What is an Internal Order?

What is an internal order? Find out in this excerpt from Practical Guide to SAP® Internal Orders (CO-OM) by Marjorie Wright.

Internal orders are cost objects in Controlling-Overhead Management. These cost objects are intended to be used as “temporary cost collectors” for short-term projects or events in the organization. They are not as structured or permanent as cost centers. There is no standard hierarchy for internal orders; however, they can be grouped to meet individual requirements. All the control parameters of these cost objects are determined by the order type — which is configurable.

Compared to cost centers, internal orders are far more flexible and can be utilized to meet many business requirements.

Internal orders have an advantage over cost centers in that we can plan, budget, and use availability control. This allows us to monitor spending for these projects or events by comparing spending to plan, as well as limiting spending against a budget. Think of this as plan equals funds approved and budget equals funds appropriated. These are often different values.

Internal orders again differ from cost centers in their ability to collect cost and revenue and to utilize results analysis to determine profitability.

As business transactions are posted to internal orders, we can analyze that activity in real time by using reports in the information system. From a single report, we can branch to additional reports and accounting documents, as well as view the source document.

At the end of a period, amounts can be allocated from orders to other cost objects by the settlement process. Settlement may be quite simple (to one receiver), or more complex (using extended settlement to allocate to multiple receivers using several tracing factors). Periodic reposting can also be used to allocate cost from internal orders using, for example, statistical key figures.

Internal orders can also be used as statistical cost objects. In this case, there is no further allocation or settlement. We will look at these in more detail in the Special Topics chapter.

Business Scenarios
SAP supports four distinct business scenarios for internal orders:

• Overhead orders — these are used to monitor spending until their settlement to one or more cost objects.
• Investment orders — these are used to monitor spending until their settlement to an asset or assets.
• Accrual orders — these are used to offset accruals made only in Controlling (an uncommon use).
• Orders with revenue — these are used when Sales and Distribution is not implemented, and/or to monitor cost and revenue for noncore business activity.

This text will explore overhead orders.

Why would an organization use an Internal Order?
These are a few examples of when the use of internal orders may be required:

• If you are managing cost for a company event, the final cost of which will be divided among cost centers.
• If you want to track spending for a major repair, the final cost of which will be settled to a product line.
• If you are responsible for a fleet of service vehicles, the final cost of which should reside on a single cost center.
• If you are managing a capital project with a finite budget.
• If you need to measure revenue and cost for a nonstandard event.

Each of the above examples would require:

• An order with control parameters set for actual/plan cost, and a settlement rule or a periodic reposting cycle to cost centers.
• An order with control parameters set for actual/plan cost, and a settlement rule to a profitability segment.
• An order with control parameters for statistical cost, and a real cost-center assignment.
• An order with an investment profile, a budget, and availability control.
• An order with control parameters for revenue, and perhaps a sales order line item assignment.

As you can see, the combinations and possibilities are quite flexible.

Keeping reading…

This SAP Controlling (CO) book walks readers through the fundamentals of internal orders in SAP ERP as cost objects, as well as the benefits of period settlement. Dive into master data configuration for creating orders types and status management and learn how to create a master record. Get step-by-step guidance on how to do daily postings in internal orders with and without revenue and learn how to use commitments. Obtain expert advice on period end close, including the settlement profile, allocation structure, source structure, and results analysis. Find out what your SAP reporting options are and learn how to leverage summarization hierarchies in SAP CO. By using practical examples, and SAP screenshots, the author brings business users new to internal orders up to speed on the fundamentals. Experienced SAP users will benefit from the expert tips and configuration requirements.

• Concepts and daily postings to internal orders
• Master data configuration
• Streamlining period-end close activities
• Reporting options and summarization hierarchies in SAP CO

Author Marjorie Wright is an accomplished subject matter expert, author, and speaker, and is the founder of Simply FI-CO, LLC, a boutique SAP training consulting company. She is an education consultant in the components of financial accounting, management accounting, and financial supply chain management. With more than 25 years of training and accounting experience across multiple industries, she has conducted training for more than 3,500 learners in various environments.