Project Commitment - Definition

Proposed Definition of Commitment (for Finance to agree)

This sets out our current understanding of what commitment means, as a starting point to be worked on and refined by Finance. Nothing here is a system or report change; those follow once the definition is agreed.

Every pound of Purchase Order value sits in exactly one of two buckets at any time:

• When an invoice posts, its value moves from the Commitment Bucket to the Actual Bucket.
• The Purchase Order value itself does not change; only the split between the two buckets does.
• The two always add back to the Purchase Order value, so nothing is counted twice and nothing goes missing.
• These two buckets are the two tabs in the CVR workbook: the Commitments worksheet and the Transactions worksheet.

The report calculation will follow five rules:

1. Values only. Quantities play no part. A Purchase Order is finished when it has been invoiced to its full value, not when the units tally.
2. Posted only, credits netted. An invoice reduces commitment when it posts to the ledger. A credit posted against the order adds it back.
3. Batch-flagged invoices sit in the Commitment bucket. An invoice that has been matched to a Purchase Order but not yet posted (batch-flagged) does not reduce commitment and does not appear as an actual cost. Its value stays in the Commitment bucket until it posts, when both sides move together and nothing is counted twice or missed.
4. Over-invoiced Purchase Order Lines floor at zero, excess to Unallocated. The commitment on an individual Purchase Order line floors at zero. Where more is invoiced against a line than the line is worth, the Commitments report moves the excess to an Unallocated line it adds to that Purchase Order. The Unallocated line exists only in the report; it is not a line on the order in Focalpoint.
5. Over-invoiced Purchase Order floors at zero. Where the whole Purchase Order has more invoiced against it than it is worth, its commitment floors at zero. The invoiced amount is still visible, but it is not included as a negative commitment.

Discussion Point 1 · Invoices Received without a Purchase Order

Once an invoice received without a purchase order is matched and posted it is in the Actual bucket, so posted invoices are always accounted for.

The only invoices not accounted for are Unposted Invoices Received without a Purchase Order:

The Not Accounted For invoices are sitting on the Invoice Register. Until an invoice is matched it belongs to no Purchase Order or Project, so the Project Commitment report cannot identify and include them.

Two possible ways of catching these:

• Invoice Listing Report. A company-wide list of unmatched invoices, used to chase them through to matching and posting.
• Purchase Ordering process tightening. If every purchase has a Purchase Order, the value sits in Commitment from the day it is ordered and nothing is ever invisible.

The same applies in reverse to credit notes. Credits often arrive without a Purchase Order to match to, so an unposted credit is invisible in exactly the same way.

Discussion Point 2 · Goods Received Notes

Our understanding of where a GRN sits in the process:

• A Purchase Order is raised. Its value goes into the Commitment Bucket.
• Goods or services arrive and a GRN is recorded. This updates the Purchase Order record (delivered quantities) but posts nothing to the ledger. Nothing moves between the buckets.
• The invoice arrives and is matched to the Purchase Order.
• The invoice posts to the ledger. Its value moves from the Commitment Bucket to the Actual Bucket.

Some systems post an accrual to the ledger on receipt (goods received not invoiced). If Focalpoint did that, then under the definition above the received-but-uninvoiced value would sit in both the Actual and Commitment buckets at once and be counted twice. We do not believe Focalpoint does this, but we would like it confirmed.

Discussion Point 3 · Batch-Flagged Invoices No Longer Reduce Commitment

A batch-flagged invoice has been matched to a Purchase Order but has not yet posted to the ledger. It sits in a batch waiting to post.

Previously, in the Project Commitments report, a batched invoice reduced commitment as soon as it was matched, but it did not appear in actual costs until it posted. During that window its value would be in neither bucket: not commitment, not actual. The project total would be understated by exactly the value of its batched invoices, and the money would reappear only when the batch posted.

We have changed this in the report. Batch-flagged invoices no longer reduce commitment (rule 3 above). A matched but unposted invoice now stays in the Commitment bucket until it posts, at which point it moves to the Actual bucket in the same moment it appears as a cost. Nothing is ever in neither bucket.

Questions for Finance