Namith Hosmane's Blog

Planning organization hierarchy is a vital step for an ERP implementation to define how organization should be structured and controlled. Please read the article from Microsoft which demonstrated the best practices to plan organization hierarchy in D365 Finance.

Having said that, we often questioned what’s the use of organization hierarchy purposes and how it helps in building effective organization framework in D365 Finance. In this article, I will give brief idea about how each of these hierarchy purposes helps in building supportive organization framework.

There are about 17 out of box organization hierarchy purposes and the part 1 of this blog will discuss some of them,

Organization administration > Organizations > Organization hierarchy purposes

Procurement internal control

This purpose is used for purchasing policies that controls the requisition process based on organization hierarchy. Only the associated organization hierarchy for this purpose can be used in defining purchasing policies in procurement and sourcing module.

For example, the hierarchy will help if the organization requires different purchasing policies based on business units.

Procurement and sourcing > Setup > Policies > Purchasing policies

Expenditure internal control

This purpose is used to control expense report policies based on organization hierarchy, Only the associated organization hierarchy for this purpose can be used in defining expense policies in expense management module.

For example, the hierarchy will help if the organization requires different expense policies based on departments.

Expense management > Setup > Policies > Expense report

Signature authority internal control

This purpose is used for signing limit policies to control approval limits based on organization hierarchy on different business documents. Only the associated organization hierarchy for this purpose can be used in defining signing limit policies in organization administration module.

For example, the hierarchy will help if the organization requires different signing limit policies based on business units.

Organization administration > Setup > Signing limits > Signing limit policies

Vendor payment internal control

This purpose is used for vendor invoice policies to control and evaluate vendor invoicing process through predefined policy rules, Only the associated organization hierarchy for this purpose can be used in defining policies in accounts payable module.

For this purpose, only the Legal entity organization type is allowed. However, the organization hierarchy here can be used to group legal entities and define policies.

Accounts payable > Policy setup > Vendor invoice policies.

Audit internal control

This purpose is used to implement the compliance strategy policies for organization. Only the associated organization hierarchy for this purpose can be used in defining audit policies in Audit workbench module.

For this purpose, only the Legal entity organization type is allowed. However, the organization hierarchy here can be used to group legal entities and define policies.

Audit workbench > Setup > Audit policies

Organization chart

This purpose is mainly used in Human resource module to define relationship between departments, jobs and positions. The default hierarchy assigned to this purpose will be used as Department hierarchy in Human resource module.

Human resources > Departments > Department hierarchy

Centralized payments

This purpose is used to define the relation that can pre populate legal entities in payment proposal to process centralized payments. Otherwise, every legal entity must be manually selected to include transactions for centralized payment processing. This hierarchy purpose is applicable to both customer and vendor payments.

Please note the hierarchy only with Legal entity organization type is allowed for this purpose.

Accounts receivable > Payments > Customer payment journal
&
Accounts payable > Payments > Vendor payment journal

Security

This purpose is used to restrict user’s access to data based on the relationship to an organization. Only the hierarchy associated to this purpose can be used to define user relationship in system administration module. Also, this purpose is also used for budget planning to have budget plan preparers access to the budget plans if the security model selected as Based on security organizations.

System administrations > Users > Users > Assign organizations

Important note:

1. The hierarchy need to be selected in required policy parameters first, it then helps define policies based on departments, business units etc…
2. Same hierarchy can be used for different purposes if it suffices the organization framework requirement and control.
3. If the business does not require complex internal control policies and data security access that are based on hierarchies. Simple policies and data security can be based on a list of legal entities that is not organized in a hierarchy.

Remaining part of the organization purpose will be explained in part 2 version in upcoming blog post.

Wish you all a very happy new year!!

Best Regards,
Namith Hosmane

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