Plain definition
An approval limit is the maximum commitment that a role may approve under the organisation’s authority rules. It should be applied to the real exposure: the full contract term, related change orders, or linked purchases where those are part of one decision. Splitting invoices or signing a recurring agreement in small monthly amounts should not turn a larger commitment into a lower-authority decision.
Limits may differ by spending type, risk, legal entity, and whether the decision is operating or capital expenditure. They are internal governance choices, not universal legal rules. A limit tells a person when to escalate; it does not make the underlying purchase sensible.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Suppose an operations director may approve individual commitments up to . The director wants a 12-month service contract with a total commitment of , although the supplier will invoice monthly. Instead of approving the first invoice alone, the director submits the full contract to the level required by the authority matrix. That reviewer considers the need, total commitment, term, and supporting alternatives before deciding whether to approve, change, or decline it.
The company evaluates the obligation it is actually taking on. Treating each monthly invoice as a separate decision would hide the larger commitment and weaken the purpose of the limit.
The policy should say how to treat renewals, contract amendments, aggregation, and emergencies; otherwise people will make inconsistent judgments.
Why it matters
It prevents a large obligation from being approved through a sequence of smaller transactions.
It gives senior leaders visibility over commitments that may affect cash, capacity, or risk beyond one department.
Practical consequence
Define the basis for each limit, including contract duration, linked purchases, change orders, and a prohibition on artificial splitting.
Align system workflows and the current authority matrix to those rules, then sample recurring contracts to confirm that escalation used the full commitment.