Cost Centers and Departments

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.

Departments

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 Cloud Applications, departments are defined and classified as Department organizations. Oracle Fusion Cloud 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.