Do you have a good reference for the basic setup within Jira?
Basically I need to be able to
1 - Add Projects
2 - Assign Users/Groups/ Roles to the project
3- Have those Users/Groups/Roles receive notifications whe new tack are created, started, resolved, closed moved etc.
At the moment issue 1and 2 are working. 3 Doesn't appear to work even after assigning notifications to particular members of the group. I'm also noticing that assigning users doesn't appear to always work and it doesn't always display my full list of members.
I'm not sure if the "OnDemand" version has more bugs than the downloadable version. I've worked with both and not ever had so much trouble just setting up the basic project management features or a project management system.
I find the standard documentation to be an excellent start.
For notifications, see https://confluence.atlassian.com/display/JIRA/Configuring+Email+Notifications (there's a child page for "creating a notification scheme" which is probably what you need to concentrate on for this, but it's worth browsing the parent quickly)
For the user assigning stuff, look for "permissions" in the docs, with the "can be assigned issue" being the cause of your "doesn't display full list of members".
OnDemand has FEWER bugs than download generally, because Atlassian keep it bang up to date with the latest releases and fixes. Most other installations have no chance of keeping up with their release cycles (in the real world, there's no resources to upgrade every 4 months as well as keep up with user requirements), and although I've not tried to work out the exact schedule, it seems that OnDemand gets upgraded a few days or weeks before the official release of the latest version
I suspect the problems you're having with admin are rooted in two things - Jira is powerful and flexible, but power and flexibility always leads to complex administration (There's no way around that - basic information theory). Secondly, I suspect no-one has pointed you at the documentation before, or even if they have, there's so much of it (again, to cover all the flexibility!) it's hard to find what you need!
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