¶ Cost Centers and Internal Orders in SAP ECC
In SAP ECC Controlling (CO) module, Cost Centers and Internal Orders are fundamental tools for managing and monitoring costs within an organization. Both are used to capture, allocate, and control expenses, but they serve different purposes and provide varied levels of detail and flexibility in cost tracking.
Understanding the roles and differences of cost centers and internal orders is essential for efficient cost management and financial controlling in SAP ECC.
A Cost Center is an organizational unit within a company that incurs costs and is responsible for controlling those costs. Cost centers typically represent departments, production units, service areas, or locations where costs originate.
- Cost centers are permanent cost objects.
- Used to collect and monitor costs related to a particular area or function.
- Facilitate budget planning, allocation, and variance analysis.
- Costs posted to cost centers can be allocated to other cost objects later using assessment or distribution cycles.
- Production department
- Marketing department
- IT services
- Maintenance team
- Provides transparency about where costs occur.
- Helps managers monitor and control departmental expenses.
- Supports internal reporting and budgeting.
An Internal Order is a flexible controlling object used to track costs and revenues related to specific jobs, tasks, or projects. Unlike cost centers, internal orders are temporary and often short-term in nature.
- Used for monitoring costs for specific projects, events, or activities.
- Can capture both planned and actual costs.
- Provides detailed cost tracking and analysis at a granular level.
- Can be settled to cost centers, assets, or profitability segments at the end of the order.
- Organizing a corporate event
- Research and development projects
- Equipment repairs or maintenance jobs
- Marketing campaigns
- Allows detailed tracking of costs for specific initiatives.
- Supports budgeting and cost control on a project basis.
- Helps evaluate project profitability and performance.
¶ Differences Between Cost Centers and Internal Orders
| Feature |
Cost Center |
Internal Order |
| Purpose |
Permanent cost control |
Temporary project or task tracking |
| Lifecycle |
Long-term |
Short-term, project-based |
| Cost Allocation |
Collect costs by department |
Collect costs for specific jobs |
| Settlement |
Not settled, costs remain |
Costs settled to other objects |
| Usage |
Ongoing operational activities |
Specific projects or events |
| Budget Management |
Budget allocated to cost centers |
Budget can be assigned to orders |
- Financial Accounting (FI): Costs incurred via FI postings can be assigned to cost centers and internal orders.
- Materials Management (MM): Procurement costs can be assigned to cost centers or internal orders.
- Production Planning (PP): Production costs are often posted to cost centers.
- Asset Accounting (AA): Internal orders may be settled to asset accounts if related to capital expenditure.
¶ Creating and Managing Cost Centers and Internal Orders
- Transaction code: KS01
- Define organizational data, controlling area, cost center category, and validity dates.
- Assign responsible persons and other attributes.
- Transaction code: KO01
- Specify order type, controlling area, and description.
- Set budget and settlement rules as applicable.
¶ Monitoring and Reporting
- Use standard SAP reports such as S_ALR_87013611 (Cost Center Reports) and S_ALR_87012993 (Internal Order Reports).
- Track actual vs. planned costs and analyze variances.
Cost Centers and Internal Orders are essential cost controlling tools in SAP ECC that help organizations monitor, allocate, and manage expenses effectively. While cost centers provide a stable structure for ongoing operational cost control, internal orders offer the flexibility needed for detailed project and task-specific tracking. Mastery of both objects enables better financial management, accountability, and decision-making within SAP environments.