance offers integration to Master Data Governance (MDG) to access available mapping information there. You can map your different accounting entities (for example, account, profit center, or cost center) in your source systems to one common set of master data in the central system to establish a common central reporting structure. In order to ensure consistency within the Central Finance system some values could be overwritten although you have mapped them (eg Profit Center or AP/AR reconciliation account, see SAP Note 2184567, question #25).
Even if MDG is not in use, in the background Central Finance uses the MDG mapping tables that are available without installing MDG. Central Finance does not cover the replication of all potentially required master data, but only the replication scenarios mentioned below. The governance and distribution of additional required master data like G/L accounts, cost centers and so on can be done with MDG.
If errors occur during replication, they can be handled with the error handling tool SAP AIF (Application Interface Framework). As of release 1909 the SLT replication processes can also be monitored with Focused Run: Central Finance Operations Monitor with Focused Run
Central Finance functionalities and replication scenarios
The scope of the supported replication scenarios and functionalities increased with each release. Initially only the replication of financial postings (FI and CO documents) and cost objects (orders) were supported. With release 1909 Central Finance supports the following main replication scenarios as illustrated in the picture and summarized below. For a detailed scope and limitations of the replications scenarios including third-party systems as source system see the documentation in SAP Help:
- Replication Scenarios in Central Finance
- Third-Party System Interface to Central Finance: Process and Architecture
- Cost Objects
- Replication of orders (internal orders, production orders, product cost collectors, service/PM order, QM order, process order)
- Supported order types: SAP Note 2180924
- Changes of orders are also replicated: SAP Note 2184567, question #11
- Settlement rules are not covered: SAP Note 2184567, question #12
- Replication of sales orders is not covered (SAP Note 2184567, question #13 and #14)
- SAP Help: Cost objects mapping
- FI/CO postings
- Replication of FI postings including primary CO postings
- Postings not included see Postings Excluded from Transfer
- Postings from Accounts Payables (FI-AP) and Accounts Receivables (FI-AR): SAP Note 2184567, question #6
- Changes to a document (e.g. via transaction FB02) are also replicated: SAP Note 2184567, question #8
- Postings from fixed asset (FI-AA) from the source system currently post into the General Ledger on the reconciliation account only (SAP Note 2184567, question #7)
- CO secondary postings
- EC-PCA postings (new in 1709 FPS01)
- Replication of internal EC-PCA postings from classic Profit Center Accounting that do not flow in via FI or CO
- Internal PCA postings are posted in the Universal Journal into an extension ledger
- Supported are the following activity types posted with these transactions:
- PRC5: Profit center document entry (transaction 9KE0, 9KE9 or 1KEL)
- PCAA: Actual assessment in profit center accounting (transaction 3KE5)
- PCAD: Actual distribution in profit center accounting (transaction 4KE5)
- SAP Help: EC-PCA postings from classic Profit Center Accounting
- Commitment postings (new in 1709 FPS01)
- Replication of commitments and commitment updates for purchase requisitions and purchase orders (1709 FPS00: SAP Note 2554827)
- Commitments are also posted in the Universal Journal into an extension ledger
- SAP Help: Commitment postings
- Projects (new in 1709 FPS01)
- Replication of Projects (WBS elements) with ALE/IDOC
- Currently only the reporting scenario is supported
- Replication of networks is not included (but postings could be mapped in a BAdI)
- ALE Functionalities/limitations: ALE Work Breakdown Structure Distribution
- SAP Help: Replication of Projects
- Accounting View of Logistics Information – AVL (new with 1809 and 1909)
- Central Finance does not include the replication of logistics documents (e.g. Purchase Orders, Sales Orders, Material Documents, Delivery Documents etc.), but only the replication of a subset of certain logistic object data into new accounting view tables. The following objects are currently in scope of AVL (SAP Note 2184567, question #13):
- Purchase Order
- Supplier Invoice
- Sales Order
- Customer Invoice
- Supported fields for each logistics object in the Accounting View of Logistics Information scenario: SAP Note 2184567, question #64
- SAP Help: Accounting View of Logistics Information (AVL)
- Central Finance does not include the replication of logistics documents (e.g. Purchase Orders, Sales Orders, Material Documents, Delivery Documents etc.), but only the replication of a subset of certain logistic object data into new accounting view tables. The following objects are currently in scope of AVL (SAP Note 2184567, question #13):
- Activity Rates Replication (new in 1909)
- Activity rates are replicated together with the cost component split data
- SAP Help: Activity Rates Replication
- Material Cost Estimates (new in 1909)
- Replication of material cost estimates including the relevant procurement alternatives
- SAP Help: Material Cost Estimates Replication
The following table lists the main entities for the configuration of the replication scenarios in the SAP Landscape Transformation (SLT) Replication Server and the corresponding interfaces in the Application Interface Framework (AIF):
There are also other replication objects supported and also required for certain scenarios in Central Finance (eg for central payment):
- SEPA mandates
- Tax customizing tables
- Mandatory for VAT consistency checks which should ensure that postings that are replicated to Central Finance are consistent for the purposes of reporting tax
- SAP Note 2494127 – SAP LT Replication Server for SAP Central Finance – VAT Configuration Check for Company Codes
- SAP Help: Configuration Consistency Checks
These core functionalities and provided replication scenarios in Central Finance from a product point of view are an enabler for a Central Platform for Finance. As already mentioned, Central Finance is running on a S/4HANA system and therefore you can also use the available and compatible standard features of S/4HANA. Thus you can benefit from the well-known available innovations in Finance in S/4HANA and of course also from the S/4HANA platform, SAP HANA database and related innovations and technologies, like:
- Universal Journal, single source of truth
- Single (same) platform for transactions and analysis
- Fiori user interaction / digital age user experience
- Embedded Analytics in SAP S/4HANA
- S/4HANA Platform (Cloud connectors,…)
- Intelligent Technologies (AI/ML)
- Digital boardroom
- …
Conclusion and Outlook
In this blog I explained that a Central Finance solution is more than the Central Finance replications scenarios only. I discussed different views and I hope I could bring some useful insights into what is Central Finance.
The organization of Finance functions is an important topic in a Central Finance scenario and also discussed by Gartner: Finance function redesign starts with centralization decisions.
In my next blog I will therefore focus on central processes in Central Finance, because Central Finance evolved from a pure advanced financial reporting system to a central transformation platform where you can execute financial processes centrally. Thus, the question arises:
Which processes can be executed centrally in Central Finance alternatively or complementary to process execution in source ERP systems?
