Cost Center Master Data Design in Exploration & Production Companies

[Former Member]

You might have already noticed my previous blog on Key Master Data elements in Upstream Industry. In case you want to, you can still refer: Key Master Data Element’s in Upstream SAP Implementation

I would like to talk about more specific topic now i.e. about Cost Center Master Data Design in the Upstream Industry.

Whenever we go for any implementation we need to create the master data in this case master data being cost center.

However the following generic questions automatically comes to our mind:

· What do business mean by cost center master data & what does it represent in this particular industry in question?

· How to establish the design for the same?

· What are the dependencies?

· What is the process for Maintenance (Create/Change)?

· What are the important considerations?

Now let see how can we address these questions & considerations.

Probably its worth to know What is a Cost Center & How do we define that in Exploration & Production Companies:

The definition of cost center master data depends on where costs and revenues are incurred. Typically for an Exploration & Production companies this will highlight the lowest organizational unit like Well, department, component, prospect or portion of a pipeline or plant, well completions, segments of pipelines or facilities etc.

Now we might be in a position to appreciate the related detailed discussions for the Cost Center Master data.

Cost Center Master Data has many fields however some of the important fields that contributes to the key design considerations are as follows:

· Cost Center Category

· Cost Center Hierarchy

· Business Area

· Functional Area

· Profit Center

· Joint Venture & related fields i.e. Equity Group

Cost Center Master Data important fields

Cost Center Category:

Cost center category determines the type of cost center. It could represent division, district offices or functional departments.In upstream industry we may find the following types i.e.

· Development

· Exploration

· Production

· Facility

· Administration

· Gas Plant

· Terminals

· Marketing etc.

System wise, cost center category controls the lock indicator for different posting types and also which functional area it is linked to.

Functional Area:

By definition, Functional Area is an Account assignment characteristic that sorts operating expenses according to functions. Each industry will have its own operating expenses for example:

A major Oil & Gas Upstream company might have the functional area in the form of –

· Production Expense

· Gas Plant

· Exploration

· Seismic

· Dry Hole

· Terminals & Rail

· Abandonment

· Drilling

· Corrective Maintenance

· Preventive Maintenance

· Refurbishment

Cost Center Standard Hierarchy:

The cost center standard hierarchy in any organisation represents a roll up of the management responsibilities of the company and this is the reason why it is considered as the driving factor to prepare the management reporting.

Cost Center Standard hierarchy could as well be ideal to prepare SEC segment & divisional reporting.

Business Area:

Business Area could represent a geographical location or area in terms of country or more specifically could also represent states if we are saying about big country like USA.

Profit Center:

A profit center group can represent an asset. Many organizations aspire to have balance sheet view at the profit center level and profit center can represent:

• Gas Plant
• Pipeline
• Field etc.

Joint Venture:

We all know a joint venture partnership consists of an operating partner (operator) and one or more non-operating partners who combine monetary or personnel resources to share a project’s expenses and revenues. So it defines joint ownership associated with all operational aspects attributable to that ownership. Many a times we notice that it is typically defined at the lease level.

Now let's focus on business considerations & other important necessary details to create the Cost Center Master Data:

The trigger point to create the new cost center master data can be related to either the reason being new well coming into the picture or this is required purely due to administrative reasons.

• If it is related to new well, Land Management & Joint Venture Team comes into the picture.

• If can also be purely due to administrative reasons i.e. could be new offices, track allocations, payroll costs, general & administrative costs etc.

Approvals for creation:

• Creation of Cost Center Master Data requires necessary approvals from respective departments like Land Management, Joint Venture, Administrative/Management team’s approvals as well as approval from respective Business Unit for which the cost center is being created.

• Approval processes must be followed according to the prescribed guidelines stipulated in the organization (could be manual based on filling the form or automated method of workflow approval process).

• Approval must be provided only after proper review to ensure the accuracy & completeness of the data with which the cost center will be created in the system.

Why Land Management or Property Management comes into the picture ?

As wells will be drilled in a particular land and these could be leasehold land or own, land management team must be important one to start with.

Why Joint Venture Team ?

This team is responsible to provide the relevant details of the Joint Venture like JV Master Data, Recovery Indicator, Equity Group, JV Object Type etc. Unless JV team provides these information, it will not be possible to complete the cost center master data creation and business cannot start using this master data in system even though it’s available and created using the dummy or default venture master data.

System wise prerequisite to create Cost Center Master Data:

Before we crate the cost center master data the following settings & Master Data must be available in the system:

· Definition of the org structure (Controlling Area, Company Codes)

· Definition of Cost Center Category

· Cost Center standard hierarchy

· Functional Area

· Business Area

· Joint Venture Master Data

· Profit Center Master Data

Cost Center Master Data Change/modification:

· First: Once the cost center is created, many field value cannot be modified or changed after the postings to these cost centers are being made in the system. For example Profit Center, Joint Venture etc.

· Second: However certain field value change are allowed only after careful review of the request for change and required approval. Once the requested changes are made, notifications can be sent to all impacted parties either following the workflow process or e-mail etc. 

Important Considerations:

• Its utmost important to create the cost center with the right dependent field values for example with right profit center, right joint venture, right functional area, business area, cost center category, the reason being either we cannot modify these to make an exception to the standard process followed or sap standard has its inherent limitations.

• Its paramount importance lies in analyzing the impacts of any change or changes to the cost center master data as it could be the fact that the cost center master data is already being referenced in the other master data in the system i.e. WBS, PM Order, PO, Allocation Master data, Joint Venture Master etc.and it could also be the fact that entries already exist in the system.

• Advance notification of the communication pertaining to the changes to all impacted parties are must for any change in the field values of the existing cost center master data so that they will be in a position to apprehend the impact and circle it back to the notification source to enable the appropriate course of action i.e. whether process change is required or only master data change will suffice. Many a times the decision changes based on the impact analysis of the existing settings so evaluating the pros & cons are must.