4 Steps To Building an Organization Chart

An organizational chart is the first building block for setting your small business up to be highly productive, effective, and organized. The process of completing the chart need not be complicated, and this article will show you how to build one in just 4 easy steps.

What is An Organization Chart?

An organization chart has several uses within a business. It helps lay the groundwork for reducing the chaos amongst employees, increases communication effectiveness, and shows what needs to be done within the organization on a day-to-day basis. An accurate and complete organization chart should be visible within the business on all levels, available to outside customers and potential customers, and outline the following:

  • What needs to be done in the business (Functions)
  • Who is going to perform those functions (Responsibility)
  • The clear accountabilities for the business functions
  • How communications should flow within the organization

Although it may seem like an organization chart only makes sense when there are several people within the business, it is beneficial to prepare one even if there is only employee (as 80% of small businesses are). This allows for future growth within the organization by determining the desired business structure and it identifies where gaps need to filled. When the chart is built taking into consideration the skill levels and competencies required in each function, one may notice that new people will be needed to fill those roles more effectively.

The 4 Steps to Building an Organization Chart:

Step 1: List all of the tasks that are completed within your business.

Take a sheet of paper (notebooks or spreadsheets work well too) and list every task that is performed in your business on a day-to-day basis, weekly, monthly, etc. Make sure not to combine any tasks and that each task can stand on its own. An easy way to make sure you capture every task is to give yourself at least a week to compile the list, and jot down each task as you perform it throughout the day. If you have employees, have them perform the same exercise, then combine the lists.

Step 2: Identify the function that each task listed will fall under.

Next to each task that you have listed, classify the task according to what group or role would be responsible for completing it, ensuring that you only assign one function to each task. Common business functions include:

  • Owner/CEO
  • Administrative
  • Finance
  • Marketing
  • Sales
  • Quality Control/Assurance
  • Operations
  • Human Resources

Step 3: Determine the reporting relationship between the functions.

For each function that you have identified, determine how the functions will report to each other. There should be only one function (typically the CEO/Owner) who drives the organization, and this role will be placed at the top of the organization chart. Next, identify who will report to the top function and how the other reporting relationships will be set. Draw a line to connect those related functions. Every function should have only one role that they report to, however, several functions may report to the same function above it. (For example: Quality Control and Administrative report to Operations)

Step 4: Identify the individual within your business that will fill each function/role.

Now that the functions have been identified and it has been determined which functions will report to which, the last step of building your organization chart is to identify the person within your business that will fill each role. Think about the skill levels and competencies required within the function and who within your business has the background that matches these requirements. At times, there will be no perfect match and functions will have to be filled with available personnel until future hiring decisions are made or additional training is conducted. Keep in mind that these scenarios will often affect productivity and efficiency in the role and the business as a whole, and should be noted as gaps that need to be filled when possible.

A caution to business owners that “wear many hats”: The more times that a name appears in an organization chart, the less effective, efficient and productive that business is.

Your chart is now complete!

There are templates and samples available to assist you with building your organization chart easily and at low-cost. Several are available within the Microsoft suite including Excel and Word, and Mac offers tools within Pages, Numbers, and Keynote. Other organizational chart software and resources available to help include:

Take the first step to producing a highly organized, effective, and productive business by completing these 4 easy steps to build your organization chart, and you will find that your business runs more smoothly and is set for additional steps to move your business forward.