Risk assessment is what a business does when it's evaluating the potential for financial damage to the company or physical danger to its employees or facilities. The assessment of risks that impact a company's organizational structure is a far reaching investigation into the different ways the company's operations may be at risk from regulatory constraints, competition, personnel problems, environmental conditions and social responsibility concerns.
A business should approach risk assessment as a way to protect the company from knowable challenges. The basic elements of risk assessment are identifying hazards, determining what positions face what dangers and documenting findings. Risk assessment teams are not tasked with correcting or mitigating risks, but they are responsible for reporting the findings to the department or individual within the organizational structure who has the authority to correct any identified risks.
Organizational structure is the framework that holds an organization together and defines the lines of authority within a company, nonprofit organization or governmental agency. A well defined organizational structure provides a clear path for risk assessment procedures. Before risk assessment teams can begin to work, each member of the team must have a good working understanding of how the company is organized. The organizational structure will show team members who is responsible for each area or operation being evaluated.
Traditional organizational structures typically show clear lines of authority that emanate from a central manager at the top of the organization. The authority vested in each department is clearly defined by its place within the organizational structure. Risk assessment operations can become bogged down when assessment operations are required to strictly follow established lines of authority in the company. The management of risks that cross these established lines can become a complicated process requiring intervention from the senior leadership.
Modern organizational structures are arranged around teams, organizational processes, organizational functions and virtual operations. These types of organizational structures allow companies greater flexibility to react and adjust to changing market conditions and advancing technology. Risk assessment teams may find modern organizational structures difficult to understand because there may not be clear lines of authority for reporting identified risks. In response to these changing business realities, many organizations are turning to enterprise risk management systems to evaluate and control risks. ERM helps management define how risk factors are interrelated in an organization.
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