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Business at Risk? Use an Organizational Chart to Manage Risks.

written by: Amanda Dcosta • edited by: Ginny Edwards • updated: 6/12/2011

Are your business projects or operations at risk? Use an organizational chart to control, minimize or manage risks. An organizational chart for risk management is an important tool that will help all stakeholders understand the sequence of operational heads, should risk control become inevitable.

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    Why do you need an organizational chart?

    Risk Management doesn't start from nowhere or all of a sudden. If, at some point during a project or a business operation, a risk should arise, there has to be a set of accountable or responsible personnel involved. Apart from this, there are those who are required to authorize various project or operational needs that will provide for the next steps towards risk management. This hierarchy or accountable-responsible-authoritarian structure that takes control of risk management is the organizational chart. There is a clear dependency of risk management on the organizational hierarchy, and the uppermost departments lead the way for the next steps to risk resolution.

    Every business set up, no matter what size or type, will have to outline a structure which makes it easy for all members to understand or follow. Listed below are different scenarios through which a risk is managed using the organizational chart.

    (* Note: For the sake of convenience, the pronoun 'he' has been used in reference to the project manager or other personnel irrespective of gender.)

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    Example 1. Risk Management Organizational Chart for your IT firm

    You run an IT firm with 1500 employees. You have hired a project manager to oversee a number of IT projects, out of which one is currently at risk. You assess the risks and their potential impact on the project, making note to record all data. Software has to be upgraded and new hardware will have to be purchased in order to overcome this risk. In this, your approval will have to be obtained. The project manager cannot authorize all requirements on his own and has to forward all requests to the personnel above him in the management hierarchy. He might perhaps have to forward a written request to his immediate boss who is a Junior IT Analyst. This Junior Analyst will then forward it to the Senior Analyst. This goes on for quite a few levels till it reaches you, the CEO and owner of the company. You may ask why a direct request is not sent to you by the project manager. There are many reasons for this. Organizational Chart - IT 

    • A sequence in such a case makes all members aware of a need for the above mentioned requests.
    • Each level will analyze the situation and decide upon its authenticity.
    • Should the request be genuine, it will pass ahead to the upper level of the organizational chart.
    • An audit team may be required to audit the requirement and assess the situation.
    • Only genuine requests ultimately reach the topmost level, making it a channel for siphoning out the unnecessary demands.

    Once the request reaches you, the CEO, you deny the request via the same channel in the backward order. On the other hand, should you choose to approve and authorize the changes, you might hire an audit team to evaluate the feasibility of the requests, or forward instructions to the finance / accounting department of your firm with copy to the next level in your request chain. The accounts department will release funds for the request which will follow a similar route to the project manager. Once the funds request is sanctioned, the request for procurement or purchase is the next step, after which, the necessary materials are supplied to manage the risk. This sequence of events follows the organizational chart prepared to manage the risks.

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    Example 2. Risk Management Organizational Chart for a retail business

    The company you work for, is about to launch a new retail store. There is a lot of work to be done, many departments to co-relate with and staff to be managed. Amidst this chaotic situation of multi-tasking, you, the project manager identifies a major issue that could put your project of launching the new store at risk. You are faced with a major blow involving the electrical supply to the new store just prior to the launch date. How would you respond to this?

    Organizational Chart - Retail 

    As a project manager, while you may have the authority to carry out the project, you work alongside other personnel and departments as well. Hence, an urgent written request will have to be forwarded to the members above you in the chain of command. Your request might perhaps be forwarded via the Head of Operations. If a written chain of command is too long a process, a meeting might be scheduled will all members of the management, including you, so as to analyze the risk, with reasons for why this issue has cropped up. Information regarding lower order staff, resources, funds used and time taken will have to be provided. Once the top management approves of the request, other departments such as the EPC team, Accounts team and the Goods Procurement team will be involved that will work alongside you in management of the risk.

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    Conclusion

    An organizational chart for risk management makes it very easy for management and staff to follow a systematic order. Work is minimized and confusion is cleared, when there is an organized structure in a business. It therefore becomes inevitable for any business to draft an organizational chart that will henceforward be used as part of the risk management plan.

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    Reference & Credit

    Reference: http://www.riskmanagementguide.com /organizational-chart-a-technique-to-identify-risk/

    Image Credit: Author, Amanda Dcosta