SAP S/4HANA Finance

What is SAP S/4HANA Finance?

SAP S/4HANA Finance is a financial application in the SAP S/4HANA ERP platform. It is designed to remove traditional barriers between transactional, analytics and planning systems to provide instant insights and on-the-fly analysis using all levels of financial data.

The product consists of a set of interconnected accounting and financial management functions that process real-time data from the business applications in an S/4HANA ERP system. A decision-maker, for example, can use it to model financial scenarios and build forecasts.

Previously called SAP Simple Finance, SAP S/4HANA Finance was the first ERP component, or module, released for S/4HANA. It is aimed at financial professionals in all industries, including CFOs and others involved in accounting, taxes, treasury, financial operations, risk management and compliance. The user base ranges from small companies to Fortune 100 enterprises worldwide, according to SAP.

S/4HANA Finance architecture

SAP S/4HANA Finance is part of S/4HANA, which is built on SAP HANA, an in-memory database platform. By storing data in the computer's main memory rather than on disks, in-memory databases allow faster queries and can analyze more information in a timely way than the traditional databases that typically serve as the data repository of an ERP system. With HANA at its foundation, S/4HANA integrates cross-organizational functions such as accounting and procurement into one system that combines records of business transactions with analytics.

The front end of SAP S/4HANA Finance is built on SAP Fiori, the vendor's user experience platform. Fiori uses a simple, consumer-style and tile-based design that can be viewed on various desktop and mobile devices.

The Universal Journal is probably the most important differentiating aspect of the S/4HANA Finance architecture. It is essentially a single data table that stores all of the financial information in an S4/HANA system. Older ERP systems usually have numerous general ledgers, each with a limited number of fields that can't be changed. The Universal Journal, in contrast, centralizes ledger data in a single chart of accounts, which helps to unify multiple ERP systems, according to SAP. The fields can be modified, and there can be as many records as needed to capture all the data. Some companies have billions of records in their Universal Journal.

The Universal Journal also provides a normalized data set, which avoids the need to reconcile data and makes reporting easier, the vendor claims. In addition, this feature supports machine learning, which often requires large sets of normalized data on which to "learn." For example, S/4HANA Finance could learn what mistakes a user typically makes and approve a payment instead of waiting for the user to complete the steps they probably intended.

When S/4HANA Finance is deployed on a central server, it can function as a hub for financial data from multiple systems, including different ERPs. In such cases, it is called Central Finance. Both names are widely used, and it is easy to confuse them. Put simply, S/4HANA Finance is the accounting and financial management module of S/4HANA, while Central Finance (sometimes referred to as CFIN) is a centrally deployed S/4HANA Finance module augmented with data integration software to connect it to other systems. To paraphrase the words of an SAP official, S/4HANA Finance is the what, and Central Finance is the how.

Another architectural innovation of S/4HANA Finance is that it merges the separate financial accounting (FI) and controlling (CO) modules of the SAP ERP products that preceded S/4HANA. According to Oona Flanagan, author of the book A Practical Guide to SAP S/4HANA Financial Accounting, prior to S/4HANA, recording revenue or cost items required creating a general ledger account in the FI module along with a matching cost element in CO. In S/4HANA Finance, cost items are recorded in the general ledger's master data records along with revenue items.

What are the benefits and drawbacks of SAP S/4HANA Finance?

The main advantage of SAP S/4HANA Finance is how it combines processing speed with integrated features for various financial functions, such as financial accounting and management accounting. Because of this, S/4HANA Finance allows for much faster reconciliation of financial processes such as the quarterly close, and provides a single source of financial truth for the organization, according to SAP.

Another key advantage is the ability to use real-time data with analytics to model and predict the impact of changes that a company may want to make, such as acquisitions. This can enable financial professionals, including CFOs, to play a more prominent role in corporate decisions.

SAP claims that S/4HANA Finance's consolidated financial data and real-time analytics provide additional benefits to users, including the following:

• the ability to keep existing systems in place when deployed as Central Finance, thereby minimizing disruptions without the need to change master data;
• partial automation of finance processes;
• use of financial best practices;
• more standardized business processes; and
• lower total cost of ownership.

However, the main technical and architectural advantages of S/4HANA Finance -- its unified financial database and integrated transactional, analytics and planning applications -- are arguably its biggest drawbacks because they require organizations to make major changes in how they manage their finances.

A typical challenge is having to decide which data and processes to move from an older ERP system to a greenfield deployment of S/4HANA Finance. It's necessary to first examine the quality of the data and determine whether the organization has the financial and human resources to move to the new system. Most S/4HANA Finance adopters must also decide whether to reduce the number of accounts in their chart of accounts, which can number in the thousands.

Also, according to the Deloitte consulting firm, there are limitations on the types of data Central Finance can support. It recommends performing due diligence to ensure that the product fits the organization's needs.

S/4HANA Finance deployment options

SAP S/4HANA Finance, like S/4HANA as a whole, can be deployed on premises, in the cloud or in hybrid environments.

However, Central Finance is only available in a private cloud, an approach that allows companies to migrate to S/4HANA at their own pace with a system that can adjust to their changing needs, according to SAP.

Another deployment option is the S/4HANA Finance module that comes with S/4HANA Cloud, the multi-tenant SaaS version of S/4HANA. It might appeal more to organizations that want more standardization of their financial processes, potentially faster deployment and access to advanced features like AI and predictive analytics.

S/4HANA Finance migration options

Many organizations have used a Central Finance implementation as a first step to an eventual migration of their entire ERP system to S/4HANA. Accounting is considered a "back-end" business function that doesn't change as much as front-end processes like sales and supply chain management. It's relatively easy to swap out a company's finance function while leaving the others intact, according to SAP.

Organizations have other good reasons to deploy S/4HANA Finance or Central Finance, according to Deloitte. They typically want to improve their financial reporting, planning and analytics, centralize their financial processes, or more efficiently handle financial transactions and functions, such as payments, cash management and accounting.

Central Finance's consolidation of financial transactions from legacy ERPs in a single table with a normalized data set allows organizations to harmonize their finance data, which is often a first step in a broader digital transformation initiative in finance, according to Deloitte. The other financial systems don't need to be converted and can stay in their existing environments.

SAP S/4HANA Finance versions and release cycle

S/4HANA Finance releases are part of the release cycle of S/4HANA. As of 2020, there is one major release a year and each one is numbered according to the year it comes out. Prior to that, the product names combined the year and month. S/4HANA Cloud gets additional quarterly updates.

What are new features in SAP S/4HANA Finance?

The SAP S/4HANA 2021 release has numerous new features for the S/4HANA Finance module and its treasury management, financial planning and analysis, and revenue management functions. One of the most significant was integrating the SAP Integrated Business Planning (IBP) module with the financial planning features in SAP Analytics Cloud, the vendor's SaaS analytics platform. SAP said the new capability will improve the accuracy and efficiency of profitability planning for demand plans created in IBP. The 2021 release also has new monitoring and alert features, as well as intelligent automation for financial close, invoice reconciliation and order-to-cash processes.