Track and report on encumbrances by any dimension in the system

Description

Encumbrance tracking in Corporate Performance Management (CPM) software involves cataloging and reporting financial commitments such as incoming payments, contracts, or donations that have been made but not consumed. This feature is crucial for financial planning and forecasting as it enables organizations to have real-time visibility into their financial standing for specific activities. In Non-Profit and Education sectors, such transparency into encumbrances helps ensure that funds meant for a specific action are not consumed by another by mistake.

Example Use Case

Scenario: A non-profit organization carries out multiple projects, each with its funding source, contracts, and financial commitments. They use Excel to manage budgets and report on these financial engagements. However, the lack of dimensions in Excel like project codes, funding sources, and contract types are forcing them to maintain hundreds of individual workbooks. Mistakes are often made.

Solution: Their new CPM software enables tracking and reporting encumbrances by any dimension in the system. This flexibility allows the organization to customize their financial reporting based on the most relevant and understandable dimensions for their operations, such as by projects, funding sources, or vendor contracts. This streamlining of reporting leads to better financial management and budgetary control.

Considerations

Encumbrances are often the top priority for non-profits and higher-ed users. Most products offer an overly complex, high maintenance methodology for setting up and tracking them. This is because they are often unique without consistent dependencies. For example, one might be money already received for a delayed project, while another is a promise of funds for internal expenses and administration. The CPM software should provide an easy-to-use interface for customizing the dimensions of encumbrance reporting to allow users to define reports based on their specific needs.

This is the value of dimensions. Encumbrances can be categorized by various combinations of dimensions such as location, project, funding source, funding type, and so on. These dimensions allow encumbrances to be tracked at a level of detail that would require many separate, linked workbooks to accomplish if done manually. It also makes it very simple to select an encumbrance report, select a collection of dimensions, and fine matches.

There is another benefit when it comes to reporting for non-profits, as they can now report the status of funds very easily for their benefactors.

Questions to Ask a Vendor

• Purpose-Built Functionality: Does the system have a pre-built module that accomplishes encumbrance tracking, or do we have to pay a consultant for a custom interface?
• Integration Capabilities: Are we able to import our encumbrances with all the required dimensions from our source system? (to avoid manual work of tagging data)
• Locking Funds: How does the system ensure that encumbered funds are not accidentally assigned to an unrelated budget item?