Commitment Management in SAP #1 An Overview

Overview

Commitment Management in SAP tracks future commitments against cost objects; this enables users to make a realistic comparison of actual cost plus committed cost against plan / budget on that cost object. Commitments are made when user creates purchasing documents to purchase goods or services at a future date. Comparing actual against budget is misleading unless you factor in the outstanding commitments that will convert to actual cost in the future.In this blog, I will provide an overview of Commitment Management in SAP.

 

Blogs on Commitment ManagementIn my series of blogs on Commitment Management, I intend to explain and elaborate the concepts behind Commitment Management. I will demonstrate how Commitment Management works in SAP.

To identify the series of blog, I have categorised the blogs under SAP > Commitment Management in SAP. If you have questions/ comments/ suggestions, please send me your comments in the form below. Sharing your questions and experience using comment box below will help other readers to gain additional knowledge involved in this functionality.

Share this blog with your network using one of the social media icons at the top or bottom of this page.

#1 Commitment Management in SAP #1 An Overview (24/05/2012)

#2 Commitment Management in SAP #2 The process (31/05/2012)

#3 Commitment Management in SAP #3 Activation (07/06/2012)

#4 Commitment Management in SAP #4 Limitations (14/06/2012)

 

Assumption for this blog

The blog refers to Cost Center as the cost object. However, any reference to Cost Center will apply similarly to Internal Order and Project as Cost Objects.

 

Commitment ManagementCommitment represents a future cost committed against cost object. Cost Commitments occur when a purchasing document (like a Purchase Requisition, Purchase Order) is issued to a vendor for provision of goods or service. If purchasing document is issued specifically against a (for example) cost center, the value of the purchasing document will represent a legal and binding commitment to incur costs in future against this cost center.

If a purchasing document is issued for purchase of goods for stock, these are not commitments against a cost object; hence, such documents will not form part of Commitment Management functionality in SAP.

SAP tracks Commitments against cost objects for information and reporting purposes only. You cannot directly use commitments to prevent user from creating more commitments (or creating more Purchase Orders) against the specific cost object (that feature is falls under Availability Control in SAP).

Commitments representing unfulfilled Purchase Orders will add to the commitment amount against the cost object; commitments are incurred in the transaction currency of the purchase order and are then converted to local, group and controlling area currency for reporting.

 

The process of Commitment ManagementCommitment amounts flow through 5 stages:

Create Commitment Use Commitment

Fulfil Commitment

Report Commitment

Carry Forward Commitment

 

Create Commitment

Commitments are created against cost center when purchasing documents are issued for delivery of goods or services to that cost center. The commitment amount is the amount of the Purchase Order in purchase order currency. SAP converts this transaction currency to Local Currency, Group Currency and Controlling Area currency.

 

Use Commitment

Commitments are used or Commitment amounts are reduced when the goods or services against these purchase orders are received. If the goods or service receipt is a partial receipt, then the balance on the purchase order is the outstanding amount of commitment.

 

Fulfil Commitment

If the goods or service receipt is a full receipt against the Purchase Order or completes the delivery against the Purchase Order, then the balance on the purchase order is zero and the commitment is fulfilled and the outstanding amount of commitment is zero.

 

Report Commitment

Commitment amount is information available for reporting. SAP has standard reports that compare the cost object budget against actual and commitment.

 

Carry-forward commitment

At the year-end, customers should carry forward the outstanding commitments to the next fiscal year. Commitments are carried forward to the first fiscal period of the next fiscal year. For example, outstanding commitment of period 11/2011 is carried forward as commitment of period 01/2012.

 

The semantics of Commitment Management

Plan / Budget are developed on individual cost objects as part of the regular budgeting cycle. Having a plan / budget is not pre requisite to using Commitment Management in SAP.

Commitment represents the outstanding amount of undelivered or unserviced on the Purchase Order. For a newly created Purchase Order, it is the full amount of Purchase Order. Commitment amount includes delivery charges but does not include input taxes. In other words, costs that will post against cost elements in Controlling form part of Commitment amount.

Actual cost is posted against cost centers when the goods are delivered or services performed against the Purchase Order.

The total of commitment cost and actual cost represents the utilised (“assigned” in SAP terms) amount against the cost center.

The balance of amount in budget un-utilised or over-utilised is the “available” amount against budget.

 

 

 

Quantity-based or Value-based Commitment Management

For purchase orders based on quantity procured, the goods receipt or invoice receipt reduces the commitment value and increases the actual cost. For this you need quantity-based commitment management. On the Purchase Order:• Goods Receipt indicator set: Commitment is reduced when goods are received.• Goods Receipt Indicator is not set: Commitment is reduced when invoices are received.

If values for purchasing documents determine the reduction of a purchase order commitment, then you need value-based commitment management.

 

Commitment Reporting in SAPStandard SAP reports can be used to report commitments against actual and plan. Below is an example of a report.

 

 

Plan amounts have been updated against the cost center 1323 as part of the planning cycle.

At the time this report was executed, the cost center has incurred actual costs of $1.225 against cost element 621030.

There are outstanding Purchase Orders worth $ 4,025 against the same cost element.

This means that the total “assigned” or utilised amount against cost element 621030 in cost center 1323 is $ 5,250 ($1,225 + $ 4,025).

This compares to plan amount of $ 2,083.24. The available amount is (negative) $ 3,166,66. This means that the cost center 1323 has over spent an amount of $ 3,166.66 against cost element 621030 for “third party fees” compared to the plan.

 

ConclusionCommitments do not prevent user from creating more commitments against budget /plan. However, this is an important feature in SAP because it gives users real time information of how far they have spent against plan. It helps them plan and measure how much more commitments they can make before they exhaust the budget.

Commitment Management in SAP is an easy-to-setup and easy-to-use feature in SAP. In the next blog, I will demonstrate how Commitment Management works in SAP.

Commitment Management in SAP #2 The process

Overview

Commitment Management in SAP tracks future commitments against cost objects; this enables users to make a realistic comparison of actual cost plus committed cost against plan / budget on that cost object. Commitments are made when user creates purchasing document to purchase goods or services at a future date. Comparing actual against budget is misleading unless you factor in the outstanding commitments that will convert to actual cost in the future.In this blog, I will demonstrate the process of (or the stages in) Commitment Management in SAP.

 

Blogs on Commitment ManagementIn my series of blogs on Commitment Management, I intend to explain and elaborate the concepts behind Commitment Management. I will demonstrate how Commitment Management works in SAP.

To identify the series of blog, I have categorised the blogs under SAP > Commitment Management in SAP. If you have questions/ comments/ suggestions, please send me your comments in the form below. Sharing your questions and experience using comment box below will help other readers to gain additional knowledge involved in this functionality.

Share this blog with your network using one of the social media icons at the top or bottom of this page.

#1 Commitment Management in SAP #1 An Overview (24/05/2012)

#2 Commitment Management in SAP #2 The process (31/05/2012)

#3 Commitment Management in SAP #3 Activation (07/06/2012)

#4 Commitment Management in SAP #4 Limitations (14/06/2012)

 

Assumption for this blogThis is the second blog in the series of blog on Commitment Management. It is a good idea to read the previous blog before you read this blog.

The blog refers to Cost Center as the cost object. However, any reference to Cost Center will apply similarly to Internal Order and Project as Cost Objects.

 

The process of Commitment ManagementCommitment process flows through 5 stages:

Create Commitment Use Commitment

Fulfil Commitment

Report Commitment

Carry Forward Commitment

 

 

Create Commitment

Commitments are created against cost center when purchasing documents are issued for delivery of goods or services to that cost center.

There are three factors in a Purchase Order that affect creation of commitments:

Purchase Order value: The commitment amount is the amount of the Purchase Order in purchase order currency. SAP converts this transaction currency to Local Currency, Group Currency and Controlling Area currency.

Account Assignment: Only Purchase Orders against cost centers, internal orders and projects create commitments. The commitment is created in combination of that cost object and the corresponding cost element specified in the Purchase Order

Delivery Date: Commitment will only reflect in the period in which the commitment is due for delivery. For example, if the delivery date on a Purchase order falls in period 12/2011 and you execute the commitment report for period 11/2011, this Purchase Order will not reflect as a commitment.

Below is an example of a Purchase Order against cost center 1324

 

The cost center report reflects the commitment amount, which is the amount of the Purchase Order.

 

Use Commitment

Commitments are used or Commitment amounts are reduced when goods or services against these purchase orders are received. If the goods or service receipt is a partial receipt, then the balance on the purchase order is the outstanding amount of commitment.

Upon goods receipt: For every goods receipt performed against the cost object, the system reduces the commitment value and increases the actual cost

Upon invoice receipt (where “Goods Receipt” indicator is not set on Purchase Order): For every invoice receipt performed against the cost object, the system reduces the commitment value and increases the actual cost

I performed a partial goods receipt against the Purchase Order 4500017205 that I had created above.

 

 

This partial goods receipt (amount $1,225) reduced the amount of commitment and increased the amount of actual cost.

 

Fulfil Commitment

The commitment amount reduces to zero in the following situations:

If the goods or service receipt is a full receipt against the purchase order, then the balance on the purchase order is zero and the commitment is fulfilled and the outstanding amount of commitment is zero.

When “delivery completed” indicator is set on the Purchase Order to indicate that no further goods receipt are expected against that Purchase Order item

I will set the “delivery completed” indicator on the Purchase Order line item to indicate that the balance of 50 units will not be delivered.

 

This released the amount of commitment and set the commitment from this Purchase Order to zero.

 

When ”Final Invoice” indicator is set on Purchase Order to indicate that no further invoices are expected against that Purchase Order item. This has the same effect as setting the “Delivery Complete” indicator. It resets the commitment amount to zero.

I created a Purchase Order 4500017207 with no GR required. After a partial invoice, I will set this Purchase Order to “Final Invoice”.

 

 

This will release the commitment and set the balance to zero.

 

 

If you set the “lock” or “mark for deletion” indicator on the Purchase Order / item

 

Report Commitment

Commitment amount is information available for reporting. SAP has standard reports that compare the cost objects budget against actual and commitment. There are several standard reports. Below are two commonly used reports.

You can do this from

Controlling > Cost Center Accounting > Information Systems > Plan/Actual Comparisons > Cost Centers: Actual/Plan/Commitments

 

Plan amounts have been updated against the cost center 1323 as part of the planning cycle.

At the time this report was executed, the cost center has incurred actual costs of $1.225 against cost element 621030.

There are outstanding Purchase Orders worth $ 4,025 against the same cost element.

This means that the total “assigned” or utilised amount against cost element 621030 in cost center 1323 is $ 5,250 ($1,225 + $ 4,025).

This compares to plan amount of $ 2,083.24. The available amount is (negative) $ 3,166,66. This means that the cost center 1323 has over spent an amount of $ 3,166.66 against cost element 621030 for “third party fees” compared to the plan.

You can also execute the report to compare budget against commitment and actualControlling > Cost Center Accounting > Information Systems > More Reports > Range: Actual/Budget/Commitments

 

There are further reports to list Commitment line items. You could drilldown to this line item report from any of the above reports.

If you want to create your own report and use Commitment as a field in that report, then Commitment amount is available as a field in Library xxx Table xxxx

 

Carry-forward commitment

At the year-end, customers should carry forward the outstanding commitments to the next fiscal year. Commitments are carried forward to the first fiscal period of the next fiscal year. For example, outstanding commitment of period 11/2011 is carried forward as commitment of period 01/2012.

You can do this from

Controlling > Cost Center Accounting > Year-End Closing > Commitment Carryforward

 

 

ConclusionThe process to create and fulfil or carryforward commitments is very simple. The transaction to post Commitment occurs in the background as users process business transactions. Commitment values are then available as information for reporting purposes.

 

Commitment Management in SAP is an easy-to-setup and easy-to-use feature in SAP. In the next blog, I will explain the steps to activate and configure Commitment Management.

Commitment Management in SAP #3 Activation

Overview

Commitment Management in SAP tracks future commitments against cost objects; this enables users to make a realistic comparison of actual cost plus committed cost against plan / budget on that cost object. Commitments are made when user creates purchasing document to purchase goods or services at a future date. Comparing actual against budget

is misleading unless you factor in the outstanding commitments that will convert to actual cost in the future.In this blog, I will provide an overview of the steps to activate and configure Commitment Management in SAP.

 

Blogs on Commitment ManagementIn my series of blogs on Commitment Management, I intend to explain and elaborate the concepts behind Commitment Management. I will demonstrate how Commitment Management works in SAP.

To identify the series of blog, I have categorised the blogs under SAP > Commitment Management in SAP. If you have questions/ comments/ suggestions, please send me your comments in the form below. Sharing your questions and experience using comment box below will help other readers to gain additional knowledge involved in this functionality.

Share this blog with your network using one of the social media icons at the top or bottom of this page.

#1 Commitment Management in SAP #1 An Overview (24/05/2012)

#2 Commitment Management in SAP #2 The process (31/05/2012)

#3 Commitment Management in SAP #3 Activation (07/06/2012)

#4 Commitment Management in SAP #4 Limitations (14/06/2012)

 

Assumption for this blogThis is the third blog in the series of blog on Commitment Management. It is a good idea to read the previous two blogs before you read this blog.

The blog refers to Cost Center as the cost object. However, any reference to Cost Center will apply similarly to Internal Order and Project as Cost Objects.

 

Activate Commitment Management

Commitment Management is, generally, activated at three levels:

Controlling Area Cost Object Configuration and/or Cost Object Master Data

 

Activate Commitment Management for Controlling AreaCommitment Management should be activated at Controlling Area level before it can be activated for cost objects.

From IMG Path[IMG] Controlling > General Controlling > Organization > Maintain Controlling Area

 

 

Activate Commitment Management for Cost CenterFor Cost Centers, you can activate Commitment Management by cost center categories. If Commitment Management is activated for a specific cost center category, then all cost centers

created under this category are automatically activated for Commitment Management. This is useful if (as an example) you want to track Commitments for all cost centers assigned to “Management” cost center category.

From IMG Path[IMG] Controlling > Cost Center Accounting > Master Data > Cost Centers > Define Cost Center Categories

 

Alternatively, you can activate Commitment Management by individual cost center. In this case, the user should switch the indicator on cost center master to activate Commitment Management for that cost center.

 

 

Activate Commitment Management for Internal OrdersCommitment Management can be activated for Internal Order Types in the configuration.

From IMG Path[IMG] Controlling > Internal Orders > Commitments and Funds Commitments > Activate Commitments Management

 

 

Activate Value-based Commitment ManagementIf values for purchasing documents determine the reduction of a purchase order commitment, then you need value-based commitment management. To activate value-based Commitment Management, switch on the indicator in the Unit of Measurement configuration.

In the IMG Menu[IMG] SAP Netweaver > General Settings > Check Unit of Measurement.

 

ConclusionOther than the above activation steps, there is no other configuration required to use the functionality of Commitment Management. Commitment data will stack up in data tables in the background as users process front-end transactions. This data can be used for reporting.

If standard Commitment Management reports do not suit your requirements, you can create new reports using Report Painter/ Report Writer or in your Business Intelligence tool using standard SAP data library.

Commitment Management in SAP is easy to setup and offers useful features. In the next blog, I will reveal some tricky issues faced by SAP customers; I will also list certain limitations in Commitment Management functionality in SAP that you need to be aware of.