Since cost control and cost reduction are of importance to increase profit or to stay within funding (government), more and more organisations want to have a better control on their Procure to Pay (P2P) stream. Procure to Pay is the whole process from purchasing goods/services until paying the invoices. One of the instruments to help doing so is Commitment Control.
This article explains what commitment control is, and what impact it has on an organisation.
What is Commitment Control?
PeopleSoft Commitment Control is a functionality that keeps track of all transactions in the P2P stream, starting from the requisition until the entry of a voucher. When the (purchase) budget is recorded in Commitment Control, the functionality deducts every transaction from that budget and it can give a signal (depending on the choice of setup options) when you run out of budget (this is called “budget control”). The latter is very useful because you can not complete the transaction, if there is not enough budget available. First corrective measures need to be taken (meaning procedural actions outside the system that result in a rejection of the transaction, overrule the hold of the transaction or adjusting the budget).
Also Commitment Control makes it easier to report the figures of the P2P stream because it records all transaction data in separate ledgers, the so called Commitment Control Ledgers. In that way one can see what costs are in the pipeline and how much budget is depleted.
Setting Up Commitment Control
Regarding setup in PeopleSoft, it is a small effort to activate the functionality. There are only a few parameters to consider, the rest is standard configuration. An experienced consultant can do this setup easily within one day, but the biggest effort and impact is in getting the business along. Using the Commitment Control functionality can have a big impact on the P2P process, especially if the P2P process is designed in a different way from the ERP package design. For example if a field on a purchase order is used for another purpose, it can conflict with Commitment Control because it uses data in that field for calculations or selections. So before setting up Commitment Control, it is really important to understand how the users are recording the P2P process in the system.
When using the budget control option, it must be clear who is responsible for what in the P2P process i.e. how the process flow is embedded in the organisation. When budget control gives a signal that the purchase is out of budget, the buyer must know who to contact to take the proper measures. Running out of budget also means that the purchase process for goods/services that uses the depleted budget is put on hold. In some organisation it requires quick actions (i.e. reject, overrule or adjust budget) to get the process ongoing.
Last but not least it is important to keep the Commitments Administration up-to-date. Once implemented Commitment Control, the first time one runs a report on commitments, the numbers are often bigger then expected. This is because all requisitions and/or purchase orders that were not dealt with in a proper way (for example: purchase orders that have a remaining amount on it have not been not closed) are being recorded in the Commitment Control ledgers. An organisation which never closed open purchase orders since it started with the purchase system, was confronted with a commitments report that showed al open purchase orders from 2002 until 2010. The good thing however is that in this way the business becomes aware that their P2P process needs to be monitored and that regular maintenance on requisitions and purchase orders is required. And this will reduce the effort for data cleansing during future upgrades.
When implementing Commitment Control, the configuration of the functionality takes only one day, but the design and implementation in the organisation takes longer because it can have a big impact on how the business has to use the P2P process in the system and in an administrative organisational way. Despite these attention points, using the Commitment Control functionality has a lot of advantages for organisations to better stay in control on their costs.
Managing Consultant Capgemini
Functional Oracle Financials Consultant