What is Committed Cost?
A committed cost is a future cash outflow the company is already legally or contractually obligated to incur, regardless of operational activity. These costs cannot be easily changed in the short term and include items such as long-term leases, equipment depreciation, and senior management salaries.
How It Works
- Identify long-term contracts and capital commitments already signed.
- Schedule the future cash outflows linked to each commitment.
- Treat them as fixed in short-term budgeting because they cannot be cut quickly.
- Review them only during strategic planning when contracts can be renegotiated.
Saudi Context
Saudi groups with long-term office leases under IFRS 16 or with capital projects funded by Saudi Industrial Development Fund (SIDF) treat these as committed costs in their cash flow forecasts. They are key inputs in zakat planning since financing commitments can affect zakatable base calculations.
Example
A Riyadh SaaS company signed a 5-year office lease at SAR 40,000 per month. The SAR 480,000 annual rent is a committed cost; even if revenue drops, the company must keep paying it until the lease expires.