Integrated Reporting Links SAP Financial Data with Operational KPIs

Operational key figures, such as those collected by monitoring systems, are rarely used for reporting. Financial data alone provides an incomplete and misleading picture, which is why the wrong conclusions are often drawn. The solution: company-wide integrated reporting.

Annual financial statements, financial and ESG reporting are commonplace, if not mandatory, in most companies. Many use systems such as SAP Business Warehouse (BW), SAP Datasphere (formerly Data Warehouse Cloud), SAP Analytics Cloud (SAC) or the Microsoft Power Platform for this purpose.

Despite good tools and all efforts, the financial data often remains incomplete because it is not linked to the operational key figures - even though these are also recorded by manufacturing execution systems (MES).

The amount of data in companies is enormous, but it is not used. This is particularly fatal in the manufacturing industry because the real reasons for sales losses, for example, are often not recognized and the wrong measures are therefore initiated.

Deriving measures from KPIs

It is therefore important to integrate operational data into financial reporting. This allows companies to increase transparency because the true correlations come to light. Quick analyses are possible, at the end of which the right decisions can be made. 

The advantage of integrated reporting can be seen in the example of the business KPI EBIT (earnings before taxes). This KPI is regarded as a key criterion for evaluating companies, but on its own it only provides part of the truth. If EBIT falls, for example, the reason for this is not necessarily clear from the financial data alone, as other key figures also influence EBIT: Turnover (sales) may have remained the same, as may the cost of possessions (COPQ).

However, if the operational KPIs are integrated into the reporting, it is possible to dig deeper for the reason and take plant availability (OEE) into account, for example. If this drops, the reason can also be determined by looking at deeper levels. It is possible that a system breaks down frequently, which is why the OEE key figure is falling and therefore also EBIT. The right measure is then to do something about the increased wear and tear on the system. Specific measures can therefore be derived from the key financial figure EBIT, taking into account the operational KPIs.

Another example of the benefits of integrated reporting is capacity planning. If companies rely solely on the planning data in ERP, they are often planning without reality. With an integrated reporting system, capacities can be planned on the basis of "proven capacity". This means that all inefficiencies that exist in the company can be included in the planning. This allows a well-founded decision to be made as to whether a new customer order can be accepted or whether efficiency needs to be improved first. If several locations are considered, capacities can be divided up so that production runs as efficiently as possible (load balancing). As a side effect, companies achieve an optimal distribution of production risks.

Harmonize key figures

In order to be able to carry out integrated reporting, it is first necessary to merge and harmonize the key figures. For example, the same downtimes must be included in the OEE everywhere so that they are comparable throughout the company and in all data sources. The first step is therefore to define a company-wide standardized system of key figures, which should be as detailed as possible but hierarchically structured. This means that the top level already provides a good overview.

It must then be ensured that a good database is available and can be accessed. Most companies use at least Excel spreadsheets in production, into which the operational key figures are entered. Larger companies in particular record and process operating and quality data with an MES.

BW/4 Hana

The often heterogeneous data sources must then be connected to a central system and standardized in terms of data formats. In BW/4 Hana and in the Hana database itself, for example, SAP offers the option of connecting many different systems. Many companies are already using Hana to process large volumes of data in real time and also BW/4 as a data warehouse to consolidate data. Unfortunately, however, they often ignore the opportunity for integrated reporting.

Once the data sources have been connected, a data model can be created. This data model represents the digital twin. The reporting system based on it enables reliable statements to be made about the status of the company. A good level of detail must be found when creating the data model: The model must not be too coarse, i.e. it must contain all relevant key figures, but also not too detailed so as not to get lost in the minutiae.

The introduction of an integrated reporting system at company level is a challenge, but one that can be overcome with support. There are certain hurdles to overcome, particularly from a technological point of view, because there is a wide variation of systems in companies and all systems have to be connected to the central reporting system.

However, the benefits of such a system clearly outweigh the costs: Companies receive a useful tool for visualization and control; decisions are accelerated through quick analyses and clear dashboards. In addition, uniform reporting allows risks to be assessed, distributed and minimized across the entire company. 

SAP offers a number of options for implementing integrated group reporting: The spectrum ranges from on-premises solutions such as BW/4 to the cloud solutions of the Business Technology Platform (BTP) with SAP Datasphere as the back end and the classic Analysis for Office or SAP Analytics Cloud as the front end.

Integration into other platforms - such as the Microsoft Power Platform - is also possible. In addition, SAP now also has a dedicated solution for ESG reporting in the form of the Sustainability Control Tower, which makes it easy to integrate sustainability indicators.

Conclusion

With integrated reporting, companies can make sustainable use of the incredible amount of data at their disposal, obtain well-founded statements on their status and recognize correlations between individual key figures and areas.

Based on such a system, concrete measures for improvement can be derived and well-founded decisions can be made. Although the introduction of integrated reporting in a company involves a certain amount of technical effort, the benefits outweigh this.