Performance Obligations

A performance obligation is a distinct promise in the customer contract to transfer goods or services to the customer.

A customer contract can have one or more performance obligations. The source document lines that are included in a contract are grouped into performance obligations. Performance obligations can be either explicit or implied.

You can configure your setup to identify performance obligations automatically using any of the following:

Performance obligation identification rules
Performance obligation templates
Implied performance obligation templates

Explicit Performance Obligations

Explicit performance obligations are the goods or services that are explicitly stated in the contract. Use performance obligation identification rules and performance obligation templates to configure these obligations.

Implied Performance Obligations

Implied performance obligations include promises that are implied by an entity's customary business practices or published policies. These promises aren't explicitly stated in the contract.

Implied performance obligations:

Aren't captured in the upstream applications
Can be added automatically in customer contracts using the Implied Performance Obligation templates

Performance Obligation Satisfaction

Satisfaction methods, together with satisfaction measurement models, specify when and how the application satisfies performance obligations and recognizes revenue. The satisfaction method defines at what level of satisfaction completeness a performance obligation is to be satisfied before revenue can be recognized, either Require complete or Allow partial.

The satisfaction measurement model defines the way each of the performance obligation's promises are satisfied, either Quantity, Percentage Complete, or Period.

The application defines and assigns the satisfaction method during the performance obligation identification process based on the configuration of the performance obligation rule or template used to create the performance obligation.

When creating the performance obligation identification rules or templates, select the satisfaction method as either:

Require complete: Revenue is recognized only after the obligation is fully satisfied, that is, when all promises in the performance obligation are fulfilled.
Allow partial: Revenue is recognized when at least one of the promises in the performance obligation is fulfilled.

The satisfaction measurement model is assigned based on the type of goods or services being provided and the event that defines satisfaction of that promise when passing the transaction (revenue data) to Revenue Management.

If Revenue Management doesn't receive the satisfaction measurement model with the transaction data, it uses the default value defined in the Manage Source Document Types page.

Each performance obligation uses one or more satisfaction events that specify what proportion of the promised detail is satisfied. The application processes satisfaction events according to the assigned satisfaction measurement model.

Revenue Management provides the following satisfaction measurement models:

Satisfaction Measurement Model	Description
Measure Quantity Satisfied	Use this model when the customer is promised a specified quantity of goods or services as part of the performance obligation. When you use this model, the source application sends the satisfaction events to Revenue Management as and when the satisfaction happens. Revenue Management creates a performance obligation satisfaction event when a quantity of goods or services are delivered or satisfied. A performance obligation can have multiple satisfaction events if partial quantities are delivered.
Measure Percentage Satisfied	Use this model when the performance obligation satisfaction is measured as a percentage of the work completed. Revenue Management creates satisfaction events based on satisfaction information received from the source applications. The application creates the performance obligation satisfaction record to specify the percentage of the work completed. Revenue is recognized in the same proportion as the work completed.
Measure Period Satisfied	Use this model when the performance obligation satisfaction is measured in terms of time periods satisfied. Revenue Management creates the satisfaction event to specify what period is satisfied and the proportionate revenue for the period. When you select this model you must also provide: The satisfaction plan to be used to create the revenue recognition distributions for the promise providing the total number of periods and the proportionate revenue to record for each period. The satisfaction plan start and end date for the period over which the performance obligation will be satisfied. If the satisfaction plan is a variable period schedule, the number of periods for the schedule.

Satisfaction Measurement Model

Description

Measure Quantity Satisfied

Use this model when the customer is promised a specified quantity of goods or services as part of the performance obligation. When you use this model, the source application sends the satisfaction events to Revenue Management as and when the satisfaction happens. Revenue Management creates a performance obligation satisfaction event when a quantity of goods or services are delivered or satisfied.

A performance obligation can have multiple satisfaction events if partial quantities are delivered.

Measure Percentage Satisfied

Use this model when the performance obligation satisfaction is measured as a percentage of the work completed. Revenue Management creates satisfaction events based on satisfaction information received from the source applications. The application creates the performance obligation satisfaction record to specify the percentage of the work completed. Revenue is recognized in the same proportion as the work completed.

Measure Period Satisfied

Use this model when the performance obligation satisfaction is measured in terms of time periods satisfied. Revenue Management creates the satisfaction event to specify what period is satisfied and the proportionate revenue for the period. When you select this model you must also provide:

The satisfaction plan to be used to create the revenue recognition distributions for the promise providing the total number of periods and the proportionate revenue to record for each period.
The satisfaction plan start and end date for the period over which the performance obligation will be satisfied.
If the satisfaction plan is a variable period schedule, the number of periods for the schedule.

The satisfaction status of a performance obligation indicates the degree to which revenue is recognized for the performance obligation.

You can view the satisfaction status for performance obligations and promised details in the Edit Customer Contract page. Available statuses are:

Satisfaction Status	Description
Fully satisfied	Revenue is recognized in full for the performance obligation.
Extent satisfied	Revenue is partially recognized for the performance obligation. This status relates to over time revenue recognition, such as subscription services.
Not started	No revenue has been recognized.

The source application can send the satisfaction measurement model along with the revenue basis data. If Revenue Management doesn't receive the satisfaction measurement model it uses the default value defined in the Manage Source Document Types page.

The satisfaction status of a performance obligation indicates whether revenue is recognized for the performance obligation. Available statuses are:

Extent satisfied: Revenue is partially recognized for the performance obligation. This relates to over time revenue recognition, such as subscription services.
Fully satisfied: Revenue is recognized in full for the performance obligation.
Not started: Revenue isn't recognized for the performance obligation.