Business Area Vs. Proft Center Vs.

Proftability
Segment
Added by Guest, last edited by krishna priya on Oct 20, 2008 (view change)
What is the difference between Business Area, Profit center & Profitability
Segment?
Business area is an organisational unit which corresponds to the speciic business seg!ent
or area o responsibility" #dentiication o business area helps in seg!ent reporting o a
co!pany in its inancial state!ents" Business areas can be identiied based on the products
o the co!pany or based on geographical area"
$roit centers are internal areas o a co!pany that have the responsibility or achieving
target proits or productivity goals"
%he ob&ective o business area is !ore or reporting purposes whereas proit center allows
to analyse areas o responsibility and to delegate responsibility to decentralised units (e'(
the various divisions within a co!pany)" %hus, proit center are basically treated as
)co!panies within a co!pany) and ensures eective control"
$roitability *eg!ent corresponds to !arket seg!ent" %he !arket seg!ents can be deined
as products, product groups, custo!ers, custo!er groups, geographic areas, etc" +or
e'a!ple, a co!pany !ay wish to analy,e proitability or a speciic group o products that
the co!pany sells to a particular custo!er (or group o custo!ers)" -hen setting up .O/$A,
the co!pany will have broad le'ibility to choose whichever characteristics are relevant or
deining the co!pany0s !arket seg!ents" 1ach uni2ue co!bination o characteristic values
(e"g" sales o product A to custo!er 3) deines a proitability seg!ent"
Another viewpoint(
Difference between Profit Center and Business Area
Business area will have !any proit centers" +or e'a!ple 4ehicle is a business area in a
co!pany" 4ehicle can be cars and Bikes etc" 5ere 4ehicle is business area and .ars and Bike
are proit centers" #n broad 4ehicle is a proit center" But as it has sub areas those are proit
centers" *o proit centers cannot be replaced with business area and vice versa" -e can
replace business area by $roit centre, only condition is that it should be in sa!e controlling
area" %he business area is !ore like a business unit o a co!pany" 6ou can have !ultiple
proit centers within a business area"
7ain distinguish actor is that distribution and assess!ent is possible in proit center but not
in business area"
One !ore distinction is that Business area need not be attached to any organisation
structure" But proit centres can be created only under the controlling area" Business area
can be across controlling area"
Business area concept is used or !aking strategic decisions by the !anage!ent whereas
the pri!ary purpose o proit centre accounting is responsibility accounting"
8ink in
518$( http(99help"sap"co!9saphelp:erp200;9helpdata9en992<<20=deea>>d=b;b?00@0A?b
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Guest
The decision was made to pursue the PCA approach as per SAP Note 321190, which was
released in 2002, to do no further development for usiness areas, and to focus future
development on profit centers, althou!h "#$%A would continue to e supported& The
rationale ehind this su!!estion was that 'C$PCA had si!nificantl( etter functionalit( than
"#$%A& "or e)ample, 'C$PCA has its own allocations, separate led!er, hierarchical reportin!,
transfer pricin!, profit center sustitution rules, and inte!ration with plannin! and SAP
Strate!ic 'nterprise *ana!ement +S'*,
%he accounting principles GAAP and AS re2uire Organi,ations to !aintain seg!ent
reporting" 6ou can deine seg!ents in your *A$ syste!" 6ou ind the appropriate
#!G activity in SP"# 1nterprise *tructureBCeinitionB +inancial AccountingBCeine
*eg!ent"
6ou can enter a seg!ent in the !aster record o a P"#$% C&'%&"" %he characteristic
*1G71D% is only released in co!bination with the characteristic $EO+#% .1D%1E" # no
seg!ent is speciied !anually during posting the seg!ent is deter!ined ro! the !aster
record o the proit center"
%he business area is linked to other organi,ational units like
$lant
Civision
Cistribution channel
.ost center
Both can be used and both have dierent purposes" *eg!ent is attached to $roit .enter
7aster" %his is ideally used or *eg!ental Eeporting

Business area is attached to ob&ects like $lant, Assets, .ost centers" $ri!arily used or
global reporting which can also be used or *eg!ental reporting"

# your re2uire!ent is to get *eg!ental reporting o two products $8F* you also want to get
Eegional reporting, then Ceine two products as $roit .entre G *eg!ent and assign your
$lants to Business areas, this way you will get both

*i!ply speaking, i you need your inancial state!ents on = di!ensions, then use $.,
*eg!ent, BA together"""" *1G71D% is nothing but a collation o various $.""" #t is as good as
a $roit center group
One !ore e'planation(
Business area is used or inancial reporting on a !ore detailed level than co!pany code"""it
is ocused on inancial state!ents !ore or an e'ternal reporting point o view"""in !y
i!ple!entation e'perience in several pro&ects 9 co!panies never saw the need to use it"""

*eg!ents or proitability seg!ents are used in .O/$A"""this is used or analysis o
proitability as the na!e suggests, like analysis o !argins or co!binations o
products9custo!ers"""a seg!ent is a co!bination o characteristics, like one custo!er, one
product, one region and the postings o revenues are assigned to that seg!ent (or e'a!ple
or a sales order)"""this allows you to do analysis on !argins slicing the inor!ation on
speciic seg!ents
%his is useul but i you are starting would probably use B- instead to build this kind o
analysis"""

+inally, proit center would be the nor!al choice or business group 9 business unit 9 product
line reporting and the basis or a !anage!ent consolidation syste!"""this is where you
create proit centers that represent your internal units and can derive the! or every
posting" A $G8 can be built on each proit center and selected balance sheet ite!s can be
assigned to proit centers (assets, payables, receivables)
Anyway, !ore ino on help"sap"co! / check entries under +#/G8 / Business Area and the
.O/$A and the 1./$.A
$lease see the below sites or co!plete docu!entation
*eg!ent(
http(99help"sap"co!9saphelp:erp200;vp9helpdata9en9@d9>><?=cdc?<b?ee>0000000a>>?0
;a9ra!eset"ht!
Business Area(
http(99help"sap"co!9printdocu9core9$rint?@c9en9data9pd9+#BF*#9+#BF*#"pd
Cocu!ent splitting(
http(99help"sap"co!9saphelp:erp200;vp9helpdata9en9;892?d2?0?<dd<02ae>0000000a>;;>
0@9ra!eset"ht!
http(99help"sap"co!9saphelp:erp200;vp9helpdata9en9>c92ed>?0ed@><>2ae>0000000a>;;>
0@9ra!eset"ht!