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.
