7 Cost Centers and Departments

This chapter contains the following:

The two important components to be considered in designing your enterprise structure are cost centers and departments.

A cost center represents the smallest segment of an organization for which you collect and report costs. A department is an organization with one or more operational objectives or responsibilities that exist independently of its manager and has one or more workers assigned to it.

Cost Centers

A cost center represents the destination or function of an expense rather than the nature of the expense which is represented by the natural account. For example, a sales cost center indicates that the expense goes to the sales department.

A cost center is generally attached to a single legal entity. To identify the cost centers within a chart of accounts structure use one of these two methods:

  • Assign a cost center value in the value set for each cost center. For example, assign cost center values of PL04 and G3J1 to your manufacturing teams in the US and India. These unique cost center values allow easy aggregation of cost centers in hierarchies (trees) even if the cost centers are in different ledgers. However, this approach requires defining more cost center values.

  • Assign a balancing segment value with a standardized cost center value to create a combination of segment values to represent the cost center. For example, assign the balancing segment values of 001 and 013 with cost center PL04 to represent your manufacturing teams in the US and India. This creates 001-PL04 and 013-PL04 as the cost center reporting values. The cost center value of PL04 has a consistent meaning. This method requires fewer cost center values to be defined. However, it prevents construction of cost center hierarchies using trees where only cost center values are used to report results for a single legal entity. You must specify a balancing segment value in combination with the cost center values to report on a single legal entity.


A department is an organization with one or more operational objectives or responsibilities that exist independently of its manager. For example, although the manager may change, the objectives don't change. Departments have one or more workers assigned to them.

A manager of a department is typically responsible for:

  • Controlling costs within their budget

  • Tracking assets used by their department

  • Managing employees, their assignments, and compensation

The manager of a sales department may also be responsible for meeting the revenue targets.

The financial performance of departments is generally tracked through one or more cost centers. In Oracle Fusion Applications, departments are defined and classified as Department organizations. Oracle Fusion Human Capital Management (HCM) assigns workers to departments, and tracks the headcount at the departmental level.

The granularity of cost centers and their relationship to departments varies across implementations. Cost center and department configuration may be unrelated, identical, or consist of many cost centers tracking the costs of one department.

Department Classifications

A department can be classified as a project organization, sales and marketing organization, or cost organization.

Oracle Fusion Human Capital Management (HCM) uses trees to model organization hierarchies. It provides predefined tree structures for department and other organizational hierarchies that can include organizations with any classification.

Project Organization

Classify departments as a project owning organization to enable associating them with projects or tasks. The project association is one of the key drivers for project access security.

In addition, you must classify departments as project expenditure organizations to enable associating them to project expenditure items. Both project owning organizations and project expenditure organizations can be used by Oracle Fusion Subledger Accounting to derive accounts for posting Oracle Fusion Projects accounting entries to Oracle Fusion General Ledger.

Sales and Marketing Organization

In sales applications, you can define sales and marketing organizations. Sales organization hierarchies are used to report and forecast sales results. Salespeople are defined as resources assigned to these organizations.

In some enterprises, the HCM departments and hierarchies correspond to sales organizations and hierarchies. Examining the decision on how to model sales hierarchies in relationship to department hierarchies when implementing Customer Relationship Management to eliminate any possible redundancy in the definition of the organizations is important.

The following figure illustrates a management hierarchy, in which the System Components Division tracks its expenses in two cost centers, Air Compressors and Air Transmission. At the department level, two organizations with a classification of Department are defined, the Marketing Department and Sales Department. These two departments can be also identified as a Resource Organizations, which enable assigning resources, such as salespeople, and other sales specific information to them. Each department is represented in the chart of accounts by more than one cost center, enabling granular as well as hierarchical reporting.

The figure illustrates a management hierarchy, in which
the System Components Division tracks its expenses in two cost centers.
The department is defined as an organization with a classification
of Marketing Department, and a classification of Sales Department.

Cost Organization

Oracle Fusion Costing uses a cost organization to represent a single physical inventory facility or group of inventory storage centers, for example, inventory organizations. This cost organization can roll up to a manager with responsibility for the cost center in the financial reports.

A cost organization can represent a costing department. Consider this relationship when determining the setup of departments in HCM. No system dependencies are required for these two entities, cost organization and costing department, to be set up in the same way.

FAQs for Cost Centers and Departments

Every project is owned by an organization that's used for reporting, security, and accounting. An organization can own specific types of projects, such as indirect projects, capital projects, billable projects, and capital contract projects. For an organization to be eligible to be a project or task owning organization, you must assign the organization the Project Task Owning Organization classification. Also, the organization must be assigned to the hierarchy that you specify in the project implementation options for the business unit.

What's a project expenditure organization?

A project expenditure organization can incur expenditures for projects and be used as a planning and budgeting resource. Before you use an organization for expenditures, you must assign it to the Project Expenditure Organization classification. If you use organization hierarchies, assign the expenditure organization to the hierarchy specified in the implementation options for the business unit.