Moderated by Emily, Digital Transformation Consultant at Hyperbots.
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyperbots. I’m very excited to have Mike Vaishnav join us on the call today. Mike is a CFO, consultant, and strategic advisor to many privately held businesses and organizations worldwide. The topic we’ll be discussing today is PR and PO approval best practices. To get started, Mike, I’d like to ask: What factors do you consider most important when setting up the approval process and approval thresholds for PR and PO approvals? Also, how do you determine the appropriate approval levels for different purchase values? Mike, could you also explain how departmental needs influence the approval authority matrix?
Mike: Sure. There are several factors required for setting up the approval matrix. First, the nature of the expenses is critical whether they are capital expenses, operating expenses, recurring expenses, non-recurring expenses, or strategic/critical expenses. These aspects require different approval matrices for each department. Second, consider the budgetary allocation: Is this expense budgeted or unbudgeted? If it’s already budgeted, then the department head can typically approve it for that specific department. However, if it’s unbudgeted or a high-value transaction, multiple levels of approval may be required. Let me give you an example. If an expense involves collaboration between two departments let’s say procurement and operations while also needing input from R&D for a new product introduction, executive approval might be required due to the strategic nature of the project.
For routine inventory purchases, the operations department can approve them if they are part of normal production. However, for something more critical like stocking up on a high-demand product where supply is limited, additional executive approval might be needed. The approval matrix also considers factors like transaction volume and frequency. For high-value, low-frequency transactions, more hierarchical approval levels are necessary. On the other hand, high-frequency, low-value transactions like utility bills can be approved at the departmental level. The company’s philosophy whether it favors centralization or decentralization also influences the approval process, as it determines how much empowerment is given to employees while balancing proper controls, risk management, and compliance. The critical factor is setting dollar thresholds: for example, transactions under $10,000 may require one approval, those over $100,000 might need two approvals and those over $500,000 could require three or more executive approvals. The size of the company and the nature of the procurement all play a role in setting up the approval matrix.
Emily: Got it. Mike, how do vendor threshold limits affect the approval process?
Mike: Vendor threshold limits help monitor and control total spending, manage vendor risk, and ensure compliance. Here’s a step-by-step breakdown: First, vendor threshold limits are essential for risk management. You need to evaluate whether you’re dealing with a new vendor or an already verified one. You should consider the value and volume of transactions with that vendor. Second, compliance is key. The audit trail, segregation of duties, and other controls help mitigate fraud and fund misappropriation. You also need to assess whether the vendor is strategic or critical. For example, if a vendor provides a product crucial to operations and there’s high demand with limited supply, you don’t want to delay approvals. Pre-authorized expenses for such cases help speed up procurement and avoid operational disruptions. For strategic initiatives like R&D, or where vendors offer significant discounts, having pre-approved spending limits ensures that opportunities aren’t missed due to lengthy approval processes. However, you should balance this by avoiding overstocking. Budget vs. non-budgeted expenses also play a role in vendor selection and approval.
Emily: Understood. How often should the approval authority matrix be reviewed and updated?
Mike: The approval authority matrix is typically reviewed annually, but it’s not limited to just that. Some companies review it quarterly or semi-annually, depending on their needs. There are other triggers for review as well: changes in corporate strategy, significant company growth, technology upgrades, market condition changes, or key personnel transitions. If a key employee who holds crucial knowledge leaves the company, a review might be needed to transfer knowledge and adjust the matrix accordingly. Overall, while annual reviews are standard practice, companies should remain flexible and review the matrix when significant changes occur.
Emily: All right, Mike. One last question: What role does technology play in streamlining the PR and PO approval process?
Mike: Technology plays a crucial role in automating workflows, ensuring compliance, maintaining audit trails, and customizing the approval process. Automation reduces manual intervention, which is used to involve paperwork or lengthy email chains with mobile technology, approvals can be done remotely, making the process much more efficient. Some AI-driven solutions integrate directly with the procurement system, allowing approvals without logging into separate platforms. AI can also enhance data analytics and reporting, providing instant insights without waiting for reports from the procurement or accounts payable departments. Moreover, technology simplifies vendor management. Vendors can upload invoices directly into the system, eliminating the need for manual data entry. As companies grow or introduce new products, technology ensures scalability and smooth migration to updated processes.
Emily: Understood. That was great. Thank you so much, Mike, for sharing your insights on PR and PO approval best practices. It’s always a pleasure having a conversation with you, and it was amazing hosting you today.
Mike: My pleasure.
Moderated by Moderated by Emily , Digital Transformation Consultant at Hyperbots
Emily: Hi everyone! In this segment, we’ll be discussing strategies for alignment and optimization. Mike, thank you so much for walking us through the approval workflow and organizational structures in our last section. To delve deeper into this segment, what strategies do you recommend for designing approval workflows that align with an organization’s hierarchical structures?
Mike: Thank you, Emily. Before developing the workflow, we need to consider the organization hierarchy. One key thing is to think about the best way to structure it. We need to establish a robust organizational hierarchy that includes the reporting lines, levels of authority, and other training and documentation. This impacts the decision-making process and ensures efficient collaboration within the department. Here are some strategies for developing a workflow:
Proper Reporting Lines: Clearly define who reports to whom. This is crucial because the workflow needs to move smoothly from one step to another.
Levels of Authority: Determine the authority level for each position. Not every decision needs to go through the same hierarchy. Define limits and responsibilities accordingly.
Clarity of Roles and Responsibilities: Specify who approves what and why they are involved in the workflow. Not everyone needs to be involved in every step.
Approval Levels: Establish clear approval levels and maintain an audit trail to keep track of the approvals.
Standardization: Standardize the approval process whether the organization is centralized or decentralized. This ensures consistency.
Utilization of Tools: Use appropriate tools like workflow management systems or AI to facilitate the workflow.
Training and Support: Ensure proper training for those involved in the approval process to prevent inefficiencies.
Collaboration and Coordination: Foster cross-functional collaboration and ensure accountability in the approval process.
Alignment with Organizational Objectives: Ensure that the workflow aligns with the overall organizational objectives, not just departmental ones.
Emily: Got it. So, Mike, how do you strike a balance between centralizing control for oversight and decentralizing decision-making authority in approval workflows?
Mike: Striking a balance between centralizing control for oversight and decentralizing decision-making authority is essential for optimizing efficiency, maintaining accountability, and fostering innovation. Here are some strategies to achieve this balance:
Clear Hierarchy: Establish a clear reporting structure that defines who is responsible for approvals, whether centralized or decentralized.
Key Decision Points: Identify critical decision points to determine the required authority level for approvals. For example, the marketing department may approve budgets, but cross-functional collaboration might be necessary for other decisions.
Delegate Authority Appropriately: Delegate routine tasks to lower levels and critical tasks to higher levels, empowering employees with the necessary training and tools.
Escalation Protocols: Establish clear protocols for escalating decisions that exceed certain authority levels.
Technology and Transparency: Implement technology solutions like workflow management systems to provide transparency and ensure all stakeholders are informed.
Cross-Functional Collaboration: Foster collaboration across departments since workflows often span multiple areas.
Training and Documentation: Provide thorough training and maintain documentation to ensure everyone understands their roles and responsibilities.
Emily: How can organizations ensure that approval workflows are flexible enough to accommodate changes in the organizational hierarchy?
Mike: Flexibility in workflows is crucial for accommodating changes in the organizational hierarchy. Here are a few strategies to ensure flexibility:
Modular Design: Design workflows in a modular fashion so changes can be made easily without disrupting the entire process.
Role-Based Approvals: Implement role-based approvals instead of individual-based ones. This allows for smooth transitions when people change jobs.
Dynamic Routing: Use dynamic routing to handle situations where someone is unavailable, enabling delegation and preventing bottlenecks.
Centralized Policy Management: Maintain centralized policies to ensure consistency and compliance across the organization.
Regular Review and Monitoring: Continuously review and monitor workflows to identify areas for improvement and ensure they remain adaptable to changes.
Emily: Gosh, so Mike, how can organizations leverage technology to automate routine approval tasks and streamline workflows? Can you share a few examples as well?
Mike: Before leveraging any technology, organizations need to understand their current processes and identify areas where technology can be beneficial. Here are a few examples of how technology can be used to streamline workflows:
Workflow Management Systems: These systems automate routing, track progress in real-time, enforce processes, and provide notifications and reporting capabilities.
Electronic Document Systems: These systems store data in one place, provide version control, and reduce manual intervention.
Electronic Signatures: Legal electronic signatures can replace physical signatures, streamlining the approval process.
ERP Integration: Integrating workflows with ERP systems ensures data consistency and seamless operation.
AI and Machine Learning: Implementing AI solutions can enhance workflow efficiency by automating routine tasks and providing insights for process improvements. These technologies help automate routine tasks, reduce manual errors, and ensure that workflows are efficient and adaptable to organizational needs.