From Daunting to Delegating: How to Create Effective Delegation of Authority Policies

One of the many challenges that procurement professionals face when developing or transforming their procurement practice, is building out an effective Delegation of Authority policy. As there is no one-size-fits-all approach, creating a policy that both adheres to best practices and fits into the overall company strategy can be a daunting task. There are a multitude of different factors that must be taken into consideration, from the size of the organization in question, the industry it operates under, to the internal structure of the organization. However, there are still several steps that can be taken to make sure the DOA policy you develop works best for your business.

Current State Assessment: Before you start developing a policy, its critical to ensure that all key players have a thorough understanding of the current state of the organization. This includes performing spend data analysis to get a clear understanding of volume and amount of all purchased items. From this assessment, you can identify high frequency/low risk purchases that can be set up for self or auto approvals. Also, make sure you understand the current DoA policy (if it exists) and properly asses what you are looking to change.

Determine Priorities: What is the goal for your organization? Is it to drive user adoption, control and mitigate risk, or both? Understanding what the priority is will help make your policy more focused and effective.

Define Approval Thresholds: Draw out your approval limit hierarchy levels and make sure they align to the overall structure of the organization. This will change depending on the business, but usually thresholds are assigned based on hierarchy to the different roles in business (Manager, Supervisor, Director, VP, CPO/CFO, etc)

While using the steps above as a foundation to building out your policies, also take into consideration a few of the best practices suggested by industry experts below:

Strive for Simplicity

Complicated DoA polices often lead to resistance, as users may find ways to circumvent processes that they find too cumbersome. A easy to follow policy ensures requisitioners are readily aware of the required approvers for their purchases.

Use Existing ERP Data as a Framework

Leverage user data stored in your ERP system as a reference or as the foundation of the policies you create. This will also reduce the amount of manual management required in the future if there are role changes within your business.

Ensure Release Strategy Criteria is Identified and Well Defined

A few to consider are purchasing groups, monetary value and GL accounts purchases will go to.

Consider Security Policies

Ensure security process are in place to reduce risk during transitions of roles or responsibilities. For example, policies should ensure a requestor is not the sole approver of the same item.

Define and consider workflows:

What are the current workflows your organization uses and are these being considered while drafting the DoA? This is often company specific, but below are a few most used:

• Category Approval - Is the buyer purchasing from the correct vendor at the right price?
• Management Hierarchy Approvals - As previously mentioned, value thresholds based on company roles.
• Cost Center Approvals - Ensures costs are being applied to the direct cost center.
• Strategic Souring Approvals - Defined value thresholds set to determine if purchases need to go out to bid.

Ultimately, a delegation of authority policy should clearly establish organizational responsibility, with assurance that recipients who have been delegated authorization meet the appropriate experience and requirements. Keep in mind that policies should be kept updated to reflect the current state of the business and key personnel are made aware of any changes. By taking the suggestions above into consideration, you should be well on your way to creating an operative DoA policy that aligns with the needs of your business.