A small company often makes decisions through direct conversation.
As the company grows, the same approach creates uncertainty. Employees do not know who can approve a price, hire an employee, commit capital, change a product, or accept customer risk.
The result is either delay or uncontrolled decision-making.
Identify recurring decisions
Start with decisions that repeatedly create confusion.
Examples include:
- pricing and discounts;
- hiring and compensation;
- purchasing;
- capital expenditure;
- customer contract exceptions;
- supplier commitments;
- product priorities;
- market entry;
- legal disputes;
- credit limits;
- project acceptance.
Do not begin with every possible decision. Begin with the decisions that affect value, risk, or operating speed.
Separate the roles
For each material decision, identify:
- who prepares the recommendation;
- who provides required input;
- who makes the final decision;
- who executes;
- who must be informed;
- who reviews the result.
One person should normally hold final decision authority.
Use financial thresholds
Authority often depends on value and risk.
Define thresholds for:
- operating expenditure;
- capital expenditure;
- hiring;
- customer credit;
- discounts;
- contract duration;
- legal exposure;
- write-offs;
- inventory purchases.
Thresholds should reflect the company’s scale and financial capacity.
Reserve the right matters
Owners and boards should retain decisions concerning:
- acquisitions;
- financing;
- annual budget;
- senior leadership;
- major capital commitments;
- ownership changes;
- material legal matters;
- related-party transactions;
- major strategic changes.
Routine operating decisions should remain with management.
Document exceptions
There will be situations outside the normal framework.
The company should explain:
- who can approve an exception;
- what information is required;
- how the decision is recorded;
- when the exception must be reviewed.
Unrecorded exceptions often become unofficial policy.
Avoid duplicate authority
Two executives should not both believe they have final authority over the same decision.
Shared input is useful. Shared final accountability often is not.
Where joint approval is necessary, define how disagreement is resolved.
Review after change
Decision rights should be updated after:
- acquisition;
- leadership change;
- financing;
- major growth;
- restructuring;
- expansion into a new market;
- system implementation.
The objective is not to make every decision formal. It is to make important authority clear enough that the company can move quickly without losing control.