The real problem

The CEO didn’t know it yet, but the root of the problem was in purchasing. Every PO request needed the CEO’s approval, whether it was for $100K or just $10. Since running the company took most of the day, PO requests waited until late in the evening when most people should be enjoying the “life” part of a work / life balance. The employees were frustrated, too, because they couldn’t get anything done without approval. That led to unneeded delays and blame that they didn’t deserve.

The discussion

The interview process was simple enough – dig into the most painful issue first and follow up with more questions, leading to valuable insights.

• What are you spending your time on at night? Approving Purchase Orders, handling E-Mail, and answering questions from employees I couldn’t get to during the day.
• Which PO requests do you need to approve? All of them.
• Why? If I don’t, how will I know what we are spending money on or if we are going over budget?
• Do you know how much has been spent on any project? Not off the top of my head, but I can ask the bookkeeper to look it up.
• How long do your folks need to wait for PO approval? It almost never takes more than a few days.
• Do your employees know how much they are spending on a project or what the budget is? Well, they should, because they are responsible for them.
• Do they check where they are in the budget before each PO request they ask you to approve? I guess so, but I don’t know for sure.
• Do you check where spending is, compared to budget, before you approve or disapprove a PO request? I don’t have time for that, so I just see if the amount and what’s being bought makes sense.
• How many POs does a project typically have? They have 15-20 things that need to get bought, some more, some less.
• Do the schedules include enough time for each of those PO requests to be delayed by a few days each? No, of course not. We pride ourselves on getting things done quickly. It’s just that we haven’t been able to do it since we’ve gotten bigger.

The actions

The solution required finding a way to both delegate authority and maintain control at the same time. The CEO felt a need to see and approve everything in order to control the finances, but in reality, only the exceptions were important. Of course, it would be great to have visibility on every project at any time…just to be sure.

The solution was a robust purchasing request/approval system. In this system, the employees had their personal spending limits and projects had their budget limits. Any PO an employee wanted to place that was below their own limit and the project’s remaining budget immediately went through. Any request above the personal limit needed to be approved by the employee’s manager, and any request above the project’s budget needed the project owner’s approval. The system sent weekly reports of all purchases, and highlighted the important ones. The report also showed each project’s budget and how much of it had been spent.

The results

At first, employees looked at spending limits as just more restrictions being put on them. But once they had their first PO requests automatically approved by the system, they became a little less skeptical. Then, when managers received notifications from the system that they had PO requests to approve for their subordinates that they could actually approve, they felt more empowered, too.

Since each PO request clearly showed how much had been spent on a project already, both the initial requester and the manager were confident that budgets wouldn’t be overspent. There were still occasions when a PO request was so big that it needed to be escalated all the way to the CEO. Since there were fewer requests to deal with, the CEO was able to do some more research and understand more about it before approving, or sometimes denying, the request. Rather than waiting for the monthly P&L report from the bookkeeper, the CEO could check in at any time on any project to see how it was doing. And, most importantly, the work / life balance was restored!

The nitty-gritty details

The system took some setup, including determining spending limits for each person, inputting project budgets, and assigning managers to both employees and projects. Once that was in place, though, it was a simple matter of the system doing a lookup for each PO request tied to each employee and each project to determine if any limits were being exceeded.

When a limit was exceeded, the system automatically sent an e-mail to the person’s manager or the project’s manager (or both!), complete with a link to the PO request for approval.

All requests were time-stamped with when they were started, when they were approved, and who approved them based on their login.

Spending information could be accessed through an online report, which was configured to show all PO requests made in the past two weeks, though that could be changed to any date range as the report was viewed. The report showed the budget for each project, along with how many approved PO requests and how much cost was tied to the project. At some point in the future, a connection could be made to the accounting system to find the total spent on the project, even if it didn’t come in through the PO system.

The report had color-coding to highlight any PO request that needed approval (in red) by comparing the dollar amount of the request to the employee’s limit. If the project was over-budget, then all of the PO requests for it were highlighted, regardless of the order the requests were made.

A similar calculation highlighted information in yellow for any PO request or project that had spent more than 90% of the employee’s limit or the project’s budget. These requests weren’t blocked and didn’t require higher authorization, but the CEO wanted to know that they were there.

Finally, even though this report was always available online, versions of it were also e-mailed to the CEO and project owners every week. The CEO got the all encompassing one, showing every single PO request (eventually, the CEO ended up only looking at the highlighted ones), and the project managers only got reports for their specific projects.