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Is it best to load all documents into one shared documents library, tag them appropriately so they pull into the correct site page, and add folders with special permissions for different reports that only certain groups can see. Or, is it better to create a separate library for each group of documents?

We are running into issues with how Alerts are set up, and so any time a document is loaded to the library, an alert is sent, vs. just having an alert sent if a document is loaded to a subfolder on that library.

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OOTB way no way to setup the alerts at the folder level, Alerts scoped to the Document library.

In You scenario, i would say create separate library for each group.

But another option is problematically.

here are two post guide you in this regard:

http://social.msdn.microsoft.com/Forums/office/en-US/56f503f1-fc8e-4d4d-bee5-450e0f8726e3/sharepoint-alerts-on-list-folders-sub-folders?forum=sharepointdevelopmentlegacy

http://social.technet.microsoft.com/Forums/sharepoint/en-US/9f3ff788-4cac-4565-9c39-fc8e0167d3c9/creating-alerts-on-subfolders-programmically?forum=sharepointdevelopmentlegacy

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The best OOTB way will be creating Document Libraries for each which need different alerts. But in case if it does not meet the Business Requirement, you can go for a programmatic approach.

You can create an event receiver and attach it to the document library. In the Item Adding event you can check the folder and send email if necessary using C# code.

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