Governance for Approval Matrix

Approval Matrix is one component of overall governance framework of an organization. It is a very important component, which is defined tightly, will lead to all decisions in the hands of few individuals leading to power and overburden. Defined loosely will lead to lack of harmony in the directions where an organisation wants to go.
It would be good idea to define governance around approval matrix to ensure that there is transparency, control and symphony in the functioning of organisation. Approval Matrix should have following:

1. Single document for all approvals: There should be only one approval matrix for all approvals.
2. Standardize limits: If you have more than one business lines, then it should allow you to compare your limits in one business vis a vis other business. We can help management by stratifying volume and value of transaction as per 80:20 rule. (transaction with 80 % value, 20 % volume need to go to higher levels/head of the function, balance can be done by lower levels)
3. Dual signatory/ 4 eye principle: Incorporate 4 eye principle/ dual approval at all place. Single approval should be only at lower levels.
4. Grand Father principles: Not approving item pertaining to direct reportees.
5. No self approval
6. Budget as the preferred Norms: Define approvals for Budgeted item and non budgeted items separately assuming lot of thoughts / brainstorming has gone in budgeting process. Higher approval authorities for non budgeted items.
7. Incorporate Risk Management: An Approval matrix need to incorporate both quantitative limits (monetary) and qualitative limits (non monetary). examples of non monetary limits would include, who can approve a riskier customers, vendor contract with advance payment, Jurisdiction limits other than corporate locations ,etc.) (e.g. I have incorporated, risk approval limits, contract clause approvals, who can do communication outside organization, with-in organization to all employees, etc.)
8. Approval for Approval Matrix: Approval matrix should ideally be put to board of directors. Once adopted there, no one can change the matrix unilaterally. If there is changes required than it needs to be put to board. Board will:
   1. Approve the changes and ratify transaction made before ratification.
   2. Reject the changes and ask for reversal of transaction made.
   3. Reject the changes but ratify transaction made before ratification.
   4. Modify the changes and ratify transaction made before ratification.
9. Annual review of approval matrix: To ensure that approval matrix is relevant and reflect the changes proposed during the course of year.

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(Disclaimer: The views expressed constitute the opinion of the author and the author alone; they do not represent the views and opinions of the author ’s employers, supervisors, nor do they represent the view of organizations, businesses or institutions the author is, or has been a part of.)