Commitment management in sap

COMMITMENT MANAGEMENT IN SAP
COMMITMENT MANAGEMENT IN SAP TRACKS FUTURE COMMITMENTS AGAINST COST OBJECTS;
THIS ENABLES USERS TO MAKE A REALISTIC COMPARISON OF ACTUAL + COMMITTED AGAINST
BUDGET

Index to contents
The concepts1
Stages in Commitment Management2
Activate Commitment Management3

Commitment Management – The Concepts

 Commitments are costs committed to be incurred in the future for materials or services that
have been ordered or requisitioned.
 In SAP, commitment to incur costs are represented in incomplete/ undelivered purchasing
documents (Purchase Requisition, Purchase Order etc)
 The amount of commitment against the cost object cost element on which the Purchase
Order has been raised is the total amount of incomplete/ undelivered Purchase Order.
 Commitments are monitored against a combination of cost object (Cost Center, Internal
Order, Project) and cost element (GL Account). A commitment to incur costs against cost
objects can be reported against that cost object / cost element.
 Commitment amounts are available as information for reporting purposes. You cannot use
Commitment to prevent user from creating Purchase Order exceeding budget (that feature is
available as Availability Control in SAP).
 Commitment amount is calculated in Purchase Order currency. This amount is translated into
local currency, group currency and controlling area currency for reporting.
Commitment Management - the concepts

 In the context of a cost object plan/ budget, the total of commitment amount
plus the actual already spent represents the amount utilised (in SAP terms
“assigned”) against the plan/ budget. Hence, the amount of plan/ budget
available for further spend / commitment = plan/ budget – (actual +
commitment).
Commitment in a cost object
Budget
Commitment
$200
$400
Actual
$400
Available
Utilised/
Assigned
Balance
Plan=$1,000

Stages In Commitment Management Process

The Stages in Commitment Management
Create
Commitment
Use
Commitment
Fulfil
Commitment
Report
Commitment
Carry forward
Commitment
PO
created
Goods
partially
received
Goods fully
received
PROCESS
SCENARIO
Report
Commitment

 Commitments are created when purchasing documents (purchase requisition, purchase
orders) are created against cost objects (cost center, internal order and project)
 The amount of commitment created is the total value of the purchasing document/ item
assigned to the cost object.
 The system executes all commitments in the purchasing document currency. The PO currency
exchange rate is used for currency translation into the controlling area currency, company
code currency and the object / local currency.
 The following purchase order data affects the creation and reduction of purchase order
commitments:
 The purchase order value
 Delivery date
 Account assignment
 You create commitments using the expected delivery date, not the date the purchase order
was created. Hence, if purchase order was created with delivery date that falls in period
12/2011, then the commitment is created in 12/2011. The reports generated for 11/2011 will
not reflect the commitment.
How are commitment created

 If values for purchasing documents determine the reduction of a purchase
order commitment, then you need value-based commitment management.
 Set up value-based commitment management per unit of measurement in the
Customisation of Unit of Measurement.
 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.
 Goods Receipt indicator set: Commitment is reduced when goods are received.
 Goods Receipt Indicator is not set: Commitment is reduced when invoices are received.
Value-based / Quantity-based commitments

Purchase Order 4500017205 raised on CC 1324
Purchase Order
4500017205 is created
against cost center
1324. The delivery
date is 15.05.2012
which corresponds to
period 11/2011.

Commitment created on Cost Center 1324
Commitment is created
against cost center 1324
in period 11/2011

For quantity-based Commitment
◦ Upon goods receipt: For every goods receipt performed against the Purchase Order item, 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 Purchase Order item, the system reduces the
commitment value and increases the actual cost
For value-based commitment
◦ For every Invoice Receipt performed against the Purchase Order item, the system reduces the
commitment value and increases the actual cost.
How do commitment values reduce

 When “Delivery Completed” indicator is set on the Purchase Order to indicate
that no further goods receipt are expected against that Purchase Order item
 When “Final Invoice” indicator is set on Purchase Order to indicate that no
further invoices are expected against that Purchase Order item
 If you set the “lock” or “mark for deletion” indicator on the Purchase Order /
item
When do commitment values reduce to zero

Partial Goods receipt against PO 4500017205
50 units
receipted
against the
PO item

Commitment reduced in cost center 1324
Value of 50
units $1225 is
actual cost
Commitment
reduced from
$2450 to $1225
Assigned =
Actual $1225 +
Commitment
$1225 Available = Plan
$1666.66 –
Assigned $2450

Invoice receipt has no impact in quantity-based commitment

PO 450017205 marked “delivery complete”
PO marked
“delivery
complete”

Commitment set to zero in CC 1324
Outstanding
commitments from
PO 4500017205 set
to zero

Partial Invoice receipt against PO 450017207

No impact on Commitment in cost center 1325

PO 450017207 marked “final invoice”
PO marked
“final invoice”

Commitment balance set to zero in CC 1325
Outstanding
commitments from
PO 4500017207 set
to zero

Credit Memo issued against PO 4500017207

No impact on commitment CC 1325
No impact on
commitments
Actual cost
reduced by
amount of
credit note

 At year-end close of financial books, you can carry the open commitment
values from purchase requisitions, and purchase orders forward to the first
period of the next fiscal year.
 Outstanding Commitments of 11/2011 (for example) carry forward as
commitments of 01/2012.
Year-end carry forward of commitments

Year end carry forward of commitments
Example of cost center commitment carry
forward. Similarly, you can forward
commitments against Internal Orders,
Projects through separate transactions

 This report compares plan amounts against actual amounts and commitment
amounts. Balance is shown as “Available”
Report Plan against Actual and Commitment

This report compares budget amounts against actual amounts and commitment
amounts. Balance is shown as “Available”
Report Budget against Actual and Commitment

Example of Plan/ Actual/ Commitment/ Available
Quantity-based
Commitment
Management
Budget Plan
Commitm
ent
Actual
Assigned
(Actual +
Commit
ment)
Availabl
e against
plan
Availabl
e against
budget
Budget created 600,000
Plan values created 255,000
PO #1 raised 100 units @
24.50
2,450 2,450
Goods received 50 units
@ 24.50
-1,225 1,225
Invoice received 50 units
@ 24.50
Balance 600,000 255,000 1,225 1,225 2,450 18,800 597,550
PO #2 raised 100 units @
28.00
2,800 2,800
Balance 600,000 255,000 4.025 1,225 5,250 16,000 594,750

Activate Commitment Management

 Commitment Management can be activated at three levels – Controlling Area,
cost object configuration and cost object master data.
 It is recommended to always activate Commitment Management at
Controlling Area level; even if you do not intend to use it immediately.
 If Commitments Management is activated in the controlling area, then it is
automatically activated at the same time for projects.
Activate Commitment Management

 You should activate Commitment Management for Controlling Area. This will
allow you to later activate Commitment Management for cost objects, if
required
Activate Commitment Management for Controlling Area

 Select “Commitment” indicator to activate Commitment Management for all
cost centers that are assigned to this Cost Center Category
Activate Commitment Management for Cost Center categories
If the indicator is
selected, you have
activated Commitment
Management for all cost
centers assigned to this
category

 You can activate individual cost centres for Commitment Management. Do not
select “Commitment” indicator in Cost Centre categories configuration
Activate Commitment Management for individual Cost Center

 Activation of Commitment Management for Internal Orders is done at Order
Type.
Activate Commitment Management for Internal Orders

Verity provides the vision, and the framework for
a successful Finance process and technology
transformation and re-engineering.
We at Verity believe we have the experience to make success happen for our
clients. This belief comes from our track record of successfully engaging
customers in their pursuit of the best-of-class business solutions. We believe that
this search with Verity is short because of our past experience, and fruitful
because we do not simply deliver an end-result, but strive to deliver value-added
service that earns us the trust and confidence of our customers.
Verity Business Solutions

Rajesh is an accomplished and successful Finance professional with over 20
years’ experience in Finance processes and related technologies.
He is a qualified accountant, and he has worked in Finance
departments of multinational companies. With this strong
foundation in Finance, he has managed to successfully
implement best-in-class Finance processes in IT (primarily SAP).
Over the last few years, Rajesh has led Finance teams on large SAP
implementations and provided his insights and experience to provide a workable
and an improved solution for his customers. Rajesh is a SAP Certified Application
Professional.
Presented by Rajesh Shanbhag

If you want to read more tips on summarisation levels, read the blog on our
website www.veritysolutions.com.au
You can reach me:
Name: Rajesh Shanbhag
Mobile: +61 (0)4 1123 8873
Email: rajesh@veritysolutions.com.au
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Commitment management in sap

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