Original Post: 2020-04
Updated: 2020-07-29 to consider 2008 EPPM & PS Functionality
One of the things that I've wanted for a while is a clearer understanding of which Lines of Businesses are best suited for which business context. Since for example, you can bill an external customer for 'services' carried out in all of the LoBs mentioned here - what is the differentiator for when you use which one?
This Blog Post attempts to clarify that - with a focus on Professional Services functionality - as the business requirements selected as questions here are those which professional services fills out.
In professional services, you are typically billing an external customer for work done (note: internal projects are also possible - this will be discussed separately).
EPPM (the LoB is also sometimes called R&D / Engineering) is the broad solution for different types of Projects. For example, Cross-Industry projects, Capital Expenditure, Research & Development Projects, IT projects, various other internal projects - this is the broad solution for those different project types. It offers multi-level hierarchy of work packages and has a heavy focus on project logistics.
Professional Services is for specific types of project based services, such as consulting projects (e.g. an ERP implementation), audit projects or tax engagements. Because these projects have specific requirements and are so frequently used, there's a specific solution that has been developed for projects of this specific type - Professional Services (sometimes called Professoinal Services Automation). With these types of projects, for example - a sales order is always created in the background - because you are always billing an external customer, and being able to staff resources is always a requirement - and so it is built into this specialized solution. In EPPM projects, you may not be billing an external customer - so you can create a sales order as a separate step, but we don't automate that for you so you have the option.
EPPM & Professional Services are therefore highly connected. There are features of the two LoBs that are the same and as of 2008 some configuration for PS is under the EPPM area of configure your solution (for the 4E9 new billing engine) - and this trend is likely to increase over time.
In addition to EPPM, you can also bill external customers in OTC (Order to Cash or Sales), Service Management and Enterprise Portfolio and Project Management (EPPM).
So, now we will highlight some specific functionalities and what is covered in the different LoBs.
All of the below functionalities ARE possible in professional services.
- Invoice an external customer for work carried out
OTC - Possible - (For stock material and non-stock material or 'services')
Service Contracts - Possible
Service Orders - Possible
EPPM - Possible as of 2005. Please see 2005 Replay for EPPM, 2005 Replay for Finance, 2008 Replay for EPPM,
- You need to staff particular individuals to carry out the work
If you need to staff named individuals 'Jeri Kang' and 'Audrey Summers' who are executing tasks to be billed. You may need to staff individuals if they are to record time they've spent working on a specific topic in order to charge the customer or record the costs of them working on that topic. Linked to individuals are various attributes of their 'level' that impacts the cost and charge-out rate for that invidivudal. This could be job level, seniority level, specific skills, the task to be carried out - or any combination of these.
OTC - Not Possible - There is no staffing or individual resource assignment
Service Contracts - Not Possible
Service Orders - Not Possible - Employees may post that the activity has been carried out, but it does not specifically identify individuals.
- You need to carry out the work to be billed over a period of time i.e. over the duration of a contract or project
Projects with a customer may run for multiple years. They include specific overseers, project team members, agreed rates, budget plans, and billing plans (e.g. we invoice you bi-weekly) that applies to the lifetime of the project.
OTC - Not Possible - In OTC your sales orders are for a specific date, but not for a date range.
Service Contract Management - Possible
Service Orders - Possible
EPPM - Possible
- You need employees to be able to post and record their time - and you record costs to your company related to that time spent
A internal consultant might 'cost' Consulting876 at a rate of 300$ per hour. If they are subcontracting a freelancer or from another company, that consultant mght cost them 400$ per hour. So, when the freelancer records 2 hours of work - Consulting876 will need to re-bill the customer for those 2 hours of work done, and also record internally that they will be due to pay the freelancer 800$.
OTC - Not Possible
Service Contract Management - Not Possible
Service Orders - Not Possible
EPPM - Possible
- Event Based Revenue Recognition
Say that Consulting876 (who has implemented S/4HANA Cloud Professional Services) has agreed with Distribution876 that they will bill them once per quarter at the end of the quarter. So on April 1st, July 1st etc. Now Consulting876 has a freelancer who has done 20 hours worth of work in January. If the freelancer's rate is 400$ per hour and Consulting876 is billing Distribution876 at a rate of 800$ per hour, then at the end of January - if you look at the project profitability - it looks like the project has incurred costs of 20hrs * 400$ = 8000$, and it has a revenue of 0$ because the customer hasn't been billed yet. So, this could give the wrong impression to management that the project is loss-making, while the reality is that 20hrs*800$ = 16,000$ has been 'earned' for the project - it just hasn't been billed yet because of that billing plan agreement.
Event Based Revenue Recognition, which is a scope item that's available to work with Professional Services, will allow the system to do a run and 'recognize' that 16,000$ in the January period. So, management reporting can see that the project 'earned' 16,000$ and not get the wrong impression of the project.
OTC - Not Possible (there is revenue recognition for stock-based items only)
Service Contract Management - Possible
Service Orders - Not Possible
EPPM - Added in 2005. Please see the Finance 2008 Delta Replay - Session 1 - 8:00 mark for more information
- Project Structure
You need to organize the work into various phases or 'work packages' that act as cost collectors, group relevant resources, and control how billing is done for each of these.
OTC - Not Possible
Service Contract Management - Not Possible
Service Orders - Not Possible
EPPM - Possible*
Of course there are various other functionalities that are available exclusively, or most effectively done - in professional services - the above are some of the standouts.
