Obligation in Project Management – Definition and Meaning
An obligation refers to a financial commitment or a firmly agreed but not yet paid future expense in finance and project controlling. In project management, the obligation is used to track and make visible funds that are already committed but not yet invoiced within the budget. It typically arises from purchase orders to suppliers, signed contracts with service providers, or other binding commitments that will lead to future payments. Recording obligations helps to more accurately determine the actually available budget funds.
Example, best practice, and further information on the term
In a construction project, for example, the obligation could include the cost of a signed contract with a subcontractor for electrical installation, even if the invoice will only be issued and paid after the work is completed. A proven best practice is to systematically and promptly record obligations in the cost management or accounting system and take them into account when monitoring the project budget (available budget = total budget – actual costs – obligations). This aligns with cost management principles according to PMBOK and supports agile principles of financial transparency. Accurate tracking of obligations helps to realistically control the budget and manage project liquidity.