Capital Optimization in Investment Activities with SAP Bank Analyzer.

Dear,
The concept of Capital is deeply related to the concept of Risk. Risky activities consume more capital than safe ones. 

Investing is one of the most risky activities of the financial system. As difference to lending, where repayment cash-flows are determined by the contract conditions, investors’ returns depend on the profitability of the investment, which by nature are non-deterministic.

There’s the common misconception that SAP doesn’t have strong solutions for Investment Management, but this has more to do with lack of knowledge about the capabilities of the SAP business suite than with the reality.

Managing an Investment has two components; Operational and Analytical.

- The Operational Component includes the activities which assure the efficient execution of the Investment Project, including logistics requirements, milestones, control of costs and execution times, etc.

- The Analytical Component includes the budgeting and accounting activities of the Investment, including the Capital Management Activities.
SAP Enterprise Core Components has offered Investment Management functionalities for many years; including their seamless integration with the Projects System, Materials Management, Sales and Distribution and Plant Maintenance Modules.

I personally implemented the SAP Investment Management functionalities in several clients more than 10 years ago.

On the other hand, the SAP ECC modules lack in strong Capital Management functionalities of the Investment Projects, and this is a very important handicap in times of Capital scarcity.

Fortunately, this limitation can be easily solved by integrating the Investment Management functionalities of SAP ECC with the Capital Management functionalities of SAP Bank Analyzer.

Typically, the Investment Process starts with the definition of an Investment Program in SAP ECC, which is the hierarchical definition of the Investment Positions.

Every Investment Position is assigned to One or Several Investment Orders, Work Breakdown Structures or Appropriation Requests (which at the end will be Investment Orders or Work Breakdown Structures).

The Investment Orders and Work Breakdown Structures, represent containers of the Investment Program Cash-Flows.

And this is the key integration point between SAP ECC Investment Management and SAP Bank Analyzer.

In Bank Analyzer we also have a standard Primary Object for containing Cash-Flows, which is the Financial Transaction.

Replicating the Orders and Work Breakdown Structures, as Bank Analyzer Financial Transactions, will put the Bank Analyzer Capital Management functionalities at disposal of the Investment Program requirements.

Every Order, Work Breakdown Structures and Financial Transaction represents a collection of expected cash-flows, which have a probability of becoming actual cash-flows, according to the risks associated to the Investment Position.

Giving to Bank Analyzer the relevant probabilities of default and expected volatilities of the expected cash-flows, the Risk engines will provide the capital costs associated to the investment positions, and the Fair Value of the investment positions.

Although powerful market risk engines (including Value at Risk calculations) are still not available in the current versions of Bank Analyzer, it’s just a matter of time that they’re included in new releases.

During the execution of the Investment Project, actual flows will be posted in the Orders and Work Breakdown Structures, these flows will be transferred to Bank Analyzer as Business Transactions adjusting the Fair Value and Capital consumption of the correspondent Financial Transactions.

Efficient Capital management is the most critical activity of the new Financial System that will emerge of the current systemic crisis.

The SAP business suite can be a very important asset in this situation, but we need to improve the market recognition of its capabilities.

Looking forward to read your opinions.
K. Regards,
Ferran.