Commitment Model
Definition
The Contract Commitment and Commitment Budgetary Control features in Oracle Public Sector Financials (International) are based on the Commitment Model. This appendix describes the Commitment Model and shows how the Commitment Model is applied.
Overview
The Commitment Model enables public sector organizations to manage their business using dual budgetary control. Therefore, the Commitment Model requires both commitment budgetary control and standard budgetary control.
The commitment budget represents the amount of encumbrances an organization is willing to enter into in a given period. The standard budget represents the amount an organization is willing to pay in a given period.
Commitment budgetary control measures encumbrance expenditure activity against the commitment budget. Standard budgetary control measures encumbrance expenditure activity and actual expenditure activity, which includes invoice and payment, against the standard budget.
A fundamental principle of the Commitment Model is that all expenditure activity must be encumbered before being paid. However, in standard budgetary control, not all expenditure activity must be encumbered before being paid.
To begin to understand dual budgetary control and the impact of the Commitment Model on standard budgetary control, this section provides an overview of the following:
Standard Budgetary Control
This section describes how standard budgetary control currently works in Oracle Financials. A standard budget represents the estimated amount of anticipated or encumbered expenditures and actual expenditures. Standard budgetary control is based on measuring expenditure activity against the standard budget. The diagram below illustrates standard budgetary control expenditure activity.
Standard Budgetary Control Expenditure Activity Diagram
The Standard Budgetary Control Expenditure Activity Diagram shows the following Expenditure Types:
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Encumbrance Types
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Actuals
The Standard Budgetary Control Expenditure Activity Diagram shows that encumbered expenditure activity can progress through two stages, Commitment and Obligation. The Provisional encumbrance type is a provisional contract commitment that is created to set funds aside internally without creating a formal obligation or contract. An Obligation encumbrance type is created when a third party contract is entered.
Activities represented in the Actuals stage in the Standard Budgetary Control Expenditure Activity Diagram are Invoice and Payment.
The Standard Budgetary Control Expenditure Activity Diagram shows a confirmed contract commitment representing a formal contract with a third party. It is only when an Obligation encumbrance type is created that an invoice can be matched to the obligation and paid. Matching an invoice to an Obligation encumbrance type liquidates the encumbrance and records an actual. In standard budgetary control, invoices can be paid without encumbering funds, and an invoice is not required for payment.
The diagram below shows the scenarios possible in standard budgetary control.
Standard Budgetary Control Scenarios Diagram
The Standard Budgetary Control Scenarios Diagram illustrates the following standard budgetary control scenarios:
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Scenario 1 corresponds to the scenario shown in the Standard Budgetary Control Expenditure Activity Diagram where payment is made with expenditure activity progressing through Commitment and Obligation encumbrance types and invoice matching to an encumbrance.
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In Scenario 2, payment is made without a Commitment encumbrance type.
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In Scenario 3, payment is made without any encumbrance.
Commitment Budgetary Control
Commitment Budgetary Control focuses on the encumbrance expenditure activity. The expenditure activity type Actuals does not factor into commitment budgetary control. Commitment budgetary control is attained by measuring encumbrance activity against the commitment budget.
The diagram below shows commitment budgetary control expenditure activity. The encumbrance types include Commitment and Actuals. The Provisional Contract Commitment is shown as a Commitment encumbrance type and the Confirmed Contract Commitment is shown as an Obligation encumbrance type.
Commitment Budgetary Control Expenditure Activity Diagram
Within Commitment Budgetary Control, expenditure activity must progress through the two encumbrance types, Commitment and Actual. The Commitment encumbrance type includes encumbrances for the following:
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third party contract commitments in negotiation
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internal contract commitments in planning
The Actual encumbrance type includes encumbrances for the following:
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third party contract commitments
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confirmed internal contract commitments
The diagram below shows the scenario possible in Commitment Budgetary Control in which the Commitment encumbrance type can be transitioned to an Actual encumbrance type.
Commitment Budgetary Control Scenario Diagram
An Obligation encumbrance type in standard budgetary control encumbers only formal contracts with a third party, whereas an Actual encumbrance type in commitment budgetary control includes the third party obligation and a confirmed internal contract commitment that covers an expenditure, such as office supplies, where no formal contract with a supplier exists.
Dual Budgetary Control
Standard budgetary control provides complete budgetary control while commitment budgetary control provides budgetary control solely on the encumbrance activity. Therefore, both standard budgetary control and commitment budgetary control must be enabled to support the commitment budget.
With the Commitment Model, all expenditure activity must be encumbered before payment and all expenditure activity is checked against standard budgetary control and commitment budgetary control. As a result, the definition for the secondary encumbrance type in standard budgetary control, obligation, must be broadened.
The diagram below shows the standard budgetary control expenditure activity with the Commitment Model.
Standard Budgetary Control Expenditure Activity, Commitment Model Diagram
In the Standard Budgetary Control Expenditure Activity, Commitment Model Diagram, the Commitment encumbrance type is unchanged. It continues to represent third party contract commitments in negotiation and contract commitments in planning that can be converted into a Confirmed encumbrance type without a formal obligation.
In the Standard Budgetary Control Expenditure Activity, Commitment Model Diagram, the Obligation encumbrance type referred to in the Standard Budgetary Control Expenditure Activity Diagram has been broadened to a Confirmed encumbrance type. In addition to representing third party contract commitments that invoices can be matched against, this confirmed encumbrance type represents confirmed internal contract commitments where there is no formal obligation with a third party. The confirmed internal contract commitment represents internally encumbered funds that invoices can be matched against.
In the Standard Budgetary Control Expenditure Activity, Commitment Model Diagram, the Invoice and Payment actuals remain the same as in regular standard budgetary control.
The diagram below depicts the scenario in which standard budgetary control encumbers all expenditure activity and can therefore be used with the Commitment Model. It progresses from Encumbrance Provisional to Encumbrance Confirmed to Invoice and ends with Payment.
Standard Budgetary Control Scenario, Commitment Model Diagram
The diagram below compares the Standard Model that includes standard budgetary control with the Commitment Model that includes dual budgetary control.
Standard Model and Commitment Model Comparison
The Standard Model and Commitment Model Comparison diagram shows the following:
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Standard Model that includes the scenarios for standard budgetary control shown in the Standard Budgetary Control Scenarios diagram
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Commitment Model that includes the scenario for standard budgetary control shown in the Standard Budgetary Control Scenario, Commitment Model diagram and the scenario for commitment budgetary control shown in the Commitment Budgetary Control Scenario diagram.
Contract Commitment Feature
The major objectives in the Contract Commitment feature design are as follows:
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Contract Commitment supports the encumbrance of contract activity from a contract perspective. Users can enter into contract commitment activity without the manufacturing type data required in Oracle Purchasing.
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Contract Commitment supports the Commitment Model, which means that it supports dual budgetary control.
Contract Commitment Module without Commitment Budgetary Control
The Contract Commitment feature supports organizations that must encumber contracts. Contract Commitment coexists with Purchasing giving organizations the opportunity to use Purchasing for inventory-related activity while using Contract Commitment for contract related activity.
The diagram below shows how the Contract Commitment feature without Commitment Budgetary Control integrates with Oracle Financials, and the Contract Commitment Module without Commitment Budgetary Control table describes the Contract Commitment feature without Commitment Budgetary Control diagram.
Contract Commitment Module without Commitment Budgetary Control Diagram
| Reference Number | Name | Type | From | To | Description |
|---|---|---|---|---|---|
| 1 | Standard Budgetary Control (SBC) Information | Interface | Oracle General Ledger | Oracle Payables | standard budgetary control information resulting from either a request to check funds available or the recording of invoice activity, actuals |
| 2 | Standard Actual Activity | Interface | Oracle Payables | Oracle General Ledger | transfer of invoice activity, actuals |
| 3 | Check Funds | Interface | Oracle Payables | Oracle General Ledger | perform funds check against standard budget for invoice activity, actuals |
| 4 | SBC Information | Interface | Oracle General Ledger | Contract commitment | standard budgetary control information resulting from either a request to check funds available or the reservation of contract commitment activity, encumbrances |
| 5 | Standard Encumbrance Activity | Interface | Contract Commitment | Oracle General Ledger | transfer of contract commitment activity, encumbrances |
| 6 | Check Funds | Interface | Contract Commitment | Oracle General Ledger | perform funds check against standard budget for contract commitments, encumbrances |
| 7 | Matching | Integration | Oracle Payables | Contract Commitment | matching of prepayment or invoices to confirmed contract commitments |
| 8 | View Contract Commitment Data | Reference | Oracle Projects | Contract Commitment | view of contract commitment data |
| 9 | Contract Information | Interface | Oracle Contracts | Contract Commitment | transfer of contract information, future |
| 10 | SBC Information | Interface | Oracle General Ledger | Oracle Purchasing | standard budgetary control information resulting from either a request to check funds available or the reservation of requisitions and purchase orders, encumbrances |
| 11 | Standard Encumbrance Activity | Interface | Oracle Purchasing | Oracle General Ledger | transfer of requisition and purchase order activity, encumbrances |
| 12 | Check Funds | Interface | Oracle Purchasing | Oracle General Ledger | perform funds check against standard budget for requisitions or purchase orders, encumbrances |
| 13 | View Purchasing Data | Reference | Oracle Projects | Oracle Purchasing | view of purchasing data |
| 14 | Matching | Integration | Oracle Payables | Oracle Purchasing | matching of prepayments or invoices to purchase orders |
Contract Commitment Module with Commitment Budgetary Control
The Commitment Budgetary Control feature is designed to maintain budgetary control for the Commitment Model. Commitment Budgetary Control only addresses a subcomponent of standard budgetary control. Therefore, if the Commitment Model is implemented, complete budgetary control can only be accomplished with the simultaneous use of standard budgetary control.
The diagram below shows how the Contract Commitment and Commitment Budgetary Control features integrate with Oracle Financials, and the Contract Commitment Module with Commitment Budgetary Control table describes the Contract Commitment feature with Commitment Budgetary Control diagram. Note that process steps 10 through 14 in the Contract Commitment Module without Commitment Budgetary Control diagram, do not exist in the Contract Commitment Module with Commitment Budgetary Control diagram.
Contract Commitment Module with Commitment Budgetary Control Diagram
| Reference Number | Name | Type | From | To | Description |
|---|---|---|---|---|---|
| 1 | Standard Budgetary Control (SBC) Information | Interface | Oracle General Ledger | Oracle Payables | standard budgetary control information resulting from a request to check funds available or the recording of invoice activity, actuals |
| 2 | Standard Actual Activity | Interface | Oracle Payables | Oracle General Ledger | transfer of invoice activity, actuals |
| 3 | Check Funds | Interface | Oracle Payables | Oracle General Ledger | perform funds check against standard budget for invoice activity, actuals |
| 4 | SBC Information | Interface | Oracle General Ledger | Contract Commitment | standard budgetary control information resulting from either a request to check funds available or the reservation of contract commitment activity, encumbrances |
| 5 | Standard Encumbrance Activity | Interface | Contract Commitment | Oracle General Ledger | transfer of contract commitment activity, encumbrances |
| 6 | Check Funds | Interface | Contract Commitment | Oracle General Ledger | perform funds check against standard budget for contract commitments, encumbrances |
| 7 | Matching | Integration | Oracle Payables | Contract Commitment | matching of prepayment or invoices to confirmed contract commitments |
| 8 | View Contract Commitment Data | Reference | Oracle Projects | Contract Commitment | view of contract commitment data |
| 9 | Contract Information | Interface | Oracle Contracts | Contract Commitment | transfer of contract information, future |
| 15 | SBC Information | Interface | Oracle General Ledger | Oracle Public Sector Budgeting | standard budgetary control information resulting from either a request to check funds available or the recording of standard budget activity |
| 16 | Standard Encumbrance Activity | Interface | Oracle Public Sector Budgeting | Oracle General Ledger | transfer of standard budget activity |
| 17 | Check Funds | Interface | Oracle Public Sector Budgeting | Oracle General Ledger | perform funds check against standard budget activity |
| 18 | Commitment Budgetary Control (CBC) Information | Interface | Commitment Budgetary Control | Oracle Public Sector Budgeting | commitment budgetary control information resulting from either a request to check funds available or the recording of commitment budget activity |
| 19 | Commitment Budget Activity | Interface | Oracle Public Sector Budgeting | Commitment Budgetary Control | transfer of commitment budget activity |
| 20 | Check Funds | Interface | Oracle Public Sector Budgeting | Commitment Budgetary Control | perform funds check against commitment budget activity |
| 21 | CBC Information | Interface | Commitment Budgetary Control | Contract Commitment | commitment budgetary control information resulting from either a request to check funds available or the recording of contract commitment activity, encumbrances and actuals |
| 22 | Commitment Encumbrance and Actual Activity | Interface | Contract Commitment | Commitment Budgetary Control | transfer of contract commitment activity, encumbrances and actuals |
| 23 | Check Funds | Interface | Contract Commitment | Commitment Budgetary Control | perform funds check against commitment budget for contract commitments |