Approval threshold

An approval threshold is a pre-set spend limit that defines when a purchase, quote, or contract commitment requires authorization from a manager or director before it can proceed. Below the threshold, the person raising the transaction has authority to approve it themselves. Above the threshold, the transaction routes to a designated approver before any commitment is made to a supplier or customer.

Most businesses operate some version of this informally. A business owner who insists on reviewing quotes above a certain value before they go out, or who checks all purchase orders before authorizing payment, is applying an approval threshold. Making that threshold explicit - documented, communicated, and consistently applied - is what turns it from an instinct into a working control.

Why Thresholds Break Down as Businesses Grow

In a two- or three-person business, the owner sees almost every transaction. Approvals happen naturally because very little passes through hands the owner is not aware of. Once a business grows past five or six people, that visibility disappears. Team members make purchasing decisions independently. Quotes leave the business without a margin check. Purchase orders are placed verbally and only documented after the fact.

The problem is rarely bad intent. It is the absence of a clear line between what someone can authorize themselves and what needs to go up a level. Approval thresholds create that line. A project manager knows they can approve materials up to $500 without asking. A senior estimator knows they can release quotes up to $25,000 but must get sign-off on anything larger. Without those defined limits, every escalation decision is a judgment call, and judgment calls are inconsistent.

Setting Thresholds That Work in Practice

Effective thresholds are specific to spend type and role, not just a single number applied across everything. A field engineer may reasonably self-authorize consumable purchases up to $100. That same engineer having the same authority over plant hire or subcontractor bookings is a different matter. Structuring thresholds by category - materials, subcontractors, quotes to customers, direct expenses - gives better control than a single blanket limit.

Thresholds also need an emergency provision. A plant breakdown on a live construction site cannot wait for a weekly approval sign-off. Identifying who holds emergency authorization authority - and under what conditions - prevents thresholds from becoming operational bottlenecks.