Approval Matrix - Clear Rules for Every Order
Control approvals by value, role, and cost center
An approval matrix defines which role or person may approve orders and purchase requisitions up to which value. It links value limits, cost centers, and hierarchy levels into transparent approval rules - for control, compliance, and audit-proof documentation.
- Value limits per role
- Four-eyes principle
- Escalation & substitution
- Audit-proof audit trail
What Is an Approval Matrix?
An approval matrix is a set of rules that defines which role may approve purchase requisitions and purchase orders up to which value and for which area. It translates a company's signing authority into clear approval levels that a system can check.
Structure of an Approval Matrix
An approval matrix answers one question for every procurement transaction: who has to agree? To do so it combines a few criteria that can be read from the document itself. The same concept is also known as an approval authority matrix or, in finance and governance contexts, a delegation of authority matrix.
| Dimension | Typical values | Effect |
|---|---|---|
| Value | Net order value of the request, staggered into thresholds | Determines the number of approval levels |
| Organization | Cost center, department, plant, legal entity | Determines which manager is responsible |
| Material group | IT, marketing, services, capital expenditure | Triggers additional functional approvals |
| Type of demand | Catalog item, free text, call-off against a contract | Allows simplified approval for pre-negotiated items |
| Role | Cost center owner, division head, purchasing, executive management | Names the approvers independently of individuals |
It has proven useful to store roles rather than names. When a cost center changes hands, the assignment of the person to the role changes, not the matrix.
Example: Approval Matrix with Value Thresholds and Roles
The following example shows a simple matrix for indirect procurement. The amounts are for illustration and not a recommendation; suitable thresholds depend on company size, industry and risk appetite.
| Net order value | Approved by | Note |
|---|---|---|
| up to EUR 500 | No additional approval | Only for items from approved catalogs charged to the requester's own cost center |
| over EUR 500 to 5,000 | Cost center owner | One level |
| over EUR 5,000 to 25,000 | Cost center owner, then division head | Two levels |
| over EUR 25,000 to 100,000 | Additionally head of purchasing | Commercial review of supplier and terms |
| over EUR 100,000 | Additionally executive management | Four levels |
| Regardless of value: IT hardware and software | Additionally IT | Functional approval |
| Regardless of value: free-text items | Additionally operational purchasing | Review of source of supply and price |
This is how the matrix works in a single case: a laboratory manager requests an analyzer for EUR 18,400, charged to her own cost center. The value falls in the third row, so cost center owner and division head are required. Because she is the cost center owner herself, she may not grant the first level; that approval goes to her substitute or the next level up. The division head then decides. Because the device was requested as free text, operational purchasing also reviews source of supply and price before the purchase order is issued.
Four-Eyes Principle and Segregation of Duties
The four-eyes principle requires that no transaction is initiated and approved by one person alone. The approval matrix implements this by separating requester and approver: whoever makes a request cannot approve it, even if their role would allow it in terms of value.
Segregation of duties goes a step further and distributes requesting, approving, ordering, goods receipt and invoice approval across different people. Both principles are building blocks of the internal control system. The matrix is where they become concrete and verifiable for procurement.
Approval Matrix and Audit Trail
A matrix defines what should happen. The audit trail proves what actually happened: who approved or rejected which request at what value, when, and with what justification. Only the two together make approvals traceable for internal and external audit.
This includes the history of the matrix itself. When thresholds or roles are changed, it should remain clear which rule applied at the time of an approval.
Substitution, Escalation and Workarounds
- Substitution: every approving role should have a named substitute at the same or a higher level, never the requester.
- Escalation: if an approval sits beyond a defined period, a reminder is sent or the request moves to the next level.
- Subsequent changes: if the value of an approved request increases, approval has to be obtained again for the new threshold.
- Order splitting: if demand is split to stay below a threshold, the matrix is ineffective. Reports by requester, supplier and period reveal such patterns.
Introducing an Approval Matrix and Keeping It Current
Collect existing rules
Bring together the signing authority policy, the delegation of authority and actual practice. They often differ.
Define few levels
Every additional level lengthens the cycle time. Three to four value thresholds are enough in many organizations.
Assign roles, not people
The matrix names roles; the assignment of people to roles is maintained separately.
Handle special cases deliberately
Catalog items with negotiated prices can be approved in a simplified way; free text and capital expenditure need more scrutiny.
Model it in the system and test
The matrix is stored as an approval workflow and run through with typical cases, including substitution and rejection.
Review regularly
Organizational changes, cycle times and queries show where the matrix needs adjusting.
In SAP, an approval matrix for purchase requisitions and purchase orders is classically modeled as a release strategy whose characteristics, such as value, material group or plant, are controlled through classification. In S/4HANA the same rules can also be maintained as flexible workflows.
Related Terms and Matching Ovenca Modules
- Purchase requisition
The document that runs through approval, with fields and process.
- Audit trail
Complete documentation of every approval decision.
- Maverick buying
What happens when approvals are seen as a hurdle and bypassed.
- GDPR in procurement
Approval logs contain personal data.
- Approvals, roles and permissions in the admin area
Manage multi-level, role-based approvals and permissions centrally.
- Source-to-pay
Approval as the step between purchase requisition and purchase order.
How the Approval Matrix Works in Procurement
From value limit to audit-proof documentation
Value Limits & Responsibilities
The approval matrix assigns clear value limits to each role. A department approves small requirements, while larger order values move automatically to the next hierarchy level. This makes it clear at all times who is responsible for which amounts and categories - without manual coordination.
- Value limits per role
- Assignment to cost centers
- Category-based rules
Four-Eyes Principle & Control
Critical orders require approval by at least two people. The matrix enforces this four-eyes principle rule-based and prevents requirement and approval from resting in one hand. This reduces errors and misuse risks and creates the foundation for internal control systems.
- Two-person approval
- Separation of requirement and approval
- Rule-based checks
Escalation, Substitution & Compliance
If an approver is unavailable, stored substitution and escalation rules take effect so processes do not stall. Every approval is logged in an audit-proof manner. This keeps the entire approval path fully traceable and meets both internal and external compliance requirements.
- Substitution rules
- Automatic escalation
- Audit-proof logging
Implementing the Approval Matrix with Ovenca
Ovenca maps your approval matrix through multi-level approval workflows and granular role and rights management.
- Multi-Level Workflows
- Ovenca supports multi-level approval workflows and budget approvals. You map the value limits and hierarchy levels of your approval matrix directly within the platform.
- Granular Roles & Rights
- Through role and rights management, you define who may approve which orders. Responsibilities per cost center and category can be assigned precisely.
- Audit-Proof & GDPR-Compliant
- Change logs and a continuous audit trail document every approval. Ovenca is GDPR-compliant with EU hosting available. In use at an MDAX corporation (LANXESS), working together since 2014.
Approval Matrix: Questions and Answers
Related pages
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