What is SAP PSM?

Legal compliance, transparency, documentation requirements, special processes: The public sector has specific requirements for an ERP system.

SAP PSM is able to fulfil these requirements and ensure greater efficiency at the same time.

SAP Public Sector Management (SAP PSM) is an ERP solution that was developed specifically for the requirements of public administration.

The system supports authorities and public institutions in efficiently organising their financial, administrative and operational processes. The solution also enables transparent and legally compliant management of budgets, subsidies and resources.

SAP PSM integrates seamlessly with other SAP standard modules to ensure holistic management of public administration.

SAP PSM consists of several submodules (components). These modules cover specific public administration requirements. The following are particularly relevant for German-speaking countries:

• SAP PSM-FM (Funds Management): Budget management, administration of budgets and financial resources
• SAP PSM-FM-BCS (Budget Control System): Submodule of SAP PSM-FM for planning and real-time monitoring of budgets
• SAP PSM-GM (Grants Management): Management of the entire life cycle of grants - from application to disbursement
• SAP PSM-GPR (Government Procurement): efficient processing of procurement processes in compliance with legal requirements

The most important features of these components are described in more detail below.

SAP PSM-FM is the central module for managing budgets in the public sector. The solution is also known in Germany as SAP HHM (SAP Budget Management).

SAP PSM-FM enables detailed planning, control and monitoring of financial resources as well as the management of income and expenditure within the framework of predefined budgets. Thanks to its close integration with Financial Accounting (FI) and Controlling (CO), the module ensures that the utilisation of funds is always traceable.

Automated approval processes and real-time analyses guarantee a high level of transparency and support authorities in using financial resources efficiently. The system also allows multi-year budget planning and flexible adjustments in the event of changing economic conditions.

The Budget Control System (BCS) is a submodule of SAP PSM-FM that monitors the availability of budgets in real time. It ensures that expenditure is only incurred within the authorised budget limits.

BCS also enables the automatic checking of financial transactions and thus prevents budget overruns. There are also options for simulations and multidimensional budget control. This system is particularly important for public organisations that have to comply with strict financial controls.

SAP PSM-GM supports the entire administration of subsidies and grants, from the application to the final payment. The module facilitates the tracking of funding allocations and ensures that all financial transactions are documented transparently.

Authorities and organisations can use it to efficiently manage funding programmes, meet reporting requirements and monitor compliance with funding conditions. Functions for reserving funds and budget control prevent misallocations and support legally compliant financial planning.

Thanks to integration with SAP FI (Finance) and CO (Controlling), all payments and postings are directly integrated into financial accounting, reducing the administrative burden.

SAP PSM-GPR optimises public procurement processes and ensures efficient handling of tenders, contract awards and contract management.

The module takes legal requirements into account and ensures that public institutions organise their purchasing processes in a compliant and economical manner. It includes functions for selecting suppliers, awarding contracts and processing payments, which increases transparency in procurement.

The connection to the classic ERP modules SAP MM (materials management) and FI (financial accounting) creates a continuous end-to-end process chain that extends from the determination of requirements to the final invoice payment. Automated workflows reduce the administrative workload and speed up approval processes.

Budget planning in SAP PSM is based on a multi-stage process. Firstly, budget plans are created on the basis of historical data, which depict the expected income and expenditure.

These plans are then approved, adopted and activated in the system. SAP PSM then enables budget execution to be monitored in real time and ensures that all expenditure remains within the approved limits.

The utilisation of funds can be adjusted at any time in the event of unexpected changes. The system also supports the creation of forecasts in order to better plan future budget requirements.

SAP PSM helps public institutions to organise financial and administrative processes efficiently. By utilising the various modules, administrations benefit from the following advantages:

• Automated workflows: lower error rate, accelerated processes, reduced workload for staff, better service for customers and citizens
• Better financial overview: real-time information on budget utilisation and financial resources
• Increased compliance: easier adherence to legal requirements and internal guidelines
• Transparency and traceability: detailed documentation of all transactions, thus minimising the risk of fraud

SAP PSM is closely linked to other SAP modules such as SAP FI (Financial Accounting), SAP CO (Controlling), SAP MM (Materials Management), SAP HCM (Human Capital Management) and SAP CRM (Customer Relationship Management).

This integration enables seamless control of financial and logistics processes. For example, procurement processes in SAP MM can be directly linked to budget management in SAP PSM to ensure real-time budget control. SAP PSM also supports integration with SAP Concur for the management of travel expenses.

The implementation of SAP PSM is associated with costs that vary depending on the size of the organisation and the scope of the required modules.

The costs are made up of licence fees, implementation costs, training costs and operating costs. Costs may also be incurred for customising the system to meet specific requirements.

In the long term, SAP PSM can enable considerable savings by optimising processes and reducing manual tasks.

The functions of SAP PSM also exist as an industry solution in SAP S/4HANA. For public organisations that want to switch from their previous system (SAP ECC) to SAP S/4HANA, SAP recommends switching to SAP S/4HANA Cloud for Public Sector, Public Edition due to its "cloud-first strategy".

The former modules and submodules, which are now called Best Practices under SAP S/4HANA (see next section), can also be found there.

There are basically two options for migration:

• Greenfield approach: complete new implementation of SAP S/4HANA for Public Sector
• Brownfield approach: existing system is technically converted to SAP S/4HANA

If you decide to switch to the cloud version of SAP S/4HANA for Public Sector, you can use the RISE with SAP service.

This programme includes a range of tools, services and resources that support the ERP migration. A standardised migration process also applies in this case, which covers all phases of the changeover - from as-is analysis to detailed planning and technical implementation through to the go-live.

SAP defines "best practices" as preconfigured processes that can be implemented quickly and are strongly orientated towards the practical requirements of the respective industry.

The following best practices are currently available for the public sector in Germany in SAP S/4HANA Cloud Public Edition (as at the beginning of 2025)

• Earmarked Funds (78S): Management of earmarked funds, recording and control of financing for specific purposes, integration with budget and budget management
• Fund Accounting (7AU): Mapping and management of public funds, detailed tracking of income and expenditure, support for statutory accounting requirements, integration with cash management
• Government Budget Management (6YU): Management and control of public budgets, real-time monitoring and control of financial flows, support for budget releases and approvals, automated approval processes
• Government Budget Planning (6UC): Planning and simulation of budget expenditure, Long-term budget strategy development, Integration with accounting and reporting
• Grants Management (71S): Management of grants from application to disbursement, monitoring of use of funds and compliance, automated authorisation and reporting processes

SAP offers extensive training programmes for users of SAP PSM. These include online courses, classroom training and certification programmes (for administrators and experts).

The training programmes cover all key topics such as budget management, grant management and financial accounting. In addition, numerous resources such as tutorials, manuals and webinars are available on the SAP learning platform to help users familiarise themselves with the system.