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I am working with GCP within my university's CS program. My university does have an organizational node which our IT department is not using and has given me permission to use it for my class. I have given my students the following roles: Security Admin, Organization Policy Administrator, and Owner. But they still cannot create folders within the organizational node.

What am I doing wrong?

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You need to grant the Folder Admin role to the desired user. In this part of the documentation you'll find a step-by-step guide on how to grant permissions over organization folders.

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