Approval Matrixes: Why They’re Needed and How They Make Your Business More Efficient

We’ve discussed in depth how tight processes can improve your businesses efficiency and make it more productive.

An obvious example of a rigid process in all businesses is approval matrixes, yet we’re surprised at how many organizations lack a process or abide by it.

What exactly is an approval matrix? 

An approval matrix is a system that requires a chain of approvals based on thresholds that are allowed within the company. These are found all over the place.

In sales, you have discount thresholds. When spending company dollars on new tools, there are certain thresholds of spend that are allowed. As spend increases, so do the number of needed sign offs.

Why are approval matrixes important in business? 

1. It is a defined process.

Everyone involved is on the same page and knows the steps to get certain items approved. This allows for leaders to plan for when items/tools will be approved and can forecast what that time will look like both internally and to 3rd parties.

2. It is scalable.

When budgets are bulging or when leadership positions change, you can adjust the thresholds. In current market conditions, when many organizations are pinching pennies, you can tighten spending tiers.

3. It improves speed.

It is counterintuitive to think that requiring additional signatures for approval would speed up the process. However, when the next step is known, individuals can plan and act accordingly. They can relay timelines to others to keep them informed, in the loop and able to stress urgency when needed.

What does an approval matrix look like for different business units? 

Sales organization: 

  • To keep deals flowing through the pipeline, sales organizations should establish approvals based on the discounting percentage being offered.
  • This could look like:
    • Reps are cleared to immediately sell any product between list and any discount less than 5%.
    • Sales Manager approval is needed from 6% to 25%.
    • Anything over 25% needs Chief Revenue Officer approval.
  • Why does this make sense?
    • Profit margins are secure at a certain percentage. The customer is willing to pay list price, so it makes sense to move the process along as quickly as possible.
    • As the percentage of discount rises, the need to justify the discount should be required. Are they a strategic client who will open up new doors? Have they agreed to branding incentives? Will they work on a case study with you?
  • These are all factors to be considered when more individuals need to be included as the discount is increased. Common sense.

Another place where an approval matrix provides an organizational structure and timing expectations is in spending limits.

  • All business units should have the ability to spend to a certain limit (or percentage) based on the size and needs of their unit.
  • This could look like:
    • Managers capable of spending less than $10,000 with justification accompanying the spend.
    • VP’s capable of spending less than $100,000 with justification accompanying the spend.
    • Anything > $100,000 requires CEO and CFO approval.
  • Why does this make sense?
    • For lower price points, the process is able to move quickly, C-suite executives are not overwhelmed with mundane tasks, and justification for individuals spending customer dollars is achieved.
    • As the business spend is increased, justification is needed and is heard by more parties at the company. With an approval process, the individuals on the front lines can communicate and set appropriate expectations.

How work ultimately gets done at organizations will always be a focal point at Prescriptive Profits. Providing organizations and business executives the ability to capture opportunity $$$’s by moving quickly, or at least showcase them through a defined process, empowers them to do their job at a higher level. An unorganized process leads to frustration and a feeling of lack of support for the business unit by the company.

Inspect what you expect. If you do have an approval process, is it fine-tuned to existing market conditions and the required workload? If you do not have an approval process…

Let’s get to work.

Prescriptive Profits #23