Approval Matrix

November 03, 2022 15:41

One of the biggest keys to maintaining and growing a company’s financial reserves is having an efficient, repeatable purchase approval process. This allows you and your employees to obtain the work-related items you need without overspending and unnecessary purchases.

Not all approval processes are created equal, though. In this article, you’ll discover the steps to an efficient approval matrix, which can help save your company money

It’s common for organizations to assign approval authority for purchases and other expenditures based on the amount of money involved. Typically, higher dollar amounts require approval from higher-ranking executives.

A purchase approval matrix works best when it lists decision-makers in order of their rank in the hierarchy, with another axis that delineates differing approval conditions.

Why use an Approval Matrix?

You want team members to feel empowered and move quickly through business challenges. But typically, multiple personnel are assigned to decision-making, based on category and scale.

For example, the CFO may be personally required to approve any transaction over $10,000. There may be a different approver for purchases between $1,000-$10,000, and a different authority still for those less valuable.

A purchase order approval is optional, however, you can configure your solution to include an approval.

Setup Approval Matrix

Go to Settings → General Settings → Approval Matrix

Note: The Level field is uneditable, once the matrix setup is saved the levels will be auto-populated based on the threshold amount.

PO Approval matrix with a higher threshold amount is sorted first on the list and the rest is based on the threshold amount.

Select the Approvers (User/Employee) from the dropdown and add the Threshold Amount. Each level can have multiple approvers in a level.

Click on the + button to add a new level.

Post-Approval Variance (%): Allows to configure a Post-Approval Variance (%) in the PO Approval Matrix, giving you more flexibility when making small changes to approved purchase orders.

Once a PO is fully approved, you can make minor adjustments (quantity or cost changes) without triggering re-approval.
This is allowed as long as the total PO value stays within the configured variance range (+/- %) If the updated PO total exceeds the allowed variance, the PO will automatically go back through the approval process.
Variance applies only to the overall PO total, not individual line items

Approval levels with a Threshold amount higher are sorted first on the list and the rest based on the threshold amount.

Skip Level: Check the box if you want to skip any particular approval level (higher level cannot be skipped)

If a level has multiple approvers at least one approver should approve to get a PO approved.

Users from multiple levels should be able to approve POs based on the configuration.

Ex Scenario 1:

When Skip Level is OFF

All POs are first sent to the lowest approval level, even if the approvers at this level lack the authority to approve.
Approval requests are sent to the next level in the hierarchy, one step at a time, until reaching an approver with the necessary threshold authority.
The approver with the appropriate threshold authority at the highest required level will provide the final approval.
Higher-level approvers cannot approve POs that haven’t been reviewed by lower levels, ensuring thorough vetting at every step.
If a higher-level approver creates a PO that falls within their approval threshold, they can immediately approve it without escalating it further.

According to the above screenshot, if a PO with a net total of $100,000. Then level 3 and level 2 users must approve.

Ex Scenario 2:

When Skip Level is ON

The Skip Level functionality allows the system to bypass one or more lower levels in the approval hierarchy, sending the PO directly to higher levels if needed.
Even if levels are skipped, any approver with the required threshold authority can still approve the PO.
If Skip Level is not applied to certain approvers, the approval request follows the usual process, escalating sequentially until it reaches the required approver.
Similar to the Skip Level OFF process, the approval request must still pass through non-skipped levels to ensure appropriate vetting before final approval.
Both higher-level and skipped-level approvers can approve POs immediately if the PO value is within their approval threshold.

According to the above screenshot, if a PO with a net total of $100,000. Then level 2 users only have to approve the PO. Because we have enabled the skip option for level 3 users.

Based on the approval level configuration we should have the option to send emails to the users which are configured on the approval matrix.

If the Net PO Amount is above the threshold of a user, then the user doesn't have the authority to approve it.

For example: If User Sam has a threshold of $50000 and a PO with a Net PO Amount of $60000, Sam should not be able to approve it as the Net PO Amount is greater than his threshold but he should be able to send the PO for approval to the next level user (Jonas, Wayne) whose threshold is greater than the Net PO Amount.

Manager Authorization Approval Matrix

The system allowing roles to approve high-dollar transactions based on predefined amount thresholds, roles possessing the appropriate permissions; during configuration, roles are selected from the available list, with each role enabling the definition of specific amount thresholds representing their maximum authorization limit.

Modifications to the matrix take effect dynamically, ensuring immediate implementation of changes; user assignments and amount threshold adjustments are synchronized in real-time.

Comprehensive error messages are provided to users in the case of incorrect or conflicting configurations.

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