Revenue Planning and Preinvestment Analysis 

Use

Preinvestment analysis provides support and documentation for the approval process for planned capital investments.

Features

Preinvestment analysis in the SAP R/3 System relates to the variants of appropriation requests. Along with expected costs, you can enter the expected revenue for the investment in the appropriation request variant (on the Variants tab page, choose the Planning tab page). You can enter planned revenue on an annual basis, the same as planned costs (refer to Cost Planning ).

You have to estimate expected revenue as a lump sum amount. At the present time the system does not offer functions for determining expected revenue.

Preinvestment Analysis Figures

On the basis of planned costs and revenue, the system calculates the net present value and the discounted cash flow rate of an appropriation request variant. It enters these preinvestment analysis figures in the detailed master data screen of the appropriation request variant. You can call up the function for this in the same screen. The system uses a yield curve to calculate the net present value. You define the yield curves you want to use in Customizing (under Planning). For each currency, you can specify a yield curve for bid and a yield curve for ask figures.

You also specify the value date that the system uses for determining the net present value and the discounted cash flow rate. You can enter this date in Customizing for each appropriation request type. You can change the value date at any time. Changes do not affect net present values that were already calculated. They do not take effect until you call the function in the master data transaction again.

 

Calculation of Net Present Value using Yield Curve

Calculation Formulas

The system calculates the net present value (C) using the following formula:

C = S (R - Cs) / (1 + i) ** Y

R = annual revenue
Cs = annual costs
i = interest in yield curve (bid or ask, depending on whether R - Cs is positive or negative)
Y = years in which costs, revenue or both are planned The system calculates the total based on the formula for these years.

The system calculates the discounted cash flow rate (Cr) using the following formula:

Cr = C / Ci

Ci = capital employed = S C / (1 + i) ** Y (the system calculates the total for the formula using planned costs or revenue over the course of the years)

Manual Specification

If you do not use revenue planning, you can enter the estimated net present value and discounted cash flow rate in the master record manually.

Additional Key Figures

In addition to the net present value, you can enter the following preinvestment figures manually in the master record of the appropriation request variant:

· Internal rate of return

· Payback period

Calculation of Preinvestment Analysis Figures

Choose to have the system calculate preinvestment analysis figures based on plan values (on the Preinv. analysis tab page).

Verbal Assessment

You also have the option of entering a score and a verbal assessment for the appropriation request variant. You define the allowed scores in Customizing (Master Data ® Define allowed values for certain master data fields ).

Activities

You can calculate preinvestment analysis figures either individually, or for multiple appropriation requests at the same time. Choose the Calculate preinvestment analysis figures function.

SAP supplies two standard yield curves: 9990 (bid) and 9991 (ask).

You have to copy these yield curves from client 000 to your working client.

If these yield curves are not in the system for some reason, you can create them in Customizing for Investment Management. (Choose Appropriation Requests ® Planning ® Specify Yield Curve for Determining Net Present Value).