We have good news and bad news
As you might have heard, SAP has a new ERP suite - S/4HANA. While the thought of migrating your company to an entirely new ERP may seem like bad news to some, it’s actually far from it.
In this post, we will discuss S/4HANA in more detail, exploring the unique value it creates for utilities by bridging the gap between financial and regulatory objectives, along with the benefits of using a Central Finance approach to transition to S/4HANA.
The good news
S/4HANA has substantial business benefits. Leveraging in-memory computing, it reduces data redundancy and allows for real-time, instant drill down into figures that impact both the financial and regulatory planning process. For example, when an invoice gets posted to the financial ledger, it can automatically be reconciled and converted into regulatory reports, where performance-to-plan can then be analyzed at a line-item level, without the need to duplicate data.
the bad news
It’s naive to think there won’t be headaches and growing pains with the transition to S/4HANA. Every organization’s IT infrastructure and business requirements are unique, and it’s impossible to know every issue that will arise before the migration – but this isn’t new to anyone.
So how do you maximize the good and limit the bad?
Most ERP transitions start with finance, which makes intuitive sense, but migrating to S/4HANA via a “big bang” approach only works for some. For many utilities, it’s better to utilize a piecemeal approach, realize incremental business value, and see what issues arise.
Enter Central Finance
Central Finance provides the ability to transition to S/4HANA, without disrupting your existing financial systems and processes.
In the most basic sense, it creates a sidecar S/4HANA environment that leverages replicated data in real time – providing the ability to realize the business benefits of a unified journal entry system sooner, with lower risk.
A Unique Business Case for Utilities
For utilities, balancing financial and regulatory objectives can be extremely challenging – and the root of this issue largely stems from the inability to trace cost flows at an enterprise level.
There are a vast amount of financial systems and processes in place at most companies, which help automate many aspects of financial reporting and monitoring. In contrast, most regulatory and FERC reports are created manually in Excel or through outdated modules, based on data from disparate financial plans and systems. This makes it difficult to track how a single invoice or new cost item impacts the company holistically – ranging from internal budgets, financial performance, to regulatory estimates. This issue also creates rate case delays, which costs utilities millions every day.*
Reducing Regulatory and Administrative Lag
Rate cases generally take between six and twelve months to complete. During this time, in most jurisdictions, the utility is prohibited from modifying its prices, yet costs continue to change and investment occurs.
This lag can cause gaps in the ability of utilities to prudently recover incurred costs or, depending on the circumstances, may cause costs in the test year to be overstated. (Source: EEI) To address this, utilities have rapidly increased the amount of rate cases they conduct, as shown in the chart below.
However, when regulators and interveners have questions during a rate case (such as, “we want you to reconcile your chart of accounts and your FERC account”), it can still take weeks or more to trace figures back to find that detail – and every day of delay matters.
Now, with the introduction of S/4HANA and our FINREG solution, utilities can:
- Get ahead of rate cases by monitoring performance metrics in real-time
- Perform much more complex what-if analysis to develop and defend forecasts
- Automate many aspects of regulatory reports and filings, saving time and improving accuracy
- Reduce the effort required to create a rate-case
- Respond to intervener questions faster, with more comprehensive information using the traceability functionality
And that’s just the beginning
That’s just one component of the value S/4HANA provides. For more information on S/4HANA, Central Finance, and our FINREG solution, set up a demo using the link below:
* For every $50MM in requested rate increases, every day of regulatory lag results in $137K of additional costs.