Business Area Vs. Profit Center Vs. Profitability SegmentAdded by Guest, last edited bykrishna priyaon 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 specific business segment or area of responsibility. Identification of business area helps in segment reporting of a company in its financial statements. Business areas can be identified based on the products of the company or based on geographical area.

Profit centers are internal areas of a company that have the responsibility for achieving target profits or productivity goals.

The objective of business area is more for reporting purposes whereas profit center allows to analyse areas of responsibility and to delegate responsibility to decentralised units (ex: the various divisions within a company). Thus, profit center are basically treated as "companies within a company" and ensures effective control.Profitability Segment corresponds to market segment. The market segments can be defined as products, product groups, customers, customer groups, geographic areas, etc. For example, a company may wish to analyze profitability for a specific group of products that the company sells to a particular customer (or group of customers). When setting up CO-PA, the company will have broad flexibility to choose whichever characteristics are relevant for defining the company's market segments. Each unique combination of characteristic values (e.g. sales of product A to customer X) defines a profitability segment.

Another viewpoint:Difference between Profit Center and Business Area

Business area will have many profit centers. For example Vehicle is a business area in a company. Vehicle can be cars and Bikes etc. Here Vehicle is business area and Cars and Bike are profit centers. In broad Vehicle is a profit center. But as it has sub areas those are profit centers. So profit centers cannot be replaced with business area and vice versa. We can replace business area by Profit centre, only condition is that it should be in same controlling area. The business area is more like a business unit of a company. You can have multiple profit centers within a business area.

Main distinguish factor is that distribution and assessment is possible in profit center but not in business area.

One more distinction is that Business area need not be attached to any organisation structure. But profit centres can be created only under the controlling area. Business area can be across controlling area.

Business area concept is used for making strategic decisions by the management whereas the primary purpose of profit centre accounting is responsibility accounting.

Link in HELP:http://help.sap.com/saphelp_erp2005/helpdata/en/ff/277203deea11d3b5b4006094b9b0a5/frameset.htmGuest

The decision was made to pursuethe PCA approach as per SAP Note 321190, which was released in 2002, to do no further development for business areas, and to focus future development on profit centers, although FI-BA would continue to be supported. The rationale behind this suggestion was that EC-PCA had significantly better functionality than FI-BA. For example, EC-PCA has its own allocations, separate ledger, hierarchical reporting, transfer pricing, profit center substitution rules, and integration with planning and SAP Strategic Enterprise Management (SEM)The accounting principlesGAAPandIASrequire Organizations to maintain segment reporting. You can define segments in your SAP system. You find the appropriate IMGactivity in SPROEnterprise Structure>Definition> Financial Accounting>Define Segment.

You can enter a segment in the master record of aPROFIT CENTER. The characteristic SEGMENT is only released in combination with the characteristic PROFIT CENTER. If no segment is specified manually during posting the segment is determined from the master record of the profit center.

The business area is linked to other organizational units like

Plant

Division

Distribution channel

Cost centerBoth can be used and both have different purposes. Segment is attached to Profit Center Master. This is ideally used for Segmental Reporting

Business area is attached to objects like Plant, Assets, Cost centers. Primarily used for global reporting which can also be used for Segmental reporting.

If your requirement is to get Segmental reporting of two products PLUS you also want to get Regional reporting, then Define two products as Profit Centre & Segment and assign your Plants to Business areas, this way you will get both

Simply speaking, if you need your financial statements on 3 dimensions, then use PC, Segment, BA together.... SEGMENT is nothing but a collation of various PC... It is as good as a Profit center group

One more explanation: Business area is used for financial reporting on a more detailed level than company code...it is focused on financial statements more for an external reporting point of view...in my implementation experience in several projects / companies never saw the need to use it...

Segments or profitability segments are used in CO-PA...this is used for analysis of profitability as the name suggests, like analysis of margins for combinations of products/customers...a segment is a combination of characteristics, like one customer, one product, one region and the postings of revenues are assigned to that segment (for example for a sales order)...this allows you to do analysis on margins slicing the information on specific segments

This is useful but if you are starting would probably use BW instead to build this kind of analysis...

Finally, profit center would be the normal choice for business group / business unit / product line reporting and the basis for a management consolidation system...this is where you create profit centers that represent your internal units and can derive them for every posting. A P&L can be built on each profit center and selected balance sheet items can be assigned to profit centers (assets, payables, receivables)

Anyway, more info on help.sap.com - check entries under FI-GL - Business Area and the CO-PA and the EC-PCA

Please see the below sites for complete documentation

Segment:

http://help.sap.com/saphelp_erp2005vp/helpdata/en/6d/11743cdcf47b4ee10000000a11405a/frameset.htm

Business Area:

http://help.sap.com/printdocu/core/Print46c/en/data/pdf/FIBUSI/FIBUSI.pdfDocument splitting:

http://help.sap.com/saphelp_erp2005vp/helpdata/en/58/24d24047dd702ae10000000a155106/frameset.htm

http://help.sap.com/saphelp_erp2005vp/helpdata/en/1c/2ed140ed61712ae10000000a155106/frameset.htm