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How to Create a Small Business Organizational Chart in 4 Easy Steps

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Whether you're just starting out or have been in business for a while, creating and maintaining a business organizational chart can be an extremely helpful way to illustrate how your company operates and can also be used to show how you're going to grow and change in the future.

What is a small business organizational chart? A business organizational chart, sometimes also referred to as a "business org chart," is a visual representation of the structure of your business—it outlines the role of each employee and clarifies who reports to whom within your company. In many cases, developing and updating this chart will fall under the purview of your small business HR department, but if you don't currently have a separate human resources branch (or even if you do) it's worth understanding how these tables work and how to create one.

In this guide, therefore, we'll explain exactly how to create a business organization chart in four simple steps—discussing the various types of diagrams you can choose from, as well as the different goals you should consider when making an org chart for your company.

How to create a business organizational chart

Although looking at business organizational chart examples can be overwhelming, creating one of these diagrams for your company can be broken down into four easy steps. By taking this process one step at a time, you'll be able to decide which type of chart is best for your business and ultimately, develop a table (like many other operational documents you have) that can be utilized throughout the lifecycle of your business. With this in mind, let's get started:

Step 1: Decide how to structure your business organizational chart.

The first step in creating an org chart for your business is deciding what type of chart you want to use. Generally, there are four popular designs to consider and you'll want to choose the one that best suits your business's needs.

Hierarchical business organizational chart

To begin, a hierarchical diagram starts at the top of the business and works its way down the chain of command (as you can see below). A vertical line between individuals indicates that the employee above directly supervises the employee below. Hierarchies also show lateral relationships, where two people are on equal footing within the business framework, but may still collaborate or share responsibilities—these charts use horizontal lines to connect lateral workers. The business organization chart here shows how the company is structured starting with the CEO and progressing through the rest of the company.

Overall, most small businesses use a hierarchical organizational chart because it’s the simplest option. This being said, you can use this type of business org chart even if you only have a few names to fill in—as your business grows, it's easy to add new employees.

Functional business organizational chart

Next, you might consider a functional business organizational chart if your company is large enough to divide employees into departments. This type of diagram shows the head of each department and all the individuals who report to them. A functional chart is not entirely distinct from a hierarchical chart, but it does have a slightly different emphasis based on the different departments.

You can use this same information in all small business organization charts:

Name of employee (leave blank if the position is open)

Department (sales, marketing, accounting, operations, etc.)

Position or job title (sales representative, supervisor, account manager)

Description of duties (a brief phrase or two should be sufficient)

Location (if you have more than one office)

Contact information (physical address, phone number or extension, business cell phone number, work email address)

Photo (to recognize each other with ease)

As you can see, although the functional small business org chart is fairly similar to the hierarchical option, this diagram can be useful for distinguishing departments, giving a larger insight into how your company functions in this specific way.

Matrix business organizational chart

The third option, called a matrix or cross-functional business organizational chart, is useful if workers report to multiple supervisors. Like hierarchical graphs, matrix org charts illustrate the immediate supervisory relationships between employees, but they also show the project manager, team, or department to which an employee reports. Solid lines once again indicate that an individual is the primary manager of the person below them. Dotted lines demonstrate a less direct, but nonetheless important, reporting connection.

As this org chart from the Project Management Institute shows, the matrix small business organizational chart is often used by companies with project managers that work across different teams. Similarly, you may find that product, research, and engineering-based companies are more likely to utilize this type of diagram to illustrate their business structure.

Circle business organizational chart

Finally, the last option to consider is the circle business org chart. The circle diagram has become increasingly popular, especially among startup small businesses that wish to discard traditional business hierarchies. The idea behind these graphs is that all teams—and the employees that comprise them—play an equally important role in the company.

Once again, although this example shows dummy text, you can see how you would complete the chart based on your business's information. Each department makes up a spoke in the wheel and the employees within are listed in each section. As we discussed above, you would fill in essential information for each employee—name, job title, brief description, contact information, etc.

Ultimately, this first step may take time—you'll want to consider your business as it exists now and how you want it to grow—that way, you can determine which of these four org chart options will work best for illustrating your company structure.

Step 2: Collect employee information and categorize the data.

Now, once you’ve decided on the type of business organizational chart you’ll use, the rest of your chart development is fairly straightforward.

For your next step, therefore, you'll want to write a list of all the employees at your company and include the pertinent information about them that we mentioned above.

If you selected a hierarchical chart, you'll place each individual in their proper order on the list. The business owner occupies the first tier, anyone who reports directly to them belongs on the second tier, and the chart progresses from there. If you chose a functional or circle chart, you'll organize your list by each department, as shown in the examples we explained above. Finally, if you opted for a matrix small business org chart, you'll want to be sure to make note of all supervisory relationships.

Step 3: Decide how you'll complete your business org chart.

After you've gathered all of the information you need for your employees and categorized it based on the chart type you've selected, you'll want to determine how you're going to complete your chart. As you saw in our examples above, there are images and small business org chart templates you can download and edit using a software program like Adobe Photoshop.

On the other hand, you might choose to create your business organizational chart in a simple, reliable program you might already own, like Microsoft Office (Excel, Outlook, PowerPoint, or Word) or Google Sheets. You also have the option to purchase a template from a provider like SmartDraw or Lucidchart. To make the most out of your investment, however, you might consider purchasing an HR or payroll software that includes this functionality (among other features). As an example, Gusto's all-inclusive platform allows you to create an org chart within their system, as well as manage your essential payroll and HR tasks.

Although technically , you could diagram your small business org chart by hand, if you use an online template or software, you can modify your graph with ease as your business expands and staff changes.

Step 4: Fill in your business organizational chart and file it securely.

Finally, once you've chosen how you're going to complete your org chart, you'll be ready to actually fill it in.

With the data you've compiled, you'll fill in each box or branch of the chart that you’ve picked. Once again, if your diagram is hierarchical, you'll start with the owner or CEO of the business at the top. Then, you'll create a box below the owner for each person who is an immediate report, and draw a solid vertical line down from the proprietor to each of these supervisees. You'll continue this process for each layer in the company chain of command, and move down the corporate ladder until you’ve placed every employee on the chart.

If your graph is a functional design, you'll fill in the primary boxes with the information for the head of each department and the remainder with the information for every individual they directly manage. You'll follow the same procedure with a matrix chart—with this chart, however, don't forget to include secondary managers to the side of each department, and make dotted lines (or some other distinction) between boxes to represent those additional supervisory relationships.

Last, with a circle chart, you'll add the information employees and duties of each department to the corresponding pie slice, and your diagram is complete.

Once you've completed your small business org chart, you'll want to be sure you save it in a secure location—if you're not utilizing an HR software or another program that allows you to save it within that system. You'll want to keep your organizational chart on hand to update as your business grows and changes.

Along these lines, it's also helpful to store a copy of your org chart on a shared company server, drive, or employee portal so that everyone in your company can see it (but not change it)—this way, everyone in your organization can understand how the company is structured and refer back to the chart as needed.

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Small business organizational chart templates

If you're not ready to invest in a software platform to build your diagram, you may be interested in exploring different small business organizational chart templates. As we mentioned, there are well-known solutions, like Microsoft Office, that offer org chart templates that you can download and use for your business. Let's look at a few examples:

Microsoft Office : Within the templates section of the Office website, you can find various, free business org chart templates that you can download for free and customize within PowerPoint, Word, or Excel. For a simple hierarchical chart option, you might start with this "Minimal organization chart."

24Slides : Among other business template options, 24Slides offers free small business org chart templates that you can copy and edit within Google Slides. They also offer these templates in different types including the classic hierarchical chart, as well as the circle chart.

Canva: Image editing and graphics platform Canva allows you to design and customize your own business organizational chart (for free, you just need to sign up for an account) using their system.

Vizzlo : Although Vizzlo does offer paid plans, with their free version, you can access over 100 different chart types, including small business org templates. Plus, you have the option to edit your template within Vizzlo, or create your chart direct in PowerPoint or Google Slides using a Vizzlo integration.

Of course, these are only a few options—there are numerous additional templates and examples you can find by searching and browsing online.

The benefits of a business org chart

As we've shown through our four-step guide, creating a business organizational chart can be a fairly straightforward and simple process. However, if you're just starting out, or don't have a dedicated employee or department to work on developing this graph, you may be wondering if you really need an org chart. Ultimately, the decision is up to you—but, to this end, it's worth highlighting some of the benefits of one of these diagrams and why they can be so useful for your small business.

Clarify management structure

If you're just starting your business the process necessary to construct a business organizational chart forces you to officially distribute tasks and flesh out the roles of each individual and the purpose of each department in your enterprise. This avoids confusion later, as your business grows. Of course, you can always restructure your business organizational chart down the road—however, if you outline the expectations for each position early on, you’re already a step ahead in the entrepreneurial process.

On the other hand, if your company is more established, a business org chart helps both new and existing employees to understand where they fit within the company’s framework, which clarifies any questions regarding the chain of command. This transparency saves time and increases efficiency, as workers can consult your organizational chart and determine exactly who to speak with when faced with a given issue. Plus, if your business organizational chart is well-structured, your employees will already know not just the name of the proper individual to consult, but also what position they hold and what responsibilities they oversee.

Increase operating efficiency

Another benefit of creating and maintaining a small business org chart is that by doing so, you can examine your company’s current structure and unearth potential ways to improve it. Are certain employees responsible for too many tasks, and others too few? Is there unnecessary overlap between individual workers? Are there any duties that fall through the cracks? Should you reorganize in order to meet those needs, hire additional workers, or possibly even outsource these assignments? You may find that you can better utilize the workers you already have, and thereby increase productivity.

A business organizational chart can also improve cross-functional communication throughout your business, which leads to more effective project management. It’s easier to accomplish tasks that involve multiple workers or teams when the reporting structure is clear, and everyone knows who to talk to about what.

Demonstrate current success

Even if you think that your business wouldn’t benefit from an organization chart, you may find that potential lenders want to see one when you're applying for financing. Similar to a business plan, banks, institutions like the SBA, and potential investors want assurance that you’ve carefully considered the structure of your business, as such preparation is often an indicator of future success.

As financial professionals, they’ll also want to ensure that the business organizational method you’ve chosen is one that they believe is likely to prosper—so that you can pay back your potential business loan on time.

Facilitate future planning

Finally, a small business organizational chart can help you prepare for the evolution and expansion of your business. In this vein, we'd recommend that you create two versions of your organization chart: one that reflects your current company structure and one that shows your growth objectives. You might even consider additional charts that indicate how you might reorganize should unexpected changes occur, like reductions in funding or the sudden departure of a key employee.

Your second business organizational chart, of course, will have a lot of blank spaces—room for all the positions you’d like to fill in the future as implement your business growth strategies. In this way, you can use your chart to find possible holes that exist in your current staffing, and you’ll have a built-in roadmap for future hiring.

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The bottom line

At the end of the day, taking the time to plan and create a business org chart can be extremely beneficial for your small business—now and in the future. Whether you develop this diagram yourself, or work with your team to do so, you can follow our four simple steps to complete the process relatively quickly and easily.

Plus, if you already utilize a payroll or HR software, you can check to see if your platform already includes an org chart builder. If it doesn't, you might decide to use one of the templates we've discussed here. On the other hand, if you don't have an HR or payroll software, you might consider exploring some of the top options out there—Gusto, Zenefits, etc.—as any of these solutions will not only allow you to create a small business org chart, but will also help you efficiently and effectively an important part of your day-to-day operations.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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What Is an Organizational Chart?

• How It Works

Hierarchical Organizational Chart

• Other Types
• Organizational Chart FAQs

The Bottom Line

• Business Essentials

Organizational Chart Types, Meaning, and How It Works

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

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An organizational chart is a diagram that visually conveys a company's internal structure by detailing the roles, responsibilities, and relationships between individuals within an entity. It is one way to visualize a bureaucracy .

Organizational charts are alternatively referred to as "org charts" or "organization charts."

Key Takeaways

• An organizational chart graphically represents an organization's structure, highlighting the different jobs, departments, and responsibilities that connect the company's employees to each other and to the management team.
• Organizational charts can be broad-based, depicting the overall company, or can be department- or unit-specific, focusing on one spoke on the wheel.
• Most org charts are structured by using the "hierarchical" model, which shows management or other high-ranking officials on top, and lower-level employees beneath them.
• Other types of charts include the flat org chart, the matrix chart, and the divisional org chart.

Understanding Organizational Charts

Organizational charts either broadly depict an enterprise organization-wide, or drill down to a specific department or unit.

Organizational charts graphically display an employee's hierarchical status relative to other individuals within the company. For example, an assistant director will invariably fall directly below a director on the chart, indicating that the former reports to the latter. Organizational charts use simple symbols such as lines, squares, and circles to connect different job titles that relate to each other.

Regardless of an organization's structure, org charts are extraordinarily useful when an entity is contemplating restructuring its workforce or changing its management complex. Most importantly, org charts let employees transparently see how their roles fit into the overall company structure.

This most common model situates the highest-ranking individuals atop the chart and positions lower-ranking individuals below them. Organizational hierarchies generally depend on the industry, geographical location, and company size.

For example, a public company typically shows shareholders in the highest box, followed by the following in descending vertical order:

• Chair of the board of directors
• Vice-chair of the board
• Board members
• Chief executive officer ( CEO )
• Other C-suite executives (joined to one another by horizontal lines)

Other job titles that may follow c-suite execs include:

• Senior vice president
• Vice president
• Assistant vice president
• Senior director
• Assistant director
• Assistant manager
• Full-time employees
• Part-time employees
• Contractors

Many formal organizations are organized hierarchically and can be shown in chart form. These include corporations but also nonprofits, governments, schools & universities, and the military (as the chart below illustrates).

There is no single correct way to fashion an organization chart, as long as it identifies the officials, employees, departments, and functions of the firm, and how they interact with each other.

Other Types of Organization Charts

• Flat — also known as a "horizontal" chart, the flat org chart positions individuals on the same level or only a few levels, indicating more power equality and autonomous decision-making ability than is typical with employees in hierarchical corporations.
• Matrix — This more complicated organizational structure groups individuals by their common skill-sets, the departments in which they work, and the people they may report to. Matrix charts often interconnect employees and teams with more than one manager, such as a software developer who is working on two projects—one with their regular team manager, and another with a separate product manager. In this scenario, the matrix chart would connect the software developer to each manager they are working with, with vertical lines.
• Divisional — This chart subdivides the company based on some specific criteria. It could be by product lines offered or geographic regions. An example would be an auto manufacturer organizing its company by product type. The respective divisions would have a certain autonomy but this would likely incur additional overhead cost.

What Should an Organizational Chart Show?

An organizational chart should visually show what the hierarchical status of a particular employee relative to other individuals within the company. For example, an assistant director will invariably fall directly below a director on the chart, indicating that the former reports to the latter. 

Why Is an Organizational Chart Important?

Org charts depict an organization's hierarchy, which can clearly identify seniority and lines of authority that ought to be followed. It can also show which roles are responsible for what tasks, divisions, departments, or regions. This can remove ambiguity and improve communication.

What Are the Most Commonly Used Organizational Charts?

The two types of organizational chart formats that are most often used are hierarchical and flat. Hierarchical is the most common and it shows the ranking of individuals based on their role in the company in a descending vertical order. A flat format, also known as a "horizontal" organizational chart, places all individuals on only a few levels or just one level, and is indicative of an autonomous decision-making ability where this power is equally shared.

How Do I Make an Organizational Chart?

There are software packages and web templates available to help make an organizational chart. You can even produce one by hand. The key is to depict the organization's hierarchy, with more senior positions at the top. Underneath each position should be subordinate positions and roles, which may be segregated by division or department. Depending on how the organization is structured in reality, the chart should approximate it.

What Are Other Types of Organizational Charts?

Less commonly used, but still effective in defining roles, are the matrix and divisional organizational charts. The matrix organizational chart groups individuals by their common skill-sets, the departments in which they work, and the people they report to. It is dubbed "matrix" as it shows employees and teams interconnecting with more than one manager. Divisional would show the organization of a company based on some specific criteria, say a product line or geographical area. For example, an auto manufacturer might be organized based on the different types of products they offer.

Organizational charts allow one to visually understand an organization's structure and hierarchy. This can give an overview of how information and instructions are deployed through organizations, which can range from government bodies to corporations to the military. The most senior positions appear at the top of the chart with subordinate roles falling under them. The chart's appearance and flow will vary depending on an organization's size and how its roles are arranged.

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How to Create an Organizational Chart for Your Small Business

By Becky Simon | April 5, 2022

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Creating an organizational chart can help a small business organize and plan for growth. We’ve simplified the process with a step-by-step how-to guide, example org charts, and expert tips.

Included on this page, you’ll learn why your small business needs an organizational chart,  how to create a simple organizational chart from a template, and how company culture plays a part in the shape of your chart.

What Is a Small Business Organizational Chart?

A small business organizational chart is a structured visual display of the people who fill the roles in a company and their working relationship with one another. It is a straightforward graphic that shows who reports to whom.

Aseem Kishore, the CEO of Help Desk Geek , outlines some of the benefits of creating an organizational chart. “Organizational charts are gaining huge popularity — and rightly so, because they have many advantages. The most fundamental advantage of an organizational chart is the fact that the reporting line and chain of command become clear. [Organizational charts] also help in noting job vacancies and overall headcount.”

Members of the C-suite and directors typically create the organizational chart but lower-level managers should also provide input. To make a chart more visually appealing, consider consulting with a designer once you have finalized the basic structure of your chart. 

Visit our guide to learn more about organizational charts, including how to create one from scratch in Microsoft Excel .

Why a Small Business Needs an Organizational Chart

With an organizational chart, small businesses can more easily outline the roles and reporting structure of their employees. By outlining the organizational structure, companies can help provide a roadmap for growth, as well as improved visibility and communication.

Some of the biggest advantages of having an organizational chart for small businesses include the following:

• Improve Visibility: By making your business more transparent, you’ll increase trust and communication among employees and departments. An organizational chart can foster visibility by making reporting information available to all members of the organization. “For smaller businesses, the basic aim is to clarify each other's positions in order to avoid office politics,” says Kishore. He suggests creating a simple chart and sharing it with all employees.
• Reinforce Company Culture: Your organizational chart can help establish and provide insight into your company’s culture. A chart that outlines a long, tall hierarchical structure may represent a company that has a lot of room for advancement in set roles, while a short, wide structure may represent a company that encourages employees to try many things and be less specialized.

• Improve Onboarding: Having an organizational chart available for new hires can help them familiarize themselves with the people they will be working with.

• Encourage Accountability: An organizational chart lays out exactly who reports to whom and who is responsible for various people and projects. Having one can help ensure that managers are not overburdened and that no one gets lost in the shuffle. “For leadership, a well-designed organizational chart makes it easy to view headcount allocation per department, front versus back ratio, and other important metrics,” says Monteiro.

Types of Small Business Organizational Charts

There are many types of organizational charts, but most small businesses will choose one of three: flat, hierarchical, or matrix. We’ve outlined the distinctions among the display types below:

• Matrix: Matrix-style charts are most useful for companies that work on multiple projects at once, or with teams that are not always discrete from one another. The matrix style divides employees by department, but also by project, to visually display what everyone is working on at a given time. This chart will likely need to be updated more often than the others as projects reach completion and tasks change.

How to Create a Small Business Organizational Chart

Creating a small business organizational chart is a simple process. First, organize the names and titles of the people in your organization. Then, determine who reports to whom and create a chart. Add design elements to personalize your chart, then share it with your organization.

• Create Your Chart: Start at the top with your CEO and work down from there by adding the CEO’s direct reports, then their direct reports. It is generally easier to approach your chart row by row, adding all the employees in one tier across the company, before adding the employees that report to each of them. Keep it simple at this stage, and stick to names and titles. Don’t worry about adding visual flair at this point — just ensure that your data is accurate.
• Proofread and Make Changes: Share your draft chart with others to verify its accuracy and make any needed changes. Compare your chart against your employee roster to ensure that titles are up to date and that all names are spelled correctly.
• Add Design Elements: Add employee headshots and company branding, and change the colors of departments or tiers. Standardize your spacing and shapes. A basic chart requires very little design, but if you plan to share your organizational chart widely, you may consider consulting with a designer for this step. For design inspiration, check out our roundup of free organizational chart templates for Microsoft Word .
• Share and Store: Share your completed organizational chart with your employees, and store it in an easily accessible place. Update your organizational chart on a regular basis to maintain accuracy.

How to Make a Simple Organizational Chart for a Small Business Using a Template

You can create an organizational chart very simply, using our downloadable Excel templates . Use the templates as a simple, pre-made base that you can add to and customize to suit your organization. 

We’ll walk you through step by step on how to create an organizational chart from a template below.

1. Download Your Organizational Chart Template

Download Hierarchical Organizational Chart Template — Microsoft Excel

This template provides a simple base hierarchy that you can build upon to create your own organizational chart. Copy and paste the name bubbles, connecting lines, and photo placeholders to create your layout, and then add photos and customize the look. Hierarchical organizational charts are widely used by small businesses and are the easiest to revise and build on as your business grows.

Once you have downloaded your template, open it in Microsoft Excel.

Pro Tip: Make sure to click Enable Editing at the top of the spreadsheet. Doing so will allow you to make changes to the document.

2. Enter Your Company Information

• Click on the Company field and enter the name of your company. 
• In the Compiled By field, enter your name. 
• Enter the date in the Date Completed field.

3. Draft Your Layout

Determine how many employees you need to include and where they fall within your chart. Start at the top and determine how many employees are at each level; then, complete each successive level. Make a list of names and who they report to.

Pro Tip: Sketch your layout on a piece of paper to use for reference when creating your chart in the template.

4. Add Employee Entries to the Chart as Needed

• Click and drag the newly pasted icon to the exact spot you would like to place it. Repeat the copy-and-paste process on the image placeholder icon.

5. Enter Your Employee Information

• Click on the top-most bubble (which is colored blue-gray by default) in the template and enter the name of the highest-ranking employee in your company, as well as their title. 

6. Review and Revise

Send your first draft to colleagues to review, and make any needed changes. Verify that names and titles are spelled correctly and that lines of report are correct.

7. Add Employee Photos

Once your layout is complete and the employee information has been entered into your chart, change the placeholder images to pictures of your employees. 

• Repeat these steps for every employee on your chart.

8. Customize Your Chart

• To customize the look of your chart, click on an icon in your chart. 
• With an icon selected, click on the Shape Format tab .

From this tab, you can change the shapes and colors of your employee entries.

Pro Tip: You can also access these tools by right-clicking an icon and clicking Format Shape from the drop-down menu.

• To change the shape of an icon, locate the Insert Shape tab, click Edit Shape , then highlight Change Shape . 
• Choose from a variety of shapes in the following drop-down menu.

• To change the color scheme of an icon, locate the Shape Styles tab. 
• Change the background color of a shape by selecting a color from the Shape Fill drop-down menu, or change the color of an outline by clicking Shape Outline . 
• You can add various edge effects to a shape from the Shape Effects menu, or select a pre-made theme by browsing with the arrow buttons. 

Pro Tip: Maintain visual cohesion by ensuring that employee icons on the same level are the same color and shape as one another.

9. Save and Share Your Chart

Save your organizational chart in an accessible drive, and share it with your team. Revisit and revise your chart on a regular basis to ensure that it is accurate and up to date.

Small Business Org Chart Sample Template

Download Hierarchical Organizational Chart Template Example — Microsoft Excel

This template is an example of a simple organizational chart for a small business. It is prefilled with the names and job titles of three tiers of employee hierarchy but can be easily customized to suit your needs. Add or subtract employees, change the reporting lines, and enter job titles to create an organizational chart for your own small business.

Tips for Creating an Organizational Chart for a Small Business

An organizational chart for a small business can take many forms. We’ve rounded up some tips, from incorporating headshots and other design elements to considering multiple versions of a chart, and expanded on them below:

• Use Employee Headshots: If you are using your organizational chart to aid in onboarding new employees, including headshots is a great way to help familiarize them with the people they will be working with. It is unlikely they will be able to meet everyone on their first day, and it can be very helpful to put a face to a name.
• Use Cohesive Design Elements: An organizational chart can be as simple as titles connected by lines, but paying attention to spacing and adding cohesive color and shapes can both make a chart easier to read and more memorable. Consider using a template or working with a designer to create a chart that is easy to parse and nice to look at.
• Use Available Software: An organizational chart is easy to make in Microsoft Word , Microsoft Excel, or Google Sheets. You can also use flowchart creators like Lucidchart to make simple charts, as well as more powerful image creation and editing tools like Adobe Photoshop to make more complicated graphics. All of these tools offer their own advantages, so use the ones you are most familiar with for best results.
• Create an Initial Chart Without Names: When creating an organizational chart for your company for the first time, consider leaving out names. Start by listing out all of the roles and responsibilities that are needed to do business. When you add names, it will be easier to see the gaps and easier to plan to fill them. “By removing names from the equation, we can concentrate on structuring our organization rather than particular people,” explains Reid.
• Multiple Versions: You may find it useful to create different versions of your chart for different use cases. A chart for onboarding new hires may have photos, for example, where an internal reference chart for C-levels may not need them. “You might also consider a chart with current positions and one with open positions, as both will function as a tool for decision-making and growth,” suggests Monteiro.
• Keep Things Concise: In general, keep your chart as simple as is needed. As your business grows and your chart expands, you might consider displaying whole teams as a single entry on your chart, rather than listing the names of everyone on those teams. “My organizational chart is in the form of a single-page PDF file. I believe having multiple pages makes it more complicated, so I always aim to fit everything on one page. When modifications are needed, I make them on a separate file and convert it into a new PDF to retain records over time,” says Anevski.

What Is the Best Organizational Structure for a Small Business?

The best organizational structure for a small business is typically a hierarchical form that reflects the needs and current reality of the company. Organizational structures vary widely based on the company size, the industry, and the changing nature of projects.

Smaller businesses have fewer employees, which can mean that people fill multiple roles. If you find that your employees wear many hats without rigidly defined roles, you might try a flatter structure. If your positions and roles are well-defined and unchanging, a traditional top-down hierarchy may be best. 

If your company works on multiple projects at the same time, with multiple teams, a matrix might be best to display that reality. Some small businesses may find that the top of their hierarchy remains unchanging while their teams change based on the project. A project-based structure can provide some flexibility for small businesses that may have less specialized teams. “A project-based structure has worked best for our small business. Our industry culture supports this structure as most of us operate using smaller workflows. The project-based system helps add to the resource pool and makes it more diverse. It also helps in allocating resources and finishing deadlines with increased clarity,” says Gamez. 

The shape of your structure may grow wider or longer, depending on how many rungs of accountability your business has and how often they work together. “My small business has always used a functional organizational structure, but no matter what you do, employees should be organized according to their skillset and corresponding function in the company,” suggests Anevski.

The Role a Work Culture Plays in Creating an Organizational Chart for a Small Business

Your chart can reinforce and reflect your culture in many ways. A smaller business should try to encourage interdepartmental cooperation and problem-solving rather than strict role-based work because this can promote better visibility, increased accountability, and better company-wide problem-solving.

“Culture has a profound effect on organizational structure. If a company's culture is open and very lean, that would reflect in its structure, which would not be very tall, rather wide — with cross-functional teams included. However, if the company has longer reporting lines, the structure will be longer as well,” explains Kishore. A company that is stricter in its approach to roles and rigidity will produce a taller, narrower chart. Either way, a chart that reflects the reality of the company will result in better trust and cooperation between employees who know what they are responsible for and whom they report to.

“My company culture focuses on teamwork,” says Anevski. “With the functional structure, each separate department is managed independently, helping different teams feel self-determined. The structure also allows employees to focus on their specific roles while encouraging growth and specialization.” 

Meanwhile, Reid his experience working in the culture of a taller chart. “We utilize the standard hierarchical model for our organization. The culture helps shape the structure by enforcing some measures. For example, government regulations require us to have specific procedures to be compliant. This compliance model requires structural changes to be incorporated. The structural requirements for incorporating formal communication differ from more informal communication,” he says.

Examples of Small Business Organization Charts

An organizational chart can take many forms, especially for small businesses. We’ve provided some examples of the kinds of charts you might expect to find in different small business situations below.

• Tech Startup: This organizational chart represents a very small tech startup with a very small staff. Most employees report directly to the CEO, who takes care of most unlisted tasks and oversees the general management of the company. It is likely that every employee on this chart is regularly delegated tasks outside of their strict job description.

​​What to Do After You Create a Small Business Organizational Chart

Once your organizational chart has been created, don’t let it languish. Revisit and revise your chart regularly, utilize it when onboarding employees or introducing your business to people, and share it with employees so that they can stay informed.

• Regularly Revisit and Revise: As your business grows, it is important to revise your organizational chart to reflect those changes. Set a schedule to revisit your chart a few times a year and make updates as needed. “As a business owner, you should expect that your small business won’t stay small forever. As it grows and hires more employees, your organizational chart will need to be modified. Always be prepared to add more people to your chart. For any small business, the chart will start out small and grow over time,” says Anevski.
• Utilize It Often: Consult your chart when considering hiring new employees or creating new teams. Your organizational chart can be a great tool to introduce your business to new employees and clients, as well as identify gaps in your command chain.
• Make It Available to Employees: When your chart is available to employees, you make it easier for them to contact the right people and answer questions. “We give the organizational chart to each of our employees. If someone ever needs information, they can follow the chain of command or go directly to the appropriate department, ” explains Reid.
• Plan Individual Employee Growth: Your organizational chart can be a great tool to track and plot employee growth. “We use it to assist organizations in preparing their career proposition for employees, developing their job architecture, and workforce planning. It is a powerful tool for HR to partner with the company leadership,” Monteiro shares.
• Create and Change Teams: Your organizational chart can help put together teams for new projects. Use it to see what people have done in the past and where they might be needed for future projects. “We use our organizational chart to delegate resources based on the nature of the project, skills required, and deadline dates. Since all resources are plotted as project-based, if the same skills are needed, a project shares and swaps resources. It has helped us become more agile and dynamic with our decision-making capabilities,” says Gamez.

Optimize Your Organizational Chart for a Small Business with Smartsheet

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Organizational Chart

Visualize employee information quickly from templates or data, what is an organizational chart, organizational chart templates, organization chart types, 10 tips for perfect org charts, how to make an organizational chart, org chart tutorial, rules for formatting org charts, with smartdraw, you can create many different types of diagrams, charts, and visuals.

The definition of an organization chart or "org chart" is a diagram that displays a reporting or relationship hierarchy. The most frequent application of an org chart is to show the structure of a business, government, or other organization.

Org charts have a variety of uses, and can be structured in many different ways. They might be used as a management tool, for planning purposes, or as a personnel directory, for example. Perhaps your organization doesn't operate in a "command and control" style, but instead relies on teams.

Here are some ideas and examples to help you design the perfect organizational chart for your needs.

How Organization Charts Are Used

Organizational charts are useful in a number of ways. Here are a few of the ways your company or group can benefit from an org chart.

• Show work responsibilities and reporting relationships.
• Allow leadership to more effectively manage growth or change.
• Allow employees to better understand how their work fits into the organization's overall scheme.
• Improve lines of communication.
• Create a visual employee directory.
• Present other types of information, such as business entity structures and data hierarchies.

The type of organization chart you make should mirror the management philosophy and organizational structure of your company.

There are four basic types of organizational charts:

• Functional Top-Down
• Divisional Structure
• Matrix Organizational Chart
• Flat Organizational Chart

Learn more about organizational chart types .

Tips For Making Org Charts

Creating a perfectly formatted, professional-looking organization chart doesn't require special skill, but it also doesn't happen by accident. Here are 10 helpful tips for creating a perfect org chart.

How to Make an Organizational Chart

We usually think of an organization chart of having a fairly rigid, top-down structure. Here's the format of a basic three-level org chart.

But just as one size business suit doesn't fit everyone, the same can be said of an organizational chart. You'll want to custom-tailor an org chart to fit the needs of your organization. There are a lot of factors to consider. What type of information should be included in each box? Should the chart flow top-down or in another direction? What if there are people with multiple roles?

The answers to these and other questions will help you decide how to create an organizational chart to fit your unique situation.

Additional Org Chart Resources

Video: how to make an org chart with smartdraw.

This informational video offers a brief overview of how to get started making an org chart with SmartDraw. Starting with an org chart template, this video takes you through the basics of creating a SmartDraw org chart. In less than four minutes, it shows you how to make an org chart that looks professionally produced.

Using Org Charts Online

Go beyond the printed org chart. Online org charts are interactive. They let you create hyperlinks to other information and resources. They are easy to share and distribute within or outside your organization. Plus, an online org chart doesn't have to be reprinted and redistributed, so it's much easier to keep up to date.

Org Charts and Microsoft Office ®

More than 90 percent of organizations supply Microsoft Office ® to their workers. Many try to make an org chart using Smart Art, and find it frustrating. Fortunately, SmartDraw integrates easily with the Microsoft Office ® suite, as well as with other popular services such as Dropbox ® , Google Drive ™ , and OneDrive ® . Not only is it easier to create an org chart in SmartDraw, but learn how easy it is to transfer an organizational chart created in SmartDraw to any Microsoft Office ® product.

Create an Organizational Chart from Imported Data

Perhaps the easiest way to create an org chart is to generate it automatically from a data file that lists all of the employees and who they report to. Learn how here .

Organizational Chart Examples

The best way to understand organizational charts is to look at some examples of organizational charts.

Org chart templates can give you a good starting point for making an org chart. Browse and edit popular org chart templates .

Click on any of these organizational charts included in SmartDraw and edit them:

Browse SmartDraw's entire collection of org chart examples and templates

More Organizational Chart Information

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How to create an organizational chart (with free examples)

An organizational chart outlines how your company functions in real time. This diagram shows the reporting relationships between job titles and the roles in your organization. We’ll explain the different types of organizational charts and provide free templates for you to customize your own.

You’re having a family dinner when your grandma pulls out the family tree. She uncrinkles the piece of paper and traces her name down the line. As she searches, her finger lands on a name. “See! There he is, right next to your cousin Charles!” She points to the name of your third cousin, proving that this name matches that of a famous poet. 

In this guide, we’ll explain how to make an org chart, the different types of organizational charts, and provide free templates so you can customize and build your own.

How to make an organizational chart

An organizational chart is a way to visualize your company’s structure. To create an org chart, you’ll need to gather team member information and decide how you’d like to build the chart. 

As you consider the reporting relationships in your organization, you can plan your chart from top to bottom. 

1. Define scope

You can treat your organizational chart like any other new project you work on. Defining the scope of your org chart can help ensure it clearly represents your team structure . The scope will determine the overall purpose of your organizational chart.

Consider these questions to get started:

Will your org chart act as a resource for team members to know who’s who within the company? 

Will you share your organizational chart with external stakeholders or partners? 

Will you need multiple charts for different levels of the company? 

Asking these questions from the start can help you gather the right information and map out your chart.

2. Gather information

Gathering information is the most important step of making an organizational chart because without the right information, you won’t be able to proceed.  You can gather information by surveying individual team members through email or working with your HR department. 

You’ll need up-to-date information about the people in your company, including employee names and their latest job titles. You’ll also need to understand reporting relationships throughout your company, such as the hierarchy between managers and direct reports. Consider gathering headshots of your team for added personalization.

3. Decide how to build your chart

Deciding how to build your organizational chart is crucial because different tools can make the process easier. Drawing out your org chart by hand isn’t time efficient and will make your results hard to share, so consider harnessing the power of a tool for this process. 

Using an editable PDF can save you time because the template is pre-built with placeholders. You can then easily share the PDF with the rest of your company. 

4. Plan for updates

After creating your org chart, use a team calendar to plan for regular updates. After all, it’s likely that your company structure and team dynamics will change often. 

People switch in and out of positions, new employees are hired, and reporting relationships change. With a digital org chart, it’s easy to update the structure and redistribute it to team members.

Organizational chart templates

Creating an organizational chart can be easier when building from an org chart template. Most companies follow similar structures, whether it’s a top-down structure or a matrix structure. 

You can use the org chart examples below as jumping-off points. To create your custom org chart, determine which organizational type best represents your company structure. Then, update the template to fit your unique team needs.

Types of organizational charts

There are four common org chart types. Each one of these charts uses a different chart design and represents a different way that a company might function. Since an organizational chart is basically a hierarchy chart—a visual translation of your company’s internal structure—the chart type you use should mirror your organization’s reporting relationships and decision-making procedures.  

1. Functional top-down

A functional top-down org chart is the most common structure, with the company functioning as a hierarchy. At the top of this organizational structure there is one team member, who usually has the title of president or CEO. 

Branching off from that team member are the leaders who are next in charge, like the company vice presidents. The organizational hierarchy extends further into departments and eventually branches into teams. 

2. Matrix organizational chart

The matrix organization is a more complex structure than the traditional top-down design. If your company uses this reporting structure, team members report to multiple managers. 

While employees likely have a primary manager they report to for their department, they may also report to a project manager . These secondary project managers also have department managers they report to, which makes the matrix org chart look rectangular instead of tree-like. 

3. Divisional structure

A divisional organizational structure is a high-level version of the traditional hierarchical structure. Divisional structures make sense for companies that have departments working independently from one another. 

For example, companies with separate product lines may work in divisional structures because each product line has separate IT, marketing, and sales departments.

4. Flat organizational chart

The flat organizational chart is unique because it shows few or no levels of management. This type of organizational structure may be present in a small business or a modern business that’s experimenting with no chain of command. 

With this type of organizational structure, the company promotes wide-spread team member self-management and decision-making. 

How to use an org chart

You can benefit your company by using an organizational structure because it provides a visual representation of different departments and job titles in action. This chart can help team members understand how to collaborate with one another and feel confident in their role and responsibilities. 

Visualize reporting relationships

As a manager, you may use an org chart to show work responsibilities and reporting relationships to new team members. When onboarding new hires, the org chart helps team members get to know their fellow teammates and what they do. It also helps new team members remember who’s who within the company. 

Manage growth and change

Organizational charts can also help the leadership team stay organized and manage growth or change within the company. For example, if a department head notices that one team has become larger than other teams, they can shift or hire new team members to create balance.

See where everyone fits

An org chart creates clarity by showing everyone in the company where they fit in the organizational structure. If a new member joins the team, they can glance at the organizational chart and understand that they have five other members on their team, two assistants below them, and a project manager above them. They can also see that their project manager reports to a department manager.

Improve communication

Having an established organizational structure for your company can improve communication because it makes reporting relationships clear. Without an organizational chart in place, team members may not know who to go to when they have questions. The org chart makes it clear who leads what, so team members can feel empowered to ask questions and collaborate with others.  

Create visual directory

An org chart is essentially a visual directory of your organization. You can  update the chart when team members get promoted or when they leave. Keeping a visual directory up to date keeps everyone informed of who’s working at the company and what their current position is.

Limitations of using an org chart

While organizational charts can increase communication among teams, there are limitations of using them. Knowing these limitations can help you find solutions to any potential issues before they occur.

Can get outdated quickly

Org charts can get outdated quickly as companies restructure and shift team roles. Team members must be mindful and keep the org chart updated with current company structure and staff names. 

Solution: Assign someone to regularly update and redistribute your organizational chart in order to maintain this valuable resource.

Only shows formal relationships

The organizational chart is a one-dimensional document, so it doesn’t offer much explanation beyond the reporting structure it provides. While it’s useful in visualizing the basic company structure, it only shows formal relationships. Many companies function and thrive on various informal reporting relationships that wouldn’t show up on a traditional org chart. 

Solution: Use an org chart as a jumping off point, but keep in mind there may be other working relationships that the org chart doesn’t capture.

Doesn’t display management style

While the org chart shows managers and the team members that report to them, it won’t show what each manager is like. For example, the org chart may show that one manager has two team members and another manager has five team members. Assumptions may be made that the manager with more team members is a stronger leader, but the org chart won’t show that the manager with less team members has a more hands-on management style . 

Solution: Use your org chart as a first point of reference, but be mindful that face to face contact is the best way to understand reporting relationships among internal teams.

Can be difficult to update

Not only can printable org chart worksheets or drawn-out organization charts become outdated quickly, they can also be difficult to update. After all, if your chart is created in a static tool, you’ll have to start from scratch every time your organization’s structure changes.

Solution: Instead of creating your chart in a fixed workspace, opt for a dynamic tool. Platforms like Microsoft Word, PowerPoint, and Excel are easily updated. Or, take it one step further with org chart software or a project management tool that uses integrations and apps to connect your team to data visualizers that map out workflows, like LucidChart and Miro .

Streamline your organizational structure with a chart

While there are limitations to organizational charts, these charts offer a helpful way to understand your company structure. It can also improve communication with upper management by clarifying roles and responsibilities. To build an organizational chart for your company, use our free editable PDFs and customize them as you see fit. 

Need help streamlining teamwork? Find out how Asana helps teams communicate effectively. 

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Writing the Organization and Management Section of Your Business Plan

What is the organization and management section in a business plan.

• What to Put in the Organization and Management Section

Organization

The management team, helpful tips to write this section, frequently asked questions (faqs).

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Every business plan needs an organization and management section. This document will help you convey your vision for how your business will be structured. Here's how to write a good one.

Key Takeaways

• This section of your business plan details your corporate structure.
• It should explain the hierarchy of management, including details about the owners, the board of directors, and any professional partners.
• The point of this section is to clarify who will be in charge of each aspect of your business, as well as how those individuals will help the business succeed.

The organization and management section of your business plan should summarize information about your business structure and team. It usually comes after the market analysis section in a business plan . It's especially important to include this section if you have a partnership or a multi-member limited liability company (LLC). However, if you're starting a home business or are  writing  a business plan for one that's already operating, and you're the only person involved, then you don't need to include this section.

What To Put in the Organization and Management Section

You can separate the two terms to better understand how to write this section of the business plan.

The "organization" in this section refers to how your business is structured and the people involved. "Management" refers to the responsibilities different managers have and what those individuals bring to the company.

In the opening of the section, you want to give a summary of your management team, including size, composition, and a bit about each member's experience.

For example, you might write something like "Our management team of five has more than 20 years of experience in the industry."

The organization section sets up the hierarchy of the people involved in your business. It's often set up in a chart form. If you have a partnership or multi-member LLC, this is where you indicate who is president or CEO, the CFO, director of marketing, and any other roles you have in your business. If you're a single-person home business, this becomes easy as you're the only one on the chart.

Technically, this part of the plan is about owner members, but if you plan to outsource work or hire a virtual assistant, you can include them here, as well. For example, you might have a freelance webmaster, marketing assistant, and copywriter. You might even have a virtual assistant whose job it is to work with your other freelancers. These people aren't owners but have significant duties in your business.

Some common types of business structures include sole proprietorships, partnerships, LLCs, and corporations.

Sole Proprietorship

This type of business isn't a separate entity. Instead, business assets and liabilities are entwined with your personal finances. You're the sole person in charge, and you won't be allowed to sell stock or bring in new owners. If you don't register as any other kind of business, you'll automatically be considered a sole proprietorship.

Partnership

Partnerships can be either limited (LP) or limited liability (LLP). LPs have one general partner who takes on the bulk of the liability for the company, while all other partner owners have limited liability (and limited control over the business). LLPs are like an LP without a general partner; all partners have limited liability from debts as well as the actions of other partners.

Limited Liability Company

A limited liability company (LLC) combines elements of partnership and corporate structures. Your personal liability is limited, and profits are passed through to your personal returns.

Corporation

There are many variations of corporate structure that an organization might choose. These include C corps, which allow companies to issue stock shares, pay corporate taxes (rather than passing profits through to personal returns), and offer the highest level of personal protection from business activities. There are also nonprofit corporations, which are similar to C corps, but they don't seek profits and don't pay state or federal income taxes.

This section highlights what you and the others involved in the running of your business bring to the table. This not only includes owners and managers but also your board of directors (if you have one) and support professionals. Start by indicating your business structure, and then list the team members.

Owner/Manager/Members

Provide the following information on each owner/manager/member:

• Percentage of ownership (LLC, corporation, etc.)
• Extent of involvement (active or silent partner)
• Type of ownership (stock options, general partner, etc.)
• Position in the business (CEO, CFO, etc.)
• Duties and responsibilities
• Educational background
• Experience or skills that are relevant to the business and the duties
• Past employment
• Skills will benefit the business
• Awards and recognition
• Compensation (how paid)
• How each person's skills and experience will complement you and each other

Board of Directors

A board of directors is another part of your management team. If you don't have a board of directors, you don't need this information. This section provides much of the same information as in the ownership and management team sub-section. 

• Position (if there are positions)
• Involvement with the company

Even a one-person business could benefit from a small group of other business owners providing feedback, support, and accountability as an advisory board. 

Support Professionals

Especially if you're seeking funding, let potential investors know you're on the ball with a lawyer, accountant, and other professionals that are involved in your business. This is the place to list any freelancers or contractors you're using. Like the other sections, you'll want to include:

• Background information such as education or certificates
• Services provided to your business
• Relationship information (retainer, as-needed, regular, etc.)
• Skills and experience making them ideal for the work you need
• Anything else that makes them stand out as quality professionals (awards, etc.)

Writing a business plan seems like an overwhelming activity, especially if you're starting a small, one-person business. But writing a business plan can be fairly simple.

Like other parts of the business plan, this is a section you'll want to update if you have team member changes, or if you and your team members receive any additional training, awards, or other resume changes that benefit the business.

Because it highlights the skills and experience you and your team offer, it can be a great resource to refer to when seeking publicity and marketing opportunities. You can refer to it when creating your media kit or pitching for publicity.

Why are organization and management important to a business plan?

The point of this section is to clarify who's in charge of what. This document can clarify these roles for yourself, as well as investors and employees.

What should you cover in the organization and management section of a business plan?

The organization and management section should explain the chain of command , roles, and responsibilities. It should also explain a bit about what makes each person particularly well-suited to take charge of their area of the business.

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What Is an Organizational Chart? (+Examples and Free Template)

March 22, 2019

by Tricia Dempsey

Whether your business has 5 employees or 5,000 employees, organizational charts are a vital visual representation of your company’s internal structure.

It’s easier to understand the benefits of an organizational chart, colloquially known as an org chart, when you imagine your business as an upside-down tree. A startup business might resemble a small birch tree with a few branches and an enterprise might resemble a large redwood tree with an abundance of large and small branches.

Org charts, like trees, spread out into supplementary branches and leaves that define each individual’s role in a company. An org chart paints a detailed picture of the internal structure of a business. If you’re restructuring roles or if you just want to give your employees added transparency, org chart software is an easy opportunity to map each employee in a straightforward view.

What is an organizational chart?

Let’s start by covering the basics of an org chart.

Organizational chart definition

An org chart is a diagram that shows the internal structure of a business. The chart helps visualize the hierarchy of business units and employees to better understand the rankings (levels) and relationships within the organization.

There are no hard and fast rules for making an org chart. As long as the chart is organized by rank with clear branches exhibiting employee relationships, the diagram itself is open to many creative possibilities depending on the industry, the number of employees, and the number of rankings.

Types of organizational charts

While the hierarchical org chart structure is the most well-known, there are other notable org charts to mention, as well. These include the following:

Hierarchical organizational chart

Typically in the shape of a pyramid, a hierarchical org chart features the first-in-command, or the highest-ranked employee or collectively ranked group, at the top of the chart. Some common first-in-command examples include a managing board or a CEO (chief executive officer). Lower-ranked employees are featured below the highest-ranked employee or group on the chart. Each employee is connected to another employee or group that they report to.

Matrix organizational chart

Matrix org charts are similar to hierarchical org charts, except they’re ideal for employees or teams that have multiple managers that they report to. For example, if a marketing team often collaborates with a sales team, they may need an org chart that visualizes the connection between separate project managers and project members.

Flat organizational chart

Flat organizational charts, also known as horizontal organizational charts, reflect a hierarchy with little to no middle management. Small companies typically benefit from using a flat org chart where employees report directly to the top department executives.

Organizational chart relationship visualization

While each org chart type differs slightly, they each require the same visual representation of the chain of command (line relationships) and same-level connections (lateral relationships). These connections visually tell a story about each employee’s status in the company.

Line relationship visualization

An example of a line relationship visualization is someone with a higher ranking than another employee being placed above the employee, with a line directed toward the lower-ranking employee.

Lateral relationship visualization

An example of a lateral relationship visualization is simply employees located next to each other on the chart due to their having the same rank.

Lines are the most common symbol used to identify employee relationships, but feel free to get a little creative with the symbol you use. For charts that are more complex, it’s not out of the ordinary to use dotted lines and solid lines with different meanings. As long as the symbols you use in your org chart map the journey of authority in a clear way, there are no hard-set rules to follow when creating your org chart. Feel free to use photos and unique shapes when creating yours!

Why should you use an organizational chart?

There are a multitude of benefits to creating an org chart for a business of any size. First and foremost, it establishes authority and strictly enforces the expected communication routes within the organization. This prevents miscommunication and helps employees understand where they are in the hierarchy of the company. Additionally, companies that restructure their hierarchy owe it to their current employees to be transparent and upfront about changes in communication and authority by illustrating those changes with a new org chart. Above all, it helps everyone in the company to be on the same page in terms of who is responsible for what.

Disadvantages of an organizational chart

While the benefits of org charts are clear, there are a few drawbacks. For example, org charts require a lot of upkeep. Promotions, resignations and general title changes happen all the time in all industries, making org charts out of date very quickly. However, using a template that is easily changed can prevent editing headaches. Additionally, org charts can be frustrating for organizations that are highly collaborative. Even though matrix org charts help mitigate this, it can be rather difficult to portray the formal communications between employees that collaborate with many different departments. This can be remedied to an extent; for example,  detailed symbols can help visualize the nuances.

How to make an organizational chart

Before starting a company org chart, it’s important to take some time to figure out everyone’s position in the organization and how each position interlinks with others. Once this information is attained, the next step is to decide whether a hierarchical, matrix or flat organizational chart fits your needs. Next, take a look at our free templates to get started on making your very own org chart!

Free organizational chart template

If you have access to PowerPoint, you can download this PPT template. This will give you a good base for your org chart. Feel free to expand on it!

You’re ready to create an organizational chart!

Businesses thrive when transparency and accountability are available to all employees involved. By sharing the inner workings of individual branches and connections within a business, employees have a collective sense of who they report to, who they communicate with, and who oversees specific operations. Even if your company is considered to have a “small tree,” there are endless opportunities to showcase the ever-growing branches and leaves in an organizational chart.

Interested in learning about more charts for your organization? Check out these articles on Gantt charts and PERT charts .

Tricia is a former research analyst focusing on office and design software. Tricia started at G2 in October 2018 after spending nearly five years in the competitive intelligence industry, which led to extensive market research knowledge and experience. She is currently maintaining the integrity of her space by building out new categories and writing data-driven content. Her coverage areas include office and design. In her spare time, she enjoys reading, attending concerts, and gaming.

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What is an Organizational Chart?

Table of Contents

Organizational charts explained.

An organizational chart (or org chart) outlines how your company operates. It can be used to show the structure of a company, the relationships between departments, or the chain of command. Generate your own with our org chart maker , or read on to discover more about the various types and how they can be used.

What should an org chart include?

Org charts are also sometimes known as organogram charts (or organigrams). These corporate structure charts show people’s relationships inside of an organization. They’re similar to family trees or kinship diagrams but show working relationships rather than familial ones. In an org chart, the boxes represent employees. These boxes often include the following information:

• Names (and sometimes photos) • Contact information • Roles and job titles • Responsibilities • Professional relationships between individuals

Lines and arrows connect these boxes together, showing where individuals sit in the company hierarchy and how they relate to each other.

Types of organizational charts

Organizational charts come in different structures and formats. Here are some of the most common.

Functional top-down organizational chart

A functional top-down chart offers a hierarchical structure to your business. It starts with one team member at the top of the chart (usually the president or CEO) and feeds down to other employees based on their roles in the company. For example, underneath the CEO, you might have the head of sales, head of marketing, and head of product. Under each of these heads of department, they’ll have a team that reports to them. This format offers clarity to employees. They know what their role is, who they’re working with, and who they report to. The chart also provides a clear path for professional growth. One of the key challenges of this type of org chart is communication siloing . With each department responsible for its own work, cross-functional communication can often go amiss. To make sure this structure works efficiently, teams need to communicate effectively across the business (which is where using a collaborative platform like Miro can help).

Flat organizational chart

A flat org chart (or horizontal organizational chart) shows few or no levels of management. With this type of organizational structure, the company promotes widespread team member self-management and decision-making. This org chart encourages less supervision from management and more involvement from employees. It can be empowering for employees, but it is a tricky structure to scale as a business grows. Flat org charts are more common for smaller businesses that don’t require a clear chain of command. It’s not unusual for growing businesses to move from a flat org chart to a functional top-down chart as they develop different departments.

Divisional organizational chart

A divisional org chart is a top-level version of a hierarchical structure, allowing different areas of the business to control their own resources. Divisions can be split in a variety of ways. These include markets, products, and even geographic locations. Divisions can operate like their own mini business within the company. For example, they can have their own marketing, IT, and HR sales teams. This approach offers flexibility to respond to industry changes, encourages autonomy, and allows divisions to offer a customized approach for their consumers. These structures are best used by larger organizations with areas that work independently of each other. However, as with the functional top-down org chart, divisional structures can often be subject to siloing. Cross-functional communication can be difficult, which could lead to duplication and overuse of resources.

Matrix organizational chart

A matrix org chart is a grid that shows cross-functional teams. Because of this cross-functionality, team members work with colleagues from different departments and report to multiple managers. A matrix org chart is a more complex structure than a simple hierarchical chart, but it allows managers to easily pick people from different teams to work on specific projects. However, this can also cause some conflict regarding capacity and who’s available for certain projects.

What is the best organizational structure?

First, let’s clarify the difference between an organizational chart and an organizational structure. An org chart is based on people, while an org structure is based on functions. Org structures outline the responsibility, accountability, and authority for each role in the company. Unlike org charts, they don’t change often. They’re based on the overall function and vision of the business, so regular changes are rare. When it comes to finding the best org structure for your business, there are two main types to consider: mechanistic and organic. Mechanistic structures are hierarchical and top-down (like the functional top-down chart). Departments in a mechanistic structure will usually follow a clear set of rules, which includes clear responsibilities for the employees and fields of action. Organic structures represent a more collaborative, flexible system (like the flat chart). They have more cross-functional workings, a wider span of control, and more decentralization. The best org structure depends on how you want to work as a business. If you want flexibility and more autonomy for employees, an organic structure would be best. If you prefer clearly defined roles and responsibilities within a hierarchy, mechanistic structures are the better choice.

Uses of org charts

Here are some situations in which creating an org chart can be helpful for your business.

To identify the chain of command

Clearly outline where each team member sits in the company hierarchy. Everyone can see their location in the structure and who they report to.

Miro's fully customizable chain of command template is tailored specifically for this.

To outline cross-functional relationships

Clarify how different departments work together to streamline cross-functional collaboration.

To allocate resources

By having everything laid out in a visual manner, you can effectively allocate resources based on team structures and capabilities.

To restructure

Whether restructuring a project team or an entire business, org charts allow you to plan and map an entirely new business structure.

For growth planning

Use an org chart to plan new hires as the business grows. Clearly identify where you’ll need new employees and what their roles should be.

To support new employees

Org charts are helpful during the onboarding process. You can familiarize new employees with the company structure, who their colleagues are across different departments, and who they should report to.

What is the importance of an organizational chart?

There are many reasons why businesses use organizational charts. To understand their company hierarchy, to pinpoint areas of improvement, to offer clarity to employees, and to improve communication between departments are just a few examples. Let’s look at these benefits in more detail.

To understand your company hierarchy

Having a solid grasp of the hierarchy of your business is beneficial for everyone at the company. For leadership, it helps visualize how teams work together and where everyone sits in the company structure. For employees, it shows who they need to report to and how they fit into the bigger picture. Simply put, an org chart helps companies better understand how to communicate effectively and how to work together to achieve company goals.

To pinpoint areas of improvement

With an org chart, you can highlight inefficiencies in your company structure and identify how to make improvements. You’ll identify how your team works together and where the structure can be improved, and you’ll be able to make the necessary changes based on this information.

To provide clarity

An org chart clarifies everyone’s role in the company or project. Whether it’s hierarchical or horizontal, everyone knows how they fit into the bigger picture, who’s on their team, and who they can go to for advice and guidance.

To improve communication

Offer a better line of communication between team members by clearly mapping out formal relationships. This is particularly helpful for cross-functional teams, where individuals may not know exactly who to reach out to. With an org chart in place, it’s clear who team members can contact from other departments.

Are there any drawbacks to be aware of?

Although org charts provide clarity and structure to a business, there are some challenges you might face throughout the process.

They can quickly become outdated

With new hires, internal movers, and employee turnover, it’s inevitable that your org chart will change over time. This means they constantly need to remain up to date, which can be time-consuming. Fortunately, using Miro makes this process quick and easy. With our online charts, you can update your company information in a matter of clicks, and your changes will be instantly visible to the rest of the company.

They focus solely on professional relationships.

Org charts don’t show how individual team members work together or whether they have a good working relationship. They also don’t show management style, and they don’t map all the methods of communication. All of this information is important to the success of your business, so take this into account when creating your org chart.

They don’t always show the full picture

Org charts are a streamlined representation of your company, meaning they can only provide so much detail. As a result, they can paint a misleading picture of the importance or influence of people at your company. If you do require more insight, you could use an organigraph, which offers more detail.

How to make an organizational chart

Take a look at this step-by-step guide to creating a well-structured org chart for your business.

1. Define your scope

Start by confirming why you’re creating the chart in the first place. Will it be an internal document for employees to use to visualize the company structure? Is it for management to identify areas of improvement? Will you show it to investors and key stakeholders to show how you plan to grow the business? You need to know the purpose of your org chart to make sure that it includes the right information and that it’s structured the right way.

2. Gather relevant information

After clarifying the purpose of your org chart, it’s time to collect all the information you need. This includes identifying employees, their role in the company, and their responsibilities.

3. Pick your org chart format

Choose the org chart format that best suits your company structure. If you want a hierarchical structure, the functional top-down chart or divisional chart could be a good choice. For something with more flexibility and fewer hierarchical levels, consider the flat chart.

4. Choose the right platform

Creating an org chart can be a tedious process, particularly if you have a complex company structure. To make the process easier to manage, be sure to use platforms that offer the right features and structure for your business. Take Miro as an example. Our digital workspace has features that allow teams to create custom org charts. Add your own branding, share the board with members of your team, and upload your own files and images.

5. Input the information

With your platform in place and all the information ready to go, add all the employees to your board. Include as much or as little information as you think is necessary. For example, some teams prefer to add contact information and photos of employees, whereas others simply use their names and job titles. Choose what works best for you and your team — there’s no right or wrong, so long as you have their name and job title.

6. Group teams together

Start to add structure to your chart by grouping teams together. Exactly how to do this depends on the structure you’re using. Refer to our “types of organizational charts” section to learn how to organize your teams based on your chosen organizational chart.

7. Identify relationships and the chain of command

When teams are grouped and you have some structure in your org chart, it’s useful to identify relationships within teams. It’ll help everyone familiarize themselves with who’s on their team and how each person relates to one another in the overall hierarchy. It’s also a chance to pinpoint cross-functional relationships across departments and lateral relationships between management.

8. Share it with your team

When the chart is complete, share it with your team or any relevant stakeholders. If you want to collect feedback on the chart, Miro’s workspace allows users to add comments and suggestions directly to your workspace. That way, you can instantly see their feedback and make any necessary changes to the chart.

9. Keep it up to date

As mentioned, company structures aren’t set in stone. New people join, current employees move positions, and some inevitably leave. To keep your org chart useful and relevant, be sure to update it when changes happen. If you use an online org chart, you’ll be able to simply make changes virtually, and everyone will be able to access your amendments in real time.

Examples of organizational charts

Take a look at some organizational chart examples to give you some inspiration for your own org charts.

Business organizational chart

A business org chart outlines your company structure. It shows your reporting structure, how different departments relate to one another, and how corporate functions work inside your business. A business org chart is often used for companies that want to either restructure their business or wrap their heads around the existing structure. It’s also especially helpful for new employees, as it allows them to familiarize themselves with your company and see the bigger picture.

Create a business org chart →

Project organizational chart

A project org chart structures the personnel of an upcoming project. It allows project managers to see what each person’s role is, the hierarchy of everyone on the project team, and the chain of command. This chart is also a great tool for identifying project roadblocks — such as potential resource gaps — as it allows project managers to visualize any issues and make the necessary improvements.

Create a project org chart →

Organizational change map

An organizational change map is slightly different than a traditional org chart, but it’s a useful example nonetheless. It gives you an overview of the different activities you can take to reorganize your business. If you’re planning to restructure your business or project, this chart is a great way to cover all your bases. You can visualize scenarios, map different stakeholders, and plan exactly how you anticipate the new system will work. When the map is complete, you’ll have found your ideal route for organizational change.

Create an org change map →

Discover more

The Quick Guide to Making a Team Charter

What is a functional structure?

What is a matrix organization?

Organizational chart examples

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What is an Organizational Chart

What do you want to do with organization charts.

An organizational chart shows the internal structure of an organization or company. The employees and positions are represented by boxes or other shapes, sometimes including photos, contact information, email and page links, icons and illustrations. Straight or elbowed lines link the levels together.  With our org chart software, this creates a clear visual depiction of the hierarchy and ranks of different people, jobs, and departments that make up the organization.

Organization Charts, Org Charts, Organograms, Organogram Charts

Organigrams, organigrammes, hierarchy charts.

8 minute read

Do you want to create your own organization chart? Try Lucidchart. It's fast, easy, and totally free.

In 1855, railway general superintendent Daniel McCallum (1815-1878) designed what is thought to be the first modern organizational chart. It was an illustrated diagram of the New York and Erie Railway. McCallum had it drawn up by draftsman and civil engineer George Holt Henshaw (1831-1891). McCallum, born in Scotland, also served as a Union major general in the Civil War. Henshaw, a Canadian, worked for waterworks and railway companies in Canada, the United States and Denmark.

The term “organizational chart” took another 50 to 60 years to come into common use. Consulting engineer Willard C. Brinton used the term in his 1914 textbook, Graphic Methods for Presenting Facts. He touted the value of the charts and said they should be more widely used. The charts were mainly used in engineering circles until the 1920s, when they began to find their way into the business world.

The lesser-known synonyms “Organigram” and “Organogram” came into use in the 1960s.

Organigraph

Types of organizational charts, hierarchical, matrix, hierarchical org chart, hierarchy chart, matrix org chart.

Flat Org Chart

Horizontal org chart, line relationships, chain of command, lateral relationships, solid lines, dotted lines, pros and cons of different organization types.

The types of organizations reflected in these chart types have advantages and disadvantages.  In a nutshell:

hierarchical, vertical, top-down organization

Matrixed organization, flat, horizontal structure, uses of org charts.

What is the best use for an organizational chart? No matter which layout you choose to use, Org Charts are useful for laying out relationships in your organization and ensuring that everyone knows how to communicate essential information.

You can use org charts for:

Organizational and supervisory communication

Restructuring, workforce planning, resource planning, getting more visual with organizational charts.

There are few rules with org charts, so any visual elements that help to communicate are fair game.

Using photos

Using different shapes and/or colors, using company logos or icons, using animations in powerpoint, using 3d shapes.

Limitations of org charts

They can quickly become out of date,, they show only formal relationships, they don’t reflect management style, organigraphs, the close relative of org charts, how to plan and draw a basic organizational chart / organogram, define your purpose and scope, gather the information, determine what platform you plan to use to build your chart, and how you plan to display it., plan for ongoing updates to the chart., more tips for organizational charts / organograms, try breaking down your org chart, the details of people or departments, you might use colors or shapes, use lucidchart's  org chart import  , how to make an org chart with lucidchart.

Want to create org charts that highlight your company’s culture? Choose a layout that works best for your structure, update a design with your company colors, and add employee photos to each role. You can even add links and videos to your document for some extra pizzazz. Try clicking on our  org chart templates and make it your own.

For a truly dynamic experience

Helpful resources.

• What is an org chart and how to create one
• How to make an org chart in Excel
• How to make an organizational chart
• How to make an org chart in Word

With drag-and-drop shapes, real-time collaboration and advanced sharing features, Lucidchart makes it easy to create your own org chart.

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Small business organizational charts

A small business organizational chart is a visual representation of your business structure. It outlines employee roles and demonstrates who employees report to within the company. There are multiple types to choose from and many reasons why you should create one for your business!

Before getting started, it’s critical to establish goals for your organization chart (also known as an org chart) to help you decide which type to use and what information to include.

Does my small business need an organization chart?

You know who everyone is in the business, what they’re supposed to be doing, and the appropriate chain of command, so why would you spend time creating a chart that details all that information? There are several reasons such a chart can be a powerful tool for your company. Here’s how:

• Clearly defines management structure, which is helpful in a complex business
• Helps increase operating efficiency
• Shows current success
• Facilitates planning for the future
• Allows for at-a-glance engagement with the right contacts

Types of organization charts

Understanding the types of org charts available allows you to choose the one that makes the most sense for your business.

Line organizational structure

Also known as a hierarchical organizational chart or a top-down organizational chart, this is the most common structure due to its simplicity. The top of the chart features the executives, then directors (for larger businesses) followed by the department heads, and the employees each department head or manager is responsible for. This traditional hierarchy is simple and rigid. Information flows through each layer of the organization in turn, and the structure doesn’t allow for collaboration between teams or “open door” access to upper management.

For small businesses with few employees, this type of chart is the least complicated, with the owner at the top, shift or department managers in the middle, and other employees under them.

Functional organization structure

Similar to the line organizational structure, the functional organization structure offers more lines of communication. It enables directors and managers to collaborate with one another over teams they don’t directly control, for better information flow and flexibility.

In a small business, you’re likely to have separate teams with a great deal of interaction; the sales department  may have daily interaction with administration and with shipping. This type of chart establishes a hierarchy in each department while allowing for cross-communication.

Line and staff organization structure

This organizational structure is best for companies working in specialist fields. The staff in this situation refers to experts advisors providing technical information, opinions, and advice, who may be allowed to authorize certain activities and assist with reports that bear weight in decision-making. Staff and line positions have different objectives and are often at odds. Conflicting expectations can be confusing for bottom-tier workers and result in lower productivity.

Project-based structure

If your business operates with projects that are different from one client to the next , and from one brief to the next, this structure is the ideal choice. The chart changes as needed for each project. While it’s helpful to be able to mix and match personnel based on project needs, it does mean teams have to adapt to new managers and colleagues for each assignment. Managers must be able to handle a variety of functions across multiple departments.

At the top, you have a director who appoints the project manager for each project. The project manager chooses a team of people to work on the project based on their skills and expertise. When the project is complete, managers and team members are assigned to other projects.

For a small business, projects may internal, for example marketing campaigns or charity events. Project charts can help track teams for each initiative.

Matrix structure

The matrix organizational structure combines several types of organizational structures to create a customized solution to meet specific needs. A matrix organization is characterized by more than one chain of command, with project team members reporting to two or more managers. It’s ideal for businesses that are project-based, where teams must also follow a functional structure.

In this case, team leaders are assigned a representative from each functional area that applies to the project. The functional team member reports to the project manager and the functional manager of that area.

The functional manager oversees the employees and activities to ensure they’re in line with company standards and policies, while the project manager or team leader ensures the project is completed as planned. As with a line and staff structure, conflicts and confusion can arise when reporting to more than one boss.

Circular structure

In a circular structure, there is still a reliance on hierarchy. Higher level employees occupy the inner rings of the circle and lower level employees occupy the outer rings. The executives aren’t at the top of the structure, but rather on the inside to allow ideas to spread outward. The structure is intended to promote open communication and the free flow of information between all parts of the organization.

In practice, the structure is often confusing because it can be difficult for people to figure out where they fit within the organization and who they are supposed to report to. However, in a business where communication is encouraged on all levels, this allows employees to seek advice from any available supervisor, as opposed to a rigid chain of communications.

How to create a small business organizational chart

First, choose the type of chart that best suits your company’s needs. To prepare for the chart creation process, make sure you have a list of all employees available with any pertinent information, such as supervisory relationships. Gathering this information ahead of time will speed the process of filling in the chart.

With the type of chart in mind, choose the tool you’ll use to build the organizational chart. While there’s always the option of hand-diagramming your chart, this time-consuming process isn’t conducive to making quick and easy changes as your organization grows or people leave. If you prefer this option, there are plenty of organizational chart templates  available for download.

You can use a number of free tools such as Microsoft Office or Microsoft Excel to create your chart. There’s also the option to use drawing and presentation programs such as Google Slides or Microsoft Powerpoint.

You can also use org chart software such as Pingboard  to create your chart. Though it is a paid tool,  there is a free version comes with limited functionality that you can use to get started. Some HR and payroll systems, including Success Factors , Zenefits , and Justworks  offer the ability to generate organizational charts using the current employee data in your system.

Ideally, you’ll want something that offers the ability to color code your chart, search by name or job title, and drill down to locate more detailed employee information so that it is easier to interpret, use, and update.

With all the information assembled, fill in the information to complete the chart. You’ll want to at least include the name of the person in the position – leaving it blank if the position is open, along with the department, the role or job title. If there’s enough space, you can also include the location, which is particularly helpful when working with a geographically diverse or remote team. It’s also a good idea to include a photo of the person along with contact information.

Some organizational chart software solutions offer additional functionality so that your chart can also function as an employee directory on  your business website . Those options allow you to enter details that are only visible to the employee and upper management, such as emergency contacts, t-shirt size, and dietary restrictions, which can be useful for company functions and rewards.

For your small business organization chart to ultimately serve its purpose and aid your business, you must be able to update your chart as needed and effectively share each version of the chart with your entire team. Access to an organizational chart facilitates daily communication among staff members and employee efficiency, contributing to smoother business operations, so it’s well worth investing resources into the process. It’s a good idea for small business owners to operate with two versions of their chart; one forward-facing for all employees to see, and one behind the scenes to plan for future growth and vacant positions.

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Organizational Structure

What Is an Organizational Chart?

Last updated: May 11, 2023

Table of contents

What is an organizational chart?

Different org charts, hierarchical org chart, functional org chart, matrix org chart, divisional organizational structure, flat org chart, the benefits of having an org chart, how do i make an org chart, collect the information you need.

An org chart does more than organize your team’s roles & relationships. Learn about the types of org charts, what they’re used for, and how to create your own.

An organizational chart is an important tool for every company — no matter the size. Having a clearly defined org chart can improve communication, increase your chances of turning candidates into colleagues, and convey transparency to the world around you.

An org chart can also be helpful in identifying issues, prioritizing resources, and making the right decisions. But what is an organizational chart, what are its benefits, and how do you create one? In this article, we’ll answer all of those questions.

Let’s dive into it!

An organizational chart is a visual representation of how your organization is structured. Company organizational charts show the reporting relationships between employees, managers, and executives within teams, departments, or divisions.

Companies can be structured in many different ways, so there are several different types of organizational charts. Some are divided by skill and designed with centralized control for making the best decisions, while others encourage collaboration and distribute autonomy to enable faster decisions. Let’s take a closer look at different types of organizational charts.

A hierarchical organizational chart is the most common and traditional way of structuring a company. A hierarchical organization is pyramid-shaped with the CEO at the top. The higher up on the chart, the more decision-making power.

Hierarchical org charts have a clear chain of command, as every employee reports to their functional manager above them in the hierarchy. Communication flows from the top down.

This type of organizational structure is found in companies such as Amazon, Walmart, and Coca-Cola where a clear chain of command is necessary for making the right decisions. Contrarily, this structure is rarely seen in startups. Startups will often implement a flatter structure to move faster and avoid the bureaucracy that can arise in the layers of middle-management.

In a company that operates under a functional organizational chart, employees work in different departments, each having a functional head. Unlike a hierarchical chart, employees are organized by their expertise rather than by decision-making authority.

As each employee is not individually managed, functional organizational designs allow for more flexibility and autonomy within each department, while still keeping a short chain of command to the head of each department.

A matrix organizational chart is defined by employees reporting to both their functional manager above them in the hierarchy _and _a cross-functional manager at a horizontal level in the organization. The functional manager oversees the employee generally, while the cross-functional manager supervises the employee on specific projects.

Matrix-style structures enable collaboration horizontally across different departments and teams while also keeping a clear chain of command vertically in the organization. Matrix org charts are adopted by companies such as Google, Microsoft, and Apple.

In a divisional organizational structure , the company is divided into different divisions. Departments each have their own focus, such as a specific product, market, or geographical location.

Divisional org structures are like small companies within a big company. Each division is responsible for its own operations, thus having its own marketing, sales, finance, and other departments. Employees report to the head of the division that reports to the executives.

This model enables flexibility and adaptability to market changes. However, it can also have downsides. It can require more effort in maintaining clear internal communication and lead to inefficiency due to duplicated efforts in different divisions.

Flat organizational charts are often found in startups. This type of company org chart aims to limit bureaucracy by removing the layers found in a hierarchy chart. This allows for a short chain of command from staff to decision-makers.

An example of a company that has delayered — i.e. flattened their organization — is Valve. The video game company used to operate with a traditional hierarchy, but the founder, Gabe Newell, found this structure to hinder innovation and implemented a flat structure to increase employee autonomy.

Let’s go over a few of the other benefits of creating an organizational chart for your company:

• Creating an org chart can help you get your priorities straight

As we have learned, different organizational charts have different goals. In trying to achieve these goals, the company is structured to prioritize a certain outcome and will often have to compromise on other areas.

A hierarchical org chart , for example, prioritizes a clear chain of command and centralized control at the top of the pyramid. This will often result in thought-out decisions that have been refined through the layers but it comes with the price of slower decision-making processes.

On the contrary, a flat company organizational chart distributes decision-making by giving more autonomy to each employee to make decisions faster. It is often found in startups that are willing to compromise on the quality of the decision to move faster and with more flexibility.

To create an org chart, you’ll need to settle on an organizational structure. This process will force you to define your priorities, make compromises, and maybe rethink your entire organizational design to foster innovation by delayering or by adding more management to increase control.

• Use the org chart to improve your company

Once you have created an org chart, you have a complete overview of your organization. This will make it easier to not only identify challenges but also provide solutions.

Say your engineering department isn’t meeting deadlines. Using your org chart, you can pinpoint exactly where the problem arises.

You may discover that there’s miscommunication between employees and a manager, which means that you need to change the reporting structure or make efforts to improve communication. Or maybe you find out that the engineering team is understaffed. Your org chart can then be helpful in identifying exactly where a project manager is needed so you can allocate resources to solve the issue.

• Show the world who you are

Startups are constantly competing to hire the best talent. With the same old recruiting emails, you’re going to get the same old results. More than 400,000 companies have their org chart publicly available on The Org . The platform helps companies turn candidates into colleagues and has a 40% higher response rate from candidates than traditional recruitment outreach.

Showcasing your team is great for hiring purposes as talent can clearly see how they fit into your org. At the same time, it’s valuable to potential and existing customers, who can easily find the person within your organization relevant to their inquiry.

Furthermore, there’s a symbolic byproduct of having a publicly available organizational chart: by clearly showing how your company is structured, you convey organizational transparency which can increase trust in your company.

An org chart is a helpful way for potential customers and candidates as well as internal executives, managers, and employees to learn about your company. However, choosing the right structure for your company requires some effort.

Follow these steps to create your own org chart:

• Choose the right organizational structure

To start, you need to find the right fit for you among the different types of organizational charts.

Startups will often choose an org chart that prioritizes fast decision-making, cross-collaboration, and fewer expenses for managers. This is often a flat organizational structure.

Middle-sized or innovative, large companies are often seen employing a matrix-style organizational structure that allows for collaboration but also prioritizes a high level of management.

Larger, traditional companies will be more inclined to operate under hierarchies. This organizational structure prioritizes a clear chain of command, department-based collaboration, and multiple layers of management.

Tip: Not sure which structure fits you? Check out our article: “Which Organizational Structure Fits You? Pros and Cons of Different Types of Organizational Structures”

In order to create an organizational chart of a company, you’ll need the following information:

• Your organizational structure. Flat, functional, hierarchical, matrixed, or divisional?
• Names & job titles. Collect the** **names, titles, and preferably pictures of every employee within the organization.
• Departments. Which departments make up your company? Outline it and add employees to the individual departments, teams, or divisions.
• Reporting relationships. Who reports to whom? This information will be central in the organizational chart as it shows the connections between employees, teams, and decision-makers.

When you have collected the data and completed the steps, head over to The Org. Here , you’ll be guided to finalize and publish your org chart for the world to see.

The ORG helps you hire great candidates

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Which Org Structure Fits You?

Matrix organizational structure, flat organizational structure, functional organizational structure.

• March 12, 2024
• Business Growth

What is a Business Organization Chart and Why Do You Need One?

Table of Contents

In a time when things change so fast that even CEOs leave and come back within days , who needs a business organization chart?

But building an effective business organization chart is like creating a blueprint for success.

It provides clarity about roles and responsibilities, fosters communication and collaboration, and ensures that resources are allocated efficiently. 

But how do you go about building such a chart? 

In this guide, we will 

• Take you through each step of the process, from understanding the importance of an organization chart to identifying the key components that make it effective. 
• Delve into the various types of charts and help you choose the one that fits your organization’s specific needs. 

You’ll also find invaluable tips and best practices for creating and maintaining your organization chart. 

Whether you’re a small business owner, a manager, or an HR professional, get ready to unlock the potential of your organization with our ultimate guide to building an effective business organization chart.

What is a business organization chart?

An organizational chart visually illustrates the hierarchical structure of a company, depicting various job titles, roles, and reporting relationships. Typically, it employs boxes and lines to indicate reporting lines and the interconnection of different departments or teams.

Why do you need an organization chart?

All companies–even those with a horizontal structure should have a hierarchical organizational chart. 

It helps employees see where they fit in

No offense to your new hire, but new hires are Dory’s and usually feel entirely overwhelmed. Imagine it was your first day. 

You’d want to know;  

• Who are these people? 
• Do they work in my department? 
• What are their positions?
• What are they like?

An organizational chart will help answer these questions. Well, except maybe the last one. You’ll probably need a team event for that.

An Organizational Chart helps you make smarter decisions

An organizational chart is the foundation of data-driven decision-making. It can help you track;

• Poor performance and productivity
• High employee turnover
• Future skill requirements

For example, if your organization has grown it may mean that there may be new resources needed in some regions of the business. 

Or perhaps you want to make improvements to the product; you’d be able to see very quickly what roles might need to be changed or where new hires might need to be added. 

Organization charts also;

• Assist in clarifying roles and responsibilities
• Let team members know who to reach out to if needed
• Helps you see what processes need to be created to connect teams and their team members better

Given that 40% of leaders cite complex organizational structures as a cause for inefficiency, having a business organization chart helps leaders see where changes can be made to improve efficiency.

How to create an effective organization chart?

Creating a sample business organizational chart involves outlining the structure of a company in a way that clearly demonstrates the hierarchy and relationships between different positions and departments.

• Start with the CEO at the top, followed by other C-level executives directly beneath. 
• Put the title of the position first, then the name of the person occupying it
• Under each C-level executive, place the relevant managers and departments they oversee.
• Use lines and dotted lines to connect each position to its direct superior to indicate the reporting relationships clearly.
• Ensure the finished product is accessible to all team members

PS You’d still represent it this way whether team members are remote or not.

What is the difference between a business organization chart and a people directory🧑‍?

An organization chart focuses more on the hierarchy of your company, as opposed to the people directory which focuses on contact and profile information. 

Typically an organization chart is just that: a visual representation and chart, whereas a people directory features a directory of information about each team and their team members.

Whilst your people directory and organizational chart may be visualized separately, in Whale, you can have both!

The type and amount of information contained in a people directory can vary depending on the needs of the company, but some of the most common details included are:

• First and last names
• Phone numbers
• Email addresses

Factors to consider when designing an organization chart

Tips and best practices:.

• Clarity and Accessibility: Ensure the chart is easy to read and understand. Use clear labels and avoid overly complex structures.
• Flexibility: Be open to restructuring as the company grows or changes direction.
• Software Tools: Utilize organizational chart software like Lucidchart, Microsoft Visio, or Canva for professional and easy-to-update charts.
• Communication: Share the organizational chart with all staff members to enhance transparency and understanding of the company structure.
• Avoid Over-complication: Too many layers can lead to confusion and inefficiency. Keep the structure as flat as practical.
• Regular Updates: Ensure the chart is regularly updated to reflect any changes in structure, roles, or personnel to maintain its relevance.

What is the best tool to use to create your business organization chart?

There are 3 main considerations in creating both organizational charts and people directories;

• The visual representation
• The ability to share with team members
• The ability to update

Obviously, we’re going to recommend Whale here for sharing and updating. With Whale all your documents are shared wherever and whenever with your team members. And you can set automatic reminders for updates. 

Whale is the central knowledge base every company needs but we’re not a visual creation platform. You may want to use a visual creation platform like Creately or Canva and then import the image into Whale.

Use it with the people directory (And ALL your other company information that employees need) to keep team members informed and empowered. 

Remember whilst the aim of a business organization chart and people directory is to inform decision-making, it should also help members of your team feel connected, so feel free to add some fun.

We do this by adding People Cards and an internal podcast called “Life at Whale” to our People Directory at Whale.

Bottom line?

If you don’t have an organizational chart and a people directory in place, you are not alone, but maybe it’s time to rectify that.

It’s all about being able to organize your business in such a manner that your team is aligned and you can respond to change and increased demand in an agile and efficient manner.

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Creating an Organizational Chart for a Small Business

By Letícia Fonseca , Jun 09, 2023

No matter the size of your business, whether you’re starting out or already established, creating an organizational chart for small business planning is a necessary exercise.

There are numerous reporting relationships to visualize, especially when you have more than one manager in your small business.

Making an organizational chart can feel challenging, but this guide will make it easier to design an organizational chart that reflects many types of corporate structure.

Or you can customize a Venngage organizational chart template to create a chart that reflects your management structure in just a few minutes.

Click to jump ahead:

What is an organizational chart.

• Organizational charts for small businesses examples

What is the purpose of organizational charts for a small business?

How to make an organizational chart for a small business, faqs about organizational charts.

An organizational chart, or an org chart, provides a visual representation of an organization’s internal structure. It outlines relationships between departments and employees, establishes the chain of command in an organization, and defines the role of each staff member.

You can see how this hierarchical organizational chart example structures the employees of a company.

The most common structure has small business owners, or the chief executive officer, listed on the top.

Other C-suite executives or the vice president are listed below them. Department managers and team leaders are below them, followed by employees.

An org chart helps you navigate your company and can be included in onboarding documents for new employees to familiarize themselves with the organizational structure.

You can make the organizational chart your own by adding your branding to the diagram.

Venngage’s  My Brand Kit  feature imports your brand identity from your website so you can apply it to your designs.

Organizational chart for small businesses examples

There are two basic types of organizational charts for a small business:

• flat organizational structure
• hierarchical organizational structures

Flat organizational structure

A flat org chart or horizontal organizational structure is composed of limited or no middle management between lower-level employees and upper management, like in this  organizational chart example .

This type of organizational chart is common for small businesses and startups in their initial years of operation.

As this structure does away with several levels of management, it enables employees to quickly and independently make choices.

The decision-making power for the business is shared among employees on the same level, and they are held accountable for their decisions.

Hierarchical Organizational Structure

A hierarchical structure or top-down chart is shaped like a pyramid.

It is a traditional reporting structure adopted by most companies.

Hierarchy charts look like this:

A single person or a group is seated at the top, followed by managers in the middle and the rank-and-file employees at the bottom.

The organizational chart is divided into different departments with each employee reporting directly to a supervisor. This is most commonly used by large organizations and government units.

Create the right type of organization chart for your business with Venngage’s real-time collaboration feature. With a  Venngage business account, you can add team members, and share comments and feedback simultaneously.

An organizational chart offers a number of advantages to small businesses. 

We share the biggest benefits of creating org charts below.

An organizational chart improves communication across teams

When a small business starts growing, people’s new job titles can become confusing.

When merging with larger organizations with several teams and departments, in this example, it becomes crucial that the structure is tracked.

Understanding the hierarchy in the workplace is essential, so you know who your immediate supervisor is and whom to approach in case some issues arise.

A matrix organizational chart makes it easier to see which employees are involved in a project, and who the project manager or executive is. This improves efficiency across the entire organization.

Organizational charts enable easy onboarding for new employees

For new hires to find their way around the office can be quite challenging.

But presenting your organizational structure, like the template below, will facilitate the  onboarding process  and orient the employee to the chain of command.

Organizational charts can also help guide new hires through the specific functions and work responsibilities of coworkers.

The diagram serves as a cheat sheet, showing them the person to whom they should go for what information.

Organizational charts boost employee productivity

A matrix organizational structure expedites processes in the workplace as it shows the roles and responsibilities of each employee.

This helps reduce the time spent looking for the right people for the right task.

This organizational chart template also includes assistant managers so employees don’t need to go to the top managers for simple problems.

Instead of wasting time searching for information that would otherwise be found in an org chart, the employee becomes productive and efficient.

The organizational chart also prevents overlapping and duplication of work as it identifies positions and tasks assigned to each individual.

These details in org charts also help forge relationships among other employees.

An organization chart facilitates business growth

Employers can also get a clear view of the organizational structure, like in the template below.

They will know where an employee is positioned and the tasks they undertake. This makes it easier for the employer to determine which part of their organization needs improvement.

By taking a step back, owners can see which department is in need of additional manpower and which is overstaffed.

An org chart helps executives organize their workforce and ensure that managers have enough workforce to achieve company goals and objectives.

Create your small business’ organizational chart by following these simple steps.

Step 1: Determine the structure you want your business to follow

The first thing to do when making an org chart is to determine the corporate structure it will follow.

Choose the one that best suits your business needs from the two types of organizational structure discussed above: the flat org structure or the hierarchical organizational chart.

Step 2: Choose an org chart software

Creating an org chart might come as a challenge to some. But there are numerous free or paid tools online that can help. One of the best solutions is Venngage’s organizational chart maker.

We have plenty of professional smart org chart templates that can be easily edited with just a few clicks. Our library of visuals includes 40,0000+ icons as well as over 4 million high-quality free stock images. 

Step 3: Fill out the organizational chart template with your information

With the necessary data you have compiled, you can start filling out the chart templates from Venngage’s online org chart maker.

Collaborate with your team in real-time with a  Venngage business account . And once you’re done, you can download the chart as a high-quality PNG or PDF.

How can you create a small business organizational chart with Venngage?

Sign up for a free Venngage account using your email, Google, or Facebook profile.

Choose one of Venngage’s wide array of organizational chart templates for small businesses. To add information, titles, and visuals to your org chart, use Venngage’s drag-and-drop smart editor.

Then customize your org chart easily. Add or remove nodes in your org chart by clicking on the ‘+’ or ‘-‘ buttons. When you change the text or images, the nodes automatically resize to fit the content. Then you can download your organizational chart as a PNG or PDF file. Or share your design directly with your team through a private link.

What is a good organizational structure?

An organizational structure is deemed good when it helps a business reach its objectives. It should also be designed to aid individual employees’ growth. Additionally, org charts should reduce conflicts between individuals and team members, and remove duplication and overlapping of work.

Make your org chart for your small business today

Streamlining communication and driving efficiency has never been easier than with the help of organizational charts. It is an effective management tool that can help improve team performance for planning purposes. Org charts also act as a visual personnel directory.

To help you organize your teams and ultimately lead them to success, use the organizational chart examples that we’ve shared in this post. These Venngage templates will help your company’s overall performance in the long run.

Home > HR > Workforce Management

How to Make an Organizational Chart

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Before we dig into how to create an organizational chart (also known as an “org chart”), it’s crucial to first understand its purpose.

So, what is an org chart? Simply put, this handy diagram illustrates a business’s personnel hierarchy. They clearly display supervisors, executives, and individual contributors, along with information on a staffer’s department and direct reports. This grants workers full transparency on the “who’s who” of an organization, which is critical knowledge when completing a project or planning career opportunities.

Generally, org charts are most appropriate for businesses with over a dozen employees, although there are some exceptions.

Let’s find out if these sensory aides are a must-have for your organization.

The types of organizational charts

• Functional top-down hierarchy: Traditional pyramid-shape with executives and business owners at the top and entry-level junior members at the bottom. Great all-purpose solution.
• Divisional: Broken down by product line, project, or other production-centric factors. Groups supervisors alongside direct reports with little distinction. Better for complex businesses with many independent processes.
• Matrix: Hybrid of divisional and functional top-down hierarchies. Clearly emphasizes a chain of command structure that’s broken down into specific product lines.
• Flat: All staffers are illustrated at an even level in broad, unrefined groups, which fosters direct access to anybody of any rank. Ideal for smaller organizations, startups, and those without traditional structures.

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Which type of org chart is best?

You’ll first want to consider the size of your business’s workforce. Smaller entities of, say, less than two dozen employees would mesh well with a flat org chart . This way, the limited number of personnel can be portrayed in a small, easily understood manner without complex hierarchies and maps.

Conversely, organizations with large numbers of workers, or those with strict chains of command, should pursue either a functional top-down hierarchy or a matrix chart . Both styles demonstrate a clear supervisory structure plus divisional information.

We’d recommend a divisional chart if your business has a substantial number of employees and product processes, but lacks rigid authority structures —a key defining trait in this visual style.

What is the best program to create an organizational chart?

Many human resource (HR) software titles can generate an org chart with just a few clicks, so this would be the easiest solution. Zoho People and BambooHR  are just two titles with charting perks.

There are also other ways to create a beautiful org chart. Many online graphic design tools, such as Canva, can do the job for free. However, this route only works if you have limited staff since you’ll have to manually add personnel information.

As a result, we’d recommend using an automated system, such as Microsoft 365’s tools, to rapidly convert employee data into a visual representation.

No matter which application you use, you’ll want to have both a digital version that people can access from any device, in addition to a printed poster that can be hung in a physical work environment. This ensures everybody stays in the know no matter where they operate.

How do I create an organizational chart in Excel?

If you love kicking back with a good spreadsheet at your side, you're in for a disappointment: Microsoft Excel is used only for a limited part of this process.

The popular data-crunching application creates comma-separated value (CSV) files. These documents contain large amounts of data, such as the names and titles of employees, in a compact format intended for computer processing.

Since some human resource suites automatically generate these files, they are crucial to helping you dodge having to populate an org chart by hand.

But, if your HR software can't spit out a CSV file, you could manually create one from scratch following Microsoft's formatting instructions here . It might be tedious to create at first, but the simple, no-nonsense syntax makes future modifications a breeze.

Once you have a CSV file filled to the brim with employee information, you’ll use the Microsoft Visio tool to import the file and automatically populate an org chart. This function, named the Organizational Chart Wizard, can be found under Visio’s “File” menu.

How do I create an organizational chart in Word?

Microsoft Word isn’t the best choice because, much like Canva and other graphic design programs, you’ll need to add information manually. Plus, it can be an uphill battle to customize the size, color, and other creative aspects with this word processing title.

Still, Word can be ideal if you want a basic, no-nonsense org chart for smaller teams. Let’s review the general instructions.

• Create a new blank document in Word
• Select the “Insert” menu, then click the SmartArt button
• Choose the Hierarchy option in the popup window and select your desired chart style
• Fill in employee information in each generated box
• Add more workers by clicking the Add Shape button in the top panel of the window

And that’s it! Pretty simple, right? Well, until your organization outgrows Word’s clumsy graphic elements, that is. But for a basic, no-frills chart, Word fits the bill.

Sage HR offers an intuitive interface that visualizes employee schedules.

• Easily receive employee requests
• View schedules across numerous timeframes
• One-click time-off approval and easy schedule templates

The takeaway

Org charts are a must-have for growing businesses with more than a dozen employees. Smaller entities could still benefit from the diagram’s transparency, but it’s certainly not as crucial.

Those who wish to deploy these visualizations could ideally use a comma-separated value (CSV) file in Microsoft Visio. However, for those pursuing a simpler, more budget-friendly option, less specialized tools like Canva and Microsoft Word could also do the trick—albeit tediously.

Want some ideas for your HR software pick? Check out our favorite human resource software for small businesses .

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Business Plan Organization and Management: How to Write Guide .

Sep 17, 2023 | Business Consulting , Business Plan , Organization and Management , Organizational Development , Strategy

Writing the Business Plan Organization and Management Section

It provides critical information for those looking for evidence that your staff has the necessary experience, skills, and pedigree to realize the objectives detailed in the rest of your business plan.

What Is the Organization and Management Section in a Business Plan?

The organization and management section of your business plan should provide details about your business structure and team. This section typically comes after the executive summary. However, some people have it further in the document after the market analysis section.

This section generally is separated into two parts. The first concerns the organization as a whole. It gives readers an overview of the company structure, which is an excellent opportunity for the reader to lift the roof off your office and peer into its inner workings. For your legal design, you may set up as a limited liability company (LLC) or nonprofit/ charity or form a partnership. It’s crucial to include this section. However, suppose you’re starting a home business or have an already operating business where you’re the only person involved. In that case, you can skip this section or show the company registration details from either the company’s house or the awarding .gov.

The second part focuses specifically on your management team and introduces readers to each member — your chance to impress them with the many accomplishments pinned to your organization’s management team.

This section may seem less important than some of the other parts of your business plan, but the truth is that your people are your business. If they’re highly competent and accomplished, the implication is that so is your business.

Of course, if you’re a sole proprietor with no management structure or any employees, this section is unnecessary other than to talk about yourself and your achievements.

The section on organization and management should outline the hierarchy, individual roles, and corresponding responsibilities. It should also highlight each person’s strengths and qualifications for their positions.

Business Plan Organization Section

The organizational section of your business plan outlines the hierarchy of individuals involved in your business, typically in a chart format. This section identifies the President or CEO, CFO, Director of Marketing, and other roles for partnerships or multi-member LLCs. If you’re a single-person home business, this section is straightforward as you are the only person on the chart.

Although this section primarily focuses on owner members, you can include outsourced workers or virtual assistants if you plan to hire them. For example, you may have a freelance web admin, marketing assistant, or copywriter. You may even have a virtual assistant who coordinates with your other freelancers. While these individuals are not owners, they hold significant responsibilities in your business.

There are various business structures, such as sole proprietorships, partnerships, LLCs, and corporations.

Detail the Legal Structure within the Business Plan Organization and Management Section

Here is an indicative list of business structures. It would help if you talked to your accountant and legal advisors to determine which legal form is the best for your business proposition.

Sole Proprietorship

When embarking on a business venture, it’s essential to consider the various structures available. A sole proprietorship is a structure whereby the business is not regarded as separate from its owner’s finances. The owner retains complete control and responsibility for the company. However, they are unable to sell stocks or bring in new owners. The business becomes a sole proprietorship if not registered under any other structure.

Partnership

When forming a partnership, it can either be a limited partnership (LP) or a limited liability partnership (LLP). One partner assumes most liability in a limited partnership (LP). In contrast, the other partners have limited liability and control over the business. Alternatively, in a limited liability partnership (LLP), all partners have limited liability from debts and actions of other partners, and there is no general partner.

Limited Liability Company

A limited company (LTD) or limited liability company (LLC) is a mixture of business structures that mixes aspects of partnerships and corporations. It offers limited personal liability to the owner and passes profits through to their tax returns.

Corporation

There are various types of corporate structures. A C-corporation enables the issuance of stock shares, pays corporate taxes instead of personal returns, and provides the highest level of personal protection from business activities. On the other hand, nonprofit corporations are similar to C corporations. However, they do not aim to make profits and are exempt from state or federal income taxes.

More information on company legal structures is available on UK.Gov and USA.SBA websites.

Describe Your Company’s Organizational Structure

This first step illustrates the positions in your organization’s employee hierarchy and how they all relate to each other.

This is usually done graphically as a guide, using an organizational chart, or “org chart” for short. People use a Microsoft tool, i.e., PowerPoint or Excel, to help.

Organization Charts typically follow a top-down hierarchy, starting with your CEO/ Managing Director in the top box at the top of the page. Lines extend down from that person’s name to boxes containing the terms of the CEO’s direct reports.

We have included an example organizational chart below for guidelines only.

Identify your business organization structure and list your team members’ strengths and skills.

Those managers then have lines extending to those who report to them, and so on, down to your lowest staff positions.

This section will give your readers a quick understanding of your management and governance structure, the size of your organization, and your lines of control and communication.

Describe your Team in your Business Plan Organization and Management Section

In your business plan’s Organization and Management section, please provide a detailed description of your team. Y ou will discuss the company’s management team, starting with the owners.

This section highlights who is involved in the running of your business and who are the support professionals. It also includes the roles and responsibilities of managers.

Suppose the company structure is a multi-owner arrangement or some other multi-owner arrangement. In that case, you’ll want to include information for every member and their percentage of ownership and ongoing involvement in the company.

It’s important to discuss how ownership interests are split, their responsibilities, what they did before securing their current position, and how they came to be involved with the company.

Here, it would help if you talked about some of your critical team members. These people are directly responsible for large portions of your business operations.

Owner/Manager/Members

Within your business o rganization and management section, y ou should introduce the team and talk about their experience, qualifications, previous companies and achievements, role in the company, and any special skills they bring with them. Please provide the following details for each owner, manager, or member of the business within your business plan:

• Percentage of ownership (if applicable)
• Level of involvement (active or silent partner)
• Type of ownership (e.g., stock options, general partner)
• Position in the company (CEO, CFO, etc.)
• Responsibilities and Duties
• Educational background
• Relevant experience and skills
• Previous employment history
• Skills that will benefit the business
• Awards or recognition received
• Compensation structure
• How each individual’s skills and experience will complement and contribute to the business’s success

Perhaps they’re an entrepreneur, business coach, exclusive advisor, or industry specialist to help you grow.

This is an ideal opportunity for companies with an Executive Board of Directors, Governance Structure, or Advisory Board to introduce them to your readers.

Executive Board

Having a board of directors is essential for your management team. Without one, you may be missing out on crucial information. This section includes details similar to those found in the ownership and management team sub-section, such as the names, areas of expertise, positions (if applicable), and involvement with the company of each board member.

Strategic Advisors

Suppose you’re looking for funding for your business or to fill a gap in your knowledge, or you may not have the funds to hire an executive board. In that case, you must inform potential partners and investors that you have a team of professionals assisting you. This includes lawyers, accountants, and any freelancers or contractors you may be working with. When listing these individuals, include their name, title, educational background, certifications, services they provide to your business, and their relationship with you (i.e., hourly rates, projects, retainer, as-needed, regular). Additionally, highlight their skills and experience that make them an asset to your team you need

Does anything else make them stand out as quality professionals (awards, past working with credible brands)?

Spotlight on the Wider Team Structure

Now, you’ve showcased the management team in its entirety. You can provide brief bios for hiring team needs or secondary members and talk at length about how the team’s combined skills complement each other and how they amplify the team’s effectiveness.

It’s also important to point out any gaps in the knowledge your team is currently suffering. Your readers will likely be savvy enough to pick up on existing holes.

Therefore, you’ll want to get ahead of these criticisms and demonstrate that you’re already aware of the positions and complementary skill sets your management team still requires and how you plan to address the knowledge gaps with future hires.

Do you need help writing your business plan o rganization and management section ? 

Every successful business plan should include the organization and management section, helping you communicate your legal structure and team.

Writing a business plan can seem overwhelming, especially when starting a small, one-person business. However, it can be a reasonably simple task. This section of the plan should be updated if there are any changes to the organization structure or team members, such as additional training, awards, or other resume changes that benefit the business.

Creating your comprehensive business plan takes planning, research, time, and a herculean effort. If, at any point, the work becomes too much to handle, we can step in to assist.

Do you want an expert “second opinion” before creating your business plan or financial forecasts? Let’s talk !

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Contact Noirwolf Consulting today using the website contact form or by emailing [email protected] or call us at +44 113 328 0868.

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Organizational charts explained: a beginner’s guide

Make your company’s org chart work as hard as you do

By the team at Slack February 19th, 2024

An organizational chart maps out a company’s workforce, including its team structure, workers’ reporting relationships and employees’ responsibilities.

Done well, an org chart can be a lot more than just a map. A good organizational chart (org chart) can streamline business processes and help employees excel in their roles. It can be a resource for support, collaboration and team building.

Read on to take an in-depth look at org charts and to learn how to make a successful one for your company.

What is an organizational chart?

You might hear organizational charts referred to as org charts, organograms, organigrams or hierarchy charts. They all essentially refer to the same thing: a visual representation of a company’s internal structure.

An org chart maps out the employees within an organization, grouping them by team and showing how employees relate to each other.

Org charts illustrate reporting relationships and chains of command to give a simple overview of a company’s organizational structure, its hierarchy and how each employee fits into the big picture.

What should an org chart include?

An org chart contains information on verticals, teams, reporting relationships and individual employees. For each employee, an organizational chart might show their:

• Contact information
• Responsibility

The chart may use lines, arrows and other symbols to illustrate professional relationships and hierarchy among individual members.

Why are org charts important?

An org chart gets new hires up to speed, keeps longtime employees informed and builds confidence among investors. Having an organizational chart is particularly handy for companies with remote workers because it maps out the whole distributed workforce, including each remote employee’s role and the overall chain of command.

Any employee should be able to turn to the chart to answer questions such as:

• Who’s on the leadership team?
• How do I fit into my company’s organizational structure?
• Who can answer my questions about (insert specific subject)?
• Who reports to whom?

Organizational charts should also tell employees how downsizing, promotions and other organizational changes might affect them. When it’s designed well, a chart can even communicate a company’s values and philosophies, such as its positions on inclusivity, collaboration and hierarchy.

Limitations of organizational charts

• Org charts can easily become outdated as companies restructure and employees shift roles
• Charts may only show formal reporting relationships, excluding the nuances of informal professional relationships within a company
• Updating an org chart can be laborious, complex and time consuming, depending on the tool used to create it
• Organizational charts may not clarify management styles, communication methods and how each manager interacts with their team

Types of organizational charts

We all know how powerful graphics can be. A picture is worth a thousand words, right? (Well— if you use the right picture.)

To get the most out of an org chart, you must first decide on its design and how to visually represent your company’s organizational structure.

Hierarchical/top-down

This type of org chart starts with one person—typically the company’s president or CEO—at the top. It then takes on a pyramid shape that represents the workforce hierarchy. The higher you’re represented on the pyramid, the higher you are in the hierarchy.

• Pros: This format offers clarity on the lines of authority and communication. Employees can easily understand their roles, teammates and reporting relationships. A hierarchical org chart also provides employees with a defined path for professional growth.
• Cons: This structure offers limited flexibility in terms of hierarchy and may create silos that could hinder cross-functional collaboration and innovation.

Divisional structure

This layout is similar to the hierarchical chart but breaks down a large company’s structure by product line, geographic location or another grouping method. Large companies with independent departments that control their own resources often use divisional structure charts.

• Pros: Divisional structure provides more flexibility to respond to market changes. It also gives more autonomy to each division within a large company.
• Cons: Like top-down org charts, divisional structure charts could lead to siloing, hinder cross-functional collaboration, and make it difficult to spot duplication or overuse of resources.

A matrix org chart uses a grid to show relationships among cross-functional teams. This layout illustrates how employees work with others from different departments and how they report to multiple supervisors. It gives managers visibility to select people from different departments to work on a project.

• Pros: This structure helps break down silos and foster cross-department collaboration.
• Cons: Reporting to more than one manager or business unit can create confusion or conflict among employees.

Flat/horizontal

A flat or horizontal organizational chart takes the focus away from employee hierarchy. All members have a similar amount of power, with fewer hierarchical levels in the company. This design is most common among small businesses with simple structures, where employees often have more responsibility, wear many hats and are more directly involved in decision-making.

• Pros: This approach encourages closer relationships between executives and employees and empowers all team members to take leadership and be decisive.
• Cons: Companies have limited potential to scale within this structure. As organizations grow, they often move to hierarchical or matrix org charts.

How to create an organizational chart

Let’s run through the step-by-step process of creating an org chart for your company.

Determine your company’s organizational structure

Clarify your organization’s structure before you begin building a chart. Lay out how your company’s departments relate to each other on a high level.

Identify roles and relationships

Understand your company’s chain of command. Identify each employee’s span of control, and outline each business unit’s specialization. Then, map out reporting relationships among all employees. You can gather this information by surveying team members or working with the HR department.

Choose the right organizational chart type

Now that you understand your company’s structure on both a high level and an individual employee level, it’s time to pick an org chart design.

Your chart should mirror the organization’s reporting relationships, reflect decision-making processes, and comply with the company’s size and growth plan.

Know your audience

Understanding the audience for an org chart can help you decide how much detail to include. For example, an org chart containing details on each individual in the company may be limited to internal use. A simplified, high-level version might be more suitable for external parties.

Best practices for designing org charts

Keep your org chart simple, uncluttered and easy to understand. Use shapes, colors and line styles to distinguish hierarchy, relationships and process flows.

Highlight key roles and functions to help readers quickly identify critical personnel and understand the company’s organizational structure. Regularly update the org chart as the team and structure evolve. An outdated chart could cause confusion and errors.

Best tools and software for creating org charts

Various tools and applications can help you build and maintain an org chart. Any tool you use should integrate with your company’s existing productivity platform to ensure that everyone has access to the org chart for efficient communication and collaboration.

• BambooHR works well for small businesses and HR departments
• ClickUp incorporates an org chart tool into its management platform
• Deel lets users apply filters to understand how teams work together and who can answer their questions
• Lucidchart offers intuitive features and is best for large organizations
• Slack Atlas uses profile pictures, location information and fun facts to build a well-rounded portrait of each member of a Slack workspace .

How to use an org chart

A good organizational chart promotes collaboration and makes it easy for colleagues to find and understand each other’s roles. You can use a well-made org chart to:

• Onboard new employees : Demonstrate employee responsibilities and reporting relationships to new hires
• Manage growth and change: Visualize how teams grow and interact to inform hiring decisions
• Improve clarity: Understand how employees fit and interact within their company’s organizational structure
• Enhance communication: Empower team members to ask questions and take initiative by providing a deep understanding of various roles and reporting relationships
• Facilitate resource allocation: Allocate resources based on team structure and capabilities
• Streamline processes: Identify redundancies and inefficiencies in the organizational structure

Maximizing the power of organizational charts with Slack

Organizational charts do more than map out a company’s workforce. They can provide powerful context to help employees collaborate and communicate effectively.

Providing context with Slack Atlas

Slack Atlas uses profile pictures, location information and fun facts to build a well-rounded portrait of each member of a Slack workspace . Employees can use Atlas to learn about a colleague before direct-messaging them on Slack . Informing employees about one another helps build strong professional relationships in remote workplaces , boosting both morale and productivity.

Integrating organizational charts in Slack

Atlas provides searchable profile information and a dynamic org chart to encourage connection and promote transparent collaboration in Slack. Employees can learn about their colleagues and their company’s organizational structure right in Slack, where they’re already working.

Tracking org chart changes and updates in Slack

Atlas syncs with HR tools to populate employee information via Slack’s SCIM API , ensuring that every profile stays accurate and up to date. Workspace administrators can make specific profile fields editable for employees to add their unique spin.

Org chart security in Slack

When you’re handling employee information, data security is a must. Atlas uses the same enterprise-grade security and identity-management capabilities central to the Slack platform, focusing on security governance and risk management. 

The power of an org chart at your fingertips

Slack Atlas is available in all markets and languages supported by Slack. You can access Slack Atlas on the Enterprise Grid plan at no additional cost. It’s also available as a paid add-on to the Business+ plan. Learn more and start using Atlas today .  

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Business Organizational Chart

Organizations use many metrics to get validated learning. They use actionable metrics, business models, department charts, analytics, and a lot more. But still, there is one thing that can improve the organizations' decision-making because they give an abstract view of the whole organization. By the end of this article, you will learn about business organizational charts , their importance, and some examples for businesses.

1. What is a Business Organizational Chart?

A business organizational chart is an abstract view of the whole organization, which tells us the relationship between multiple entities working inside the organization. Moreover, dozens of departments work in an organization and work cross-functionally.

To track those organizations and avoid uncertainties, excellent and well-known organizations never forget to make the business organizational chart, which tells the business owners, board of directors, stakeholders, employees, managers how the whole business is functioning.

Let us tell you the importance of a business organizational chart . Take an example of an employee working in an organization with a complex hierarchy. Suppose an organization doesn't contain the business organizational chart or assume they have and never published it to the whole firm. In that case, an employee will never know who is above him and to whom he should report.

Why do Companies Need Organizational Charts?

Some endless reasons and situations make companies have a good business organizational chart. Some of the critical cases are listed below.

It Communicates the Responsibilities

Business organizational charts tell everyone about their roles and responsibilities, why they are being employed, how they will perform their functions, and if any uncertainty strikes, then what they must do.

Employees Know to Whom They Report

Business organizational charts tell the employees to whom they must communicate or report. If an organization doesn't have any organizational chart, employees will never know their true importance or position.

Decision Making

As described above, an organizational business chart helps the managers, board of directors, CEO, or C-suite take important business decisions. It provides business leaders a sense of how they must lead to make the business sustainable at all levels.

2. How to Create a Business Organizational Chart?

Business leaders must know the importance of business organizational charts. Whether you are starting a business or working in a company that has imposed on you a leader-level position, then you must know how to make a perfect business organizational chart. This section will get a general and high-level overview of making a perfect and complete business organizational chart. Readers can follow the listed steps.

2.1 Identify Organizational Chart Types

The first step in this vital process is identifying the business organizational chart that best fits your business case. There are four types of business organizational charts that managers, C-Suite, board of directors must know. The four types of business organizational charts are listed below:

Hierarchical organizational chart: A hierarchical organizational chart is a chart that helps organizations that have both complex and straightforward hierarchies. Many entities say that organizations spread across multiple departments should only make hierarchical organizational charts. But, a small business can also make a hierarchical business organizational chart. A hierarchical business organizational chart starts from the C-suite and then falls to the low-level positions of the organizations. The connections in hierarchical business charts tell that an employee must report or communicate.

Functional organizational chart: A functional organizational chart is the same as a hierarchical business chart, but there are still many differences. It is best for an organization with departments spread across multiple locations and work cross-functionally to track them with a functional business organizational chart. The functional business organizational chart includes both the positions and departments. The position depicts the leader or head of each department.

Matrix organizational chart: The matrix organizational chart depicts the employees or departments who have multiple supervisors. This organizations have the most complex hierarchies, and so the matrix organizational charts are best to handle these organizations. The matrix organizational chart also depicts the managers who work in multiple departments of the same organization.

Circle organizational chart: It is also a hierarchical chart that includes the leading positions at the circle's core. In contrast, the low-level positions are listed above the top places.

2.2 Order the employee data

The next important step is to gather and organize the employee data and arrange them according to the type of business organizational chart best for your business case. All the charts discussed above have connections and little to more hierarchies, so after listing every employee, connect them according to whom they communicate or report.

2.3 Make your chart look perfect

After identifying, listing, and connecting every employee in the business organizational chart, try to search for an answer to this question, how can this chart be completed? You will find the answer in the tools or products used extensively in business diagram-making.

There are hundreds of tools available on the Internet organizations use to make the charts for their business. You can see or use Microsoft Office (Excel, Outlook, PowerPoint, Word) or Google Sheets. But the best practice is to choose efficient tools in many ways and boost productivity. The best and trending tool that has been used for diagram-making for two years is EdrawMax , which is consistently iterating to make the business procedures easy and quick.

2.4 Use the tool and complete the chart

Find the best tool according to your business use case, and it is time to use it and fill the business organizational chart. You can take help from multiple people in the organization to avoid errors. The best practice is to start from the template to avoid mistakes and boost your production.

After you have completed the chart, take it to review by your supervisors and then pass it to the C-suite, who will approve it and share it with everybody to make the consensus. If it succeeds, then the chart must be shared across the organization.

3. Business Organizational Chart Examples

To help you make your concepts clear about the business organizational chart, we have gathered some practical use cases that show how they can be implemented.

Example 1: Organizational Chart for Small Business

This business organizational chart can provide many helpful insights in decision-making for small businesses. As described above, to avoid confusion, small businesses can use the hierarchical business organizational chart to map the entities working inside the company. The chart shows from top to bottom how the business is working. In this top-to-the-bottom business organizational chart, every entity is connected indirectly. Still, all the departments get the notes from one department that is the COO of the organization. This chart also helps employees to understand positions.

Example 2: Big Business Organizational Chart

If you believe that your business is big and has many departments and complex hierarchies, you can use this big business organizational chart. An enormous business organizational chart includes both positions and departments working inside the company. The chart shows the connection representing the relationship between each position and department which helps in complex decision-making. You can also take ideas from this chart while making a big business organizational chart. You can also include a short description of every employee listed on the chart.

Example 3: Startup Organizational Chart

The diagram perfectly defines the startup organizational chart. Most of the time, the startups don't have many hierarchies and departments, and this chart is for these types of startups. The startups which belong to a parent organization have a different organizational chart or structure. The chart can be made using a hierarchical business organizational chart. Every department or entity in the chart is connected indirectly and communicates to a single entity called the co-founder of an organization. When the startup grows into a sustainable business, all the entities share it with the COO.

Example 4: Organizational Chart for Partnership

If the entity in the organization wants to manage the organization's partnership, then an organizational chart can also be made for this purpose. Take the idea from this organizational chart for partnership which shows both public and private partnerships. The public partner of the organization is the financial advisor and legal representative; meanwhile, the private partner includes the objects which reside inside an organization. If you are worried about how you would manage the partners of your organization, then you can start with mapping the partners in business organizational charts.

Example 5: Sole Proprietorship Organizational Chart

A Sole Proprietorship, also known as a sole trader, is an unincorporated entity or business with a single leader or manager. He is responsible for paying personal income tax from the gains earned from the sustainable enterprise. An organizational business chart can also be made for this. Usually, the business that includes the outside partnership is also included in the business organizational chart. Still, in this situation, the chart ends at the above single position like this pinned sole proprietorship organizational chart.

Example 6: Manufacturing Company Organizational Chart

Every business logic can be mapped to the business organizational chart. Take the concept from this construction business organizational chart. The chart is made with the help of a hierarchical business organizational chart framework because a construction company has many departments, and sometimes they work cross-functionally. The organizational chart also includes the regulatory body department of the ISO center. The chart starts from the board of directors and ends at the low-level positions of the organization.

4. Best Business Organizational Chart Maker

The mistakes in business organizational charts can harm both the reputation and daily operations of the business. So, every action should be taken to avoid errors in the chart. EdrawMax Online provides hundreds of tools and more than five thousand diagram-making symbols to help you make business organizational charts and other diagrams ideally. The application is straightforward and has all the tools and templates to help you avoid mistakes in business organizational charts and boost your productivity.

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How to Create a Law Firm Business Plan

Last updated Apr 12, 2024

What is in a Law Firm Business Plan?

A law firm business plan is an essential piece of document that outlines the goals and growth strategies of your venture. Ideally, it contains several components, such as an executive summary, company description, marketing strategy, financial plan, and organizational structure. 

Why Your Law Firm Needs a Business Plan

Here are some of the biggest reasons why you need a law firm business plan:

• Establish your position in the market with unique value propositions.
• Set realistic goals to drive your marketing and business development forward. 
• Better manage your law firm by guiding your decision-making process.  
• Define an organizational structure for effective communication and collaboration workflows.
• Make better hiring decisions to keep your workforce as lean and efficient as possible. 
• Ensure your capital is invested and allocated wisely. 
• Create a profitable business model moving into the future. 

Things to Consider Before Creating Your Business Plan

As a law firm, your business plan lays the foundation for a financially and professionally successful firm. It’s not something that you can go back to and revise whenever you want. 

So, before creating your business plan, settle down and gather your thoughts on how you envision your firm’s success. 

More specifically, you need to deliberate on your law firm’s goals, fee structure, and revenue targets. 

Define Your Goals

How would you define success as far as running a law firm goes? What are the positive values you want to live by, and how will they benefit your future clients?

A well-defined goal may not seem as important initially, but it significantly impacts your decision-making as you flesh out your business plan. 

Your goals can affect how you hire your staff, build your law firm website , plan your pricing, and so on. They will also help you plot out short- to mid-term goals, which serve as milestones that bring you closer to your long-term goals. 

Some examples are:

• To have acquired 200 clients by the end of the first year in business.
• Build a solid law firm brand and grow online traffic by 200% in the first six months.
• Attain a case closure rate of at least 80% by the beginning of the third quarter. 

Build Your Firm’s Fee Structure

Building your fee structure is an important step that also helps determine if your specified short-term objectives are realistic. 

It’s generally a good idea to look at how competitors charge clients for their services. This should give you a baseline rate for similar services you offer.

You can also adopt policies like “no fee unless you win” over an hourly rate, which can attract clients by transferring risk to the firm. 

Set Your Revenue Targets

Your annual revenue target is the last measurable piece of information you need to pin down before preparing your law firm business plan. 

Don’t be afraid to aim high and exceed the average annual salary of attorneys in your law practice area. Keep in mind that, on top of essential expenses like student loan payments, office lease, insurance, and mortgages, you’ll need more funds for marketing your law firm and growing your team. 

To put things into perspective, 2024 data from PayScale revealed that the average annual salary of lawyers in the United States is $97,720.  

You can use the average salary as your baseline and increase your target revenue based on how much you’re willing to spend on marketing, advertising, and hiring. 

Factor in your fee structure to determine how many clients you need. Of course, you should also consider the number of founding lawyers that your firm starts with. 

Finally, use your own discretion and only lower the bar if you believe your target revenue is not humanly possible in terms of caseload. For example, if your target revenue requires you to handle over 150 active cases a month (which most lawyers would still consider attainable — depending on their practice area), you may need to readjust your expectations. 

8-Point Law Firm Business Plan Checklist

Now that you have nailed your goals, fee structure, and target revenue, it’s time for the nitty-gritty of building a law firm business plan. 

Here’s a rundown of all the key details you must include:

1. Executive Summary

The executive summary provides a concise, top-level overview of all the other elements of your business plan. It also encapsulates three points that give your law firm its unique identity, namely: 

• Mission statement: A mission statement focuses on your firm’s purpose and guiding principles, including your commitment to new clients. It should ideally be two sentences at most.
• Core values: Your core values should reflect what you stand for as a legal professional — guiding your firm through tough decisions and challenging cases. Looking for employees who resonate with your core values also helps build a more productive, collaborative, and tightly-wound workplace culture.
• Unique value/selling proposition: A Unique Selling Proposition (USP) is a more direct statement that answers the question, “Why should clients pick you?” Try to capture the benefits and unique qualities that make your firm stand out.

2. Company Description

Next up, the company description summarizes the technical details of your business operations. This provides partners and potential investors a general idea of what your firm does on a day-to-day basis. 

Below are the aspects that your firm description should cover: 

• Services and target audience: What specific legal services do you offer, and who are they for?
• Legal structure: What is the legal structure of your firm (e.g., sole proprietorship, limited liability company (LLC), limited liability partnership)? If you’re forming a partnership, be sure to include the names and practice areas of each partner. 
• Service locations: Where is your office’s location, and which areas do you serve?

3. Market Analysis

Every business plan — regardless of industry — needs preemptive market research to set initial financial projections on revenue and marketing performance.

Dig deep to gauge the demand for your services, how your target audience makes hiring decisions, who your competitors are, and your potential clients’ spending power. Your local bar association website should be a great place to start, along with local attorney directories and legal industry reports. 

Be sure your line of inquiries encompasses the following details:

• Your ideal client: Who are you marketing your law firm to? Fill this information with demographic data, such as age, gender, occupation, and location. 
• Client motivations: Why do prospects need your legal services? List down their pain points and the qualities they’re looking for in a law firm.
• Industry description: What is the projected size of your market? Are there any ongoing trends to consider?
• Competitive analysis: Build a list of known competitors in your area (similar practice areas serving the same location). You may also include indirect competitors that also compete for your target audience’s attention. 
• Projections: How much are your ideal clients willing to pay for legal services? This will help you make fine adjustments to your fee structure.

4. Organization and Management Structure

The next section of your law firm business plan expands on the details of your partners and core staff members. 

This process is as straightforward as it gets. Just write up their names, law school, experience, and primary roles in your new firm. 

For bigger firms, you may need to create an organizational chart that visualizes who each member reports to. 

5. Legal Services

After filling out the organization and management section, create summaries of the legal services your firm will provide. 

For example, if you run a business law firm, are you going to cater to dispute resolution, intellectual property, contracts, estate planning, or corporate tax clients? 

What specific problems do these services solve? What is your flat fee per hour or case? 

More importantly, what are your firm’s unique advantages over competitors that offer similar services? 

6. Marketing Strategy

Next comes the more challenging aspects of drawing up a law firm business plan. 

In the marketing plan or strategy section, you need to determine a handful of details that play a critical role in your firm’s growth. This includes: 

• Target client persona: Briefly describe the profile of your target market (as defined in your market analysis). Then, identify their media consumption preferences, like social media, magazines, and search engines. 
• Marketing goals: Map out the marketing objectives you wish to accomplish within set timeframes. For example, are you looking to generate a specific number of leads through online marketing or securing more referral leads from local business partnerships? 
• Key Performance Indicators (KPIs): Which KPIs will you use to measure law firm marketing success? You can set target values and brackets to rate the performance of your strategies (getting 10+ clients a month can be rated as excellent, whereas getting less than three clients can be rated as very poor). 
• Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis: An in-depth SWOT analysis can help you set campaign-level objectives for your marketing efforts. For example, having a lot of perfect, five-star reviews on your Google Business Profile is a strength you can leverage to boost your brand image. 
• Marketing platforms: What content creation and distribution channels will you use to market your law firm? Depending on your answer, which tools and services do you need to make the most out of your channels? 
• Marketing budget: Finally, you need to cook up a detailed law firm marketing budget . Itemize the platforms and strategies you want to use and allocate a budget accordingly (e.g., $3,000 for SEO, $4,000 for billboards, and $2,000 for PPC advertising ). 

7. Financial Plan 

A solid financial plan does two things: ensure your firm doesn’t run out of cash and create a positive profit margin needed for growth. 

Since you’re still building your business plan, you only need to focus on your first year. 

Here are the items you need to include: 

• Monthly expenses: In addition to your marketing budget, you need to take into account other expenses. Some examples are office space, utilities, IT support, and salaries. 
• Monthly target revenue (up to 12 months): Based on the fee structure and revenue goals you calculated earlier, determine the monthly revenue you need to be on track. This should be well above your firm’s monthly expenses. 
• Cash flow statement: Attach a cash flow statement to the financial plan section of your law firm business plan. Update your revenue, expenses, and budget accordingly throughout the year. 

8. Startup Budget

The startup budget section underlines everything you need to turn your law firm business plan into reality. With extra attention to detail, you can also use it to find opportunities to lower your overhead costs. 

Wrap up your business plan by finalizing the following:

• Sources of capital: How will you fund your new law firm? Where is the money coming from?
• Capital allocation: Where will your firm’s initial funds be spent? This can be the same as the expenses table of your financial plan — with the addition of upfront costs like LLC formation and business registration fees. 

5 Law Firm Business Plan Templates to Get You Started

Feel free to use the checklist above to create your law firm business plan from scratch. Or, you can streamline the process by using any of the templates below: 

• Law Office Business Plan — This template was created by the Oregon State Bar Professional Liability Fund and includes guide questions to help you enter the required information. 
• Practice Support Business Plan — This downloadable business plan template by the Law Society of Ireland helps you include specific details like your would-be business contact information, assets, and business continuity planning. 
• Startup Business Plan — Canva is home to dozens of graphic business plan templates, including this one, which has all the important sections you need for your law firm. 
• Law Firm Business Plan Outline — If you need pointers as you write your business plan, this simple template from practicePRO ensures you don’t miss important details. 
• Attorney Business Plan — Lastly, this business plan sample by BCG Attorney Search is for individual lawyers looking to start a small firm or grow their legal practice as a solo attorney.

How About a Custom Marketing Strategy to Execute Your Business Plan?

With your business plan ready, the stage is set for a productive and profitable year for your own law firm. Let’s make sure you hit your goals . Contact us to get a custom marketing strategy crafted specifically for your firm’s needs .

Schedule a Custom Marketing Audit Now

Article by Meo Antolin

Contributors

Freelance writer since 2014. I produce digital marketing content of all lengths and depths. I run A Million Words Later, which I built to help aspiring freelance writers get the knowledge, inspiration, and resources they need to succeed.

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Senior leaders at the Department of the Air Force announced plans to make four organizational changes to Air Force Materiel Command to improve military readiness and agility in a time of great power competition.

The first two changes are the creation of the Integrated Development Office to support integrated capability development planning and the establishment of the Air Force Information Dominance Systems Center to strengthen focus on capabilities such as cyber, electronic warfare and command, control, communications and battle management, the Air Force said Monday.

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“To be effective partners with the operational community in this process, AFMC must make changes in terms of how we work with operators to define requirements, and how we develop, deliver, and sustain weapons systems,” said AFMC Commander Gen. Duke Richardson .

“The changes we’re making are focused on how to organize acquisition-related functions, work in partnership with operational and DAF leadership to optimize technology transition, and integrate new product pipelines, all with an emphasis on maintaining technological superiority against a peer competitor. Getting requirements right is the key to any successful acquisition program,” added Richardson.

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Prudential Regulation Authority Business Plan 2024/25

Related links related links.

• PRA annual reports and business plans
• CP4/24 – Regulated fees and levies: Rates proposals 2024/25

Maintain and build on the safety and soundness of the banking and insurance sectors, and ensure continuing resilience

Be at the forefront of identifying new and emerging risks, and developing international policy

Support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate, run an inclusive, efficient, and modern regulator within the central bank, the pra’s strategy.

Our strategy for 2024/25 will be delivered through our strategic goals, extracts of which are below. For the full detail of our workplan against each strategic priorities, see pages 10 to 41 of this Business Plan . 

Foreword by Chief Executive Sam Woods

Sam Woods Deputy Governor, Prudential Regulation Chief Executive of the PRA

First, this will be our first full year operating under the Financial Services and Markets Act (FSMA 2023), which established a new, post-Brexit regulatory framework for the UK. FSMA 2023 expanded our rulemaking responsibilities and gave us a new secondary objective to support the competitiveness and growth of the United Kingdom.

Competitiveness and growth have always been important considerations for the PRA. Nonetheless, this new objective represents a significant change, and embedding it into our approach has been a major priority for the organisation as a whole, and for me personally as CEO. That effort will continue this year.

Our business plan includes a range of initiatives aimed squarely at promoting the UK’s competitiveness and growth. Some of the most significant are:

• Our ‘Strong and Simple’ project, which aims to simplify regulatory requirements for smaller banks, thus reducing compliance burdens without compromising on strong standards.
• The ‘Solvency UK’ reforms of insurance capital standards, which will reduce bureaucracy in the regulatory regime, while also allowing insurers to invest in a wider range of productive assets.
• The Banking Data Review, which aims to reduce burdens on firms by focusing our data collection on the most useful and relevant information.
• Improvements to our authorisation processes – we have made significant progress in improving the speed and efficiency of authorisations without sacrificing the robustness of our controls; maintaining this progress will be a key focus for next year.
• Reforms to ring-fencing, following the independent review led by Sir Keith Skeoch.

The second point I want to highlight is our ongoing programme of work to maintain the resilience of the UK’s banking and insurance sectors, which is at the heart of our role. The events of 2023 (including the high-profile failures of Silicon Valley Bank (SVB) and Credit Suisse (CS)) demonstrate the importance of a focus on resilience – and while I am encouraged by how the UK banking and insurance sectors have remained stable through a stressful period, we cannot take this for granted.

A major priority this year will be the implementation of the Basel 3.1 standards, which will complete the long process of post-financial crisis regulatory reform. While I expect the capital impact of these reforms to be limited for UK banks, they will nonetheless play a vital role in maintaining sufficient consistency in risk measurement across firms and jurisdictions – which is the cornerstone of the bank capital regime.

Another major priority this year will be ensuring firms have adequate standards of operational and cyber resilience. Following FSMA 2023, we have new powers to oversee the services provided to regulated firms by so-called ‘critical third parties’, and we will be implementing that regime over the coming year. And in March 2025 we will reach an important milestone with the full implementation of our wider operational resilience policy.

The day-to-day work of supervision will continue alongside these reforms. As always, our supervisory teams continue to work with PRA-regulated firms to ensure high standards of financial and operational resilience, governance, risk management, and controls. Stress testing remains a key element of our approach to resilience, and alongside colleagues from the wider Bank of England we will deliver a desk-based stress test of banks, and a system-wide exploratory scenario, in 2024. We will also work towards the next round of insurance stress tests in 2025.

I have really only scratched the surface of the work we are doing this year, as you can see from a glance at this document’s contents page. In order to deliver this work, we will need to run an efficient and effective regulator, and I am particularly excited by the potential of our data and analytics agenda to create new opportunities to improve how we work. And if past years are anything to go by, we will continue to engage with innovation in many forms across the industry, whether in the form of new entrants or new approaches to doing business in areas like digital money.

I am very much looking forward to the challenges that the next year will bring, and to working together with a team of very committed colleagues at the PRA to deliver on this business plan.

11 April 2024

Overview of responsibilities and approach

The PRA has two primary objectives: a general objective to promote the safety and soundness of PRA-authorised persons, and an objective specific to insurance firms for the protection of policyholders.

The PRA has two secondary objectives:

• the competition objective, which is focused on facilitating effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities; and
• the competitiveness and growth objective, which is focused on facilitating, subject to alignment with relevant international standards, (a) the international competitiveness of the economy of the UK (including, in particular, the financial services sector through the contribution of PRA-authorised persons), and (b) its growth in the medium to long term.

In its December 2022 recommendations letter to the Prudential Regulation Committee (PRC), HM Treasury (HMT) set out aspects of the Government’s economic policy to which the PRA must have regard, while building on the important themes of openness, competitiveness, competition, and innovation, as well as delivering energy security and net zero.

In December 2023, the PRA published a consultation paper (CP)27/23 – The Prudential Regulation Authority’s approach to policy , which sets out the PRA’s approach to policymaking as it takes on expanded rule-making powers introduced through FSMA 2023. These expanded powers will enable the PRA to replace relevant assimilated law (previously known as retained EU law) with PRA rules and other policy material, and move towards a more British system of regulation, with most of the technical rules made by independent UK regulators within a framework set by Parliament. In addition, FSMA 2023 introduces new accountability measures that require the PRA to keep its rules under review , and to establish a Cost Benefit Analysis (CBA) Panel composed of external members, which will scrutinise and provide input into the PRA’s CBA framework. These measures should enable the PRA to deliver policies that are well suited to the UK’s financial sector. In addition:

• In December 2023, the PRA took a significant step towards implementing the remaining Basel III standards in the UK by publishing the first of two near-final sets of rules with policy statement (PS)17/23 – Implementation of the Basel 3.1 standards near-final part 1 , which takes account of responses received to CP16/22 . The near-final rules aim to promote the safety and soundness of PRA-regulated firms and support their international competitiveness by making capital ratios more consistent, comparable, and aligned with international standards. The PRA will publish its second near-final policy statement in 2024 Q2 on the remaining aspects of the Basel 3.1 package, which include credit risk, the output floor, reporting, and disclosure requirements. The PRA plans to implement the Basel 3.1 standards over a 4.5-year transitional period beginning on 1 July 2025 and ending on 1 January 2030. Among other things, the PRA will also continue to support international efforts to monitor and promote the implementation of Basel 3.1.
• In December 2023, the PRA published PS15/23 – The Strong and Simple Framework: Scope Criteria, Liquidity and Disclosure Requirements , taking account of feedback to CP4/23 . The policy addresses liquidity and disclosure requirements for Simpler-regime Firms and Pillar 3 remuneration disclosure. The PRA will move further towards finalising and implementing the Strong and Simple prudential framework for Small Domestic Deposit Takers (SDDTs) during 2024. footnote [1]
• Following the publication of discussion paper (DP)3/22 – Operational resilience: Critical third parties to the UK financial sector , in December 2023, the PRA published CP26/23 , jointly with the Bank of England (‘the Bank’) and FCA (‘the supervisory authorities’). CP26/23 sets out the supervisory authorities’ proposed requirements for critical third parties (CTPs), footnote [2] including the mechanism for identifying potential CTPs, recommending them for designation by HMT, incident notification triggers and requirements, and proposed CTP Fundamental Rules. In 2024, the PRA will continue to work with the supervisory and other authorities to develop the final policy and oversight approach.
• In September 2023, the PRA published CP19/23 – Review of Solvency II: Reform of the Matching Adjustment , which marks a significant milestone in the PRA's reforms to the Solvency II regime for the UK insurance market. Following the publication of PS2/24 – Review of Solvency II: Adapting to the UK insurance market and PS3/24 – Review of Solvency II: Reporting and disclosure phase 2 near-final , the PRA will publish its final rules, subject to alignment with anticipated legislation, in 2024.

The PRA’s objectives and priorities are delivered through regulation and supervision, and by developing standards and policies that set out expectations of firms. The PRA’s approach to supervision is forward-looking, judgement-based, and focused on the issues and firms that pose the greatest risk to the stability of the UK financial system and policyholders. This approach is set out in the  PRA’s approach to supervision of the banking and insurance sectors .

The PRA’s regulatory focus is primarily at the individual firm and sector level, with the most important decisions taken by the PRC, which works with the Bank’s other areas of remit, including its role as supervisor of Financial Market Infrastructures (FMIs), the UK’s Resolution Authority, and its committees, including the Financial Policy Committee (FPC), which has responsibility for the stability of the entire UK financial system. The PRA also works closely with the Financial Conduct Authority (FCA), including through the Chief Executive of the PRA being a member of the FCA Board and the Chief Executive of the FCA being a member of the PRC.

The PRA regulates 1,330 firms and groups. footnote [3] These consist of 730 deposit-takers (banks, building societies, credit unions, and designated investment firms footnote [4] (DIFs)), and 600 insurers of all types (general insurers, life insurers, friendly societies, mutuals, the London market, and insurance special purpose vehicles (ISPVs)).

Chart 1: PRA supervised deposit-takers, as at January 2024

Chart 2: pra supervised insurers, as at january 2024, the pra’s strategy, shaping the pra’s strategy.

Each year, the PRA is required by law footnote [5] to review and, if necessary, revise its strategy in line with its statutory objectives:

• the general primary objective to promote the safety and soundness of PRA-authorised firms;
• specifically for insurance firms, a primary objective to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders;
• a secondary objective to act, so far as is reasonably possible, in a way that facilitates effective competition in the markets for services provided by PRA-authorised firms; and
• a new secondary objective to act, so far as reasonably possible, in a way that facilitates the UK economy’s international competitiveness and its growth over the medium to long term, subject to alignment with international standards.

In addition to the statutory objectives, the PRA’s strategy is shaped by other responsibilities, such as the requirement to implement legislation and other changes necessary to meet international standards, and to continue to adapt to market changes in areas such as financial technology (FinTech), climate change, and digitalisation.

When considering how to advance its objectives, there are a set of regulatory principles to which the PRA must also have regard. This includes regulatory principles from FSMA 2000, and considerations from HMT’s December 2022 letter to the PRC on the Government’s economic policy, the Equality Act 2010, the Legislative and Regulatory Reform Act 2006, and the Natural Environment and Rural Communities Act 2006. In its pursuit of its objectives, the PRA will review all the regulatory principles, identify which are significant to the proposed policy, and judge the extent to which they should influence the outcome being sought.

Furthermore, as part of the Bank, the PRA contributes to the delivery of the Bank’s wider financial stability and monetary policy objectives, for example by:

• maintaining and, where appropriate, strengthening or updating prudential standards;
• being at the forefront of identifying new and emerging risks, and developing international policy; and
• ensuring that banks and other financial institutions can continue to provide essential services.

Strategic priorities for 2024/25

This year’s business plan continues to be structured around the PRA’s four strategic priorities, as set out in its 2023/24 Business Plan . The PRA’s strategic priorities for 2024/25 will remain unchanged because the PRA updated its priorities in 2023 to take account of its new powers, new secondary objective, and expanded role brought about by FSMA 2023. The strategic priorities for 2024/25 are to:

• maintain and build on the safety and soundness of the banking and insurance sectors, and ensure continuing resilience;
• be at the forefront of identifying new and emerging risks, and developing international policy;
• support competitive and dynamic markets, alongside facilitating international competitiveness and growth, in the sectors that we regulate; and
• run an inclusive, efficient, and modern regulator within the central bank.

PRA Business Plan 2024/25

Maintain and build on the safety and soundness of the banking and insurance sectors and ensure continuing resilience.

During the decade following the financial crisis of 2007-09, the PRA designed and implemented extensive reforms that materially improved the safety and soundness of firms, insurance policyholder protection, and financial stability. Since then, the robust regulatory standards that the PRA has implemented and its strong international collaboration have played a key role in maintaining the resilience of the banking and insurance sectors, consistent with its objectives and those of the FPC. The PRA will continue to ensure that the firms it regulates remain adequately capitalised and have sufficient liquidity and stable funding profiles, with appropriately defined impact tolerances for disruption to their business services. The PRA’s regulatory framework encourages PRA-regulated firms to take a holistic approach to managing risks by identifying, monitoring, and taking action to remove or reduce systemic risks.

The PRA’s role as a rulemaker was further expanded following the introduction of FSMA 2023. Under the new regulatory framework , the PRA will continue to be a strong, accountable, responsive, and accessible policymaker, and make rules to meet its regulatory obligations, while adopting a risk-based approach, as set out in CP27/23 , in a way that is tailored to the specific features of financial services in the UK. Among other things, the PRA will continue to faithfully implement agreed international standards and reforms in a way that best serves the UK. For example, in 2024 the PRA will publish its final rules on the implementation of the Basel 3.1 standards and on replacing relevant and/or remaining firm-facing Solvency II requirements from assimilated law with the PRA’s own rules, which will become part of the PRA’s Rulebook and other policy materials. In addition, the PRA will move further towards finalising and implementing the Strong and Simple prudential framework , which provides a simpler but robust set of prudential rules for non-systemic, domestic-focused banks and building societies in the UK.

The PRA will also continue to pay particular attention to the business opportunities and threats that are posed by changes in the economic environment, both in the UK and other jurisdictions, that could pose risks to the UK.

The PRA will continue to promote a strong risk culture among regulated firms, including a conscious and controlled approach to risk taking activities, and ensure that this is supported by adequate financial and non-financial resources. At the same time, the PRA will maintain a robust regulatory regime that is able to respond to the external factors that pose the greatest risk to firms’ safety and soundness.

Risk factors also include global geopolitical risks, which have intensified over the past year. The PRA will continue to ensure that PRA-regulated firms are resilient to such risks by liaising with both domestic and international regulatory counterparts and continuing to monitor and engage with affected firms. Effective international collaboration remains central to addressing global risks and maintaining UK financial stability as well as the safety and soundness of internationally active firms.

The PRA will monitor and assess firms’ ability to manage cyber threats through the ongoing use of threat-led penetration testing ( CBEST and STAR-FS ) and the cyber questionnaire ( CQUEST ). In collaboration with the FCA, including in response to known technology, cyber and third-party incidents, the PRA will continue to monitor and engage with firms on their execution of large and complex IT change programmes. Furthermore, the FPC’s cyber stress testing has broadened the PRA’s understanding of how operational disruptions such as cyberattacks may affect financial stability.

The PRA will continue to engage in collective action to develop a view on sector-wide risks, support the building of firm- and sector-level resilience, and enhance the sector’s ability to respond to system-wide disruption. This will include ongoing sector engagement through the Cross-Market Operational Resilience Group (CMORG), which delivers industry guidance, response capabilities, and technical solutions, and through cross-jurisdictional coordination via the G7 Cyber Experts Group (CEG). Through CMORG, the PRA will deliver a sector-wide simulation exercise (SIMEX24) to assess the sector’s resilience to major operational disruption. The PRA will continue to develop its ability to respond to operational incidents in the sector through its authorities ( Authorities Response Framework ) and sector ( Cross Market Business Continuity Group ) response mechanisms.

Financial resilience – banking

Implementation of the basel 3.1 standards.

In March 2023, the PRA concluded its consultation on proposals published in November 2022 about the parts of the Basel III standards that remain to be implemented in the UK (‘Basel 3.1’). In September 2023, the PRA announced that it would split the publication of the near-final Basel 3.1 rules in two, moving implementation back by six months to 1 July 2025 to reduce the transitional period to 4.5 years and ensure full implementation by 1 January 2030, in line with the proposals set out in CP16/22. The first near-final PS17/23 – Implementation of the Basel 3.1 standards near-final part 1 , covering market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk, was published in December 2023. The PRA will publish the second near-final PS, covering the remaining elements of credit risk, the output floor, as well as Pillar 3 disclosure and reporting requirements, in due course.

The near-final rules from the two PSs will be made final once Parliament has revoked the relevant parts of the Capital Requirements Regulation (CRR). The PRA expects this to happen later in 2024. In addition to finalising Basel 3.1 rules, the PRA will continue to increase its supervisory focus on firms’ implementation plans.

Bank stress testing

The concurrent stress testing of firms is one of the key tools used by the PRA and the Bank to support their microprudential and macroprudential objectives. Banking stress tests examine the potential impact of a hypothetical scenario on the major UK banks and building societies that make up the banking system, and on the system as a whole. The PRA normally runs two types of banking stress test – the annual cyclical scenario and other exploratory scenarios.

In 2024, the PRA will support the Bank in taking stock of and updating its framework for concurrent bank stress testing. The stocktake will draw on lessons from the first decade of concurrent stress testing, and so ensure that the framework continues to support the FPC and PRC in meeting its objectives. The PRA will also contribute to supporting the Bank’s desk-based stress test in 2024, which is being conducted in place of an ACS. The desk-based exercise will make use of the PRA’s risk expertise along with models developed in the PRA and elsewhere in the Bank to test the financial resilience of the UK banking system under more than one adverse macroeconomic scenario. Stress testing exercises involving firm submissions of stressed projections are currently expected to resume in 2025.

In addition, the Bank is conducting a system-wide exploratory scenario (SWES), working closely with and with the full support of the PRA, FCA, and TPR (The Pensions Regulator). The exercise was launched in June 2023 and aims to improve the understanding of the behaviours of banks and non-bank financial institutions (NBFI) in stressed financial market conditions. The participating firms in this exercise are representative of markets that are core to UK financial stability.

Private equity and credit

The evolving macro environment is expected to challenge firms’ approach to risk management, increasing the need for robust governance, risk management, and controls. One area of focus for the PRA will be exposures to NBFI, particularly any challenges that may manifest around the trend toward illiquid private equity financing and private credit. The PRA will continue to closely monitor private asset financing and the way that firms consider the risks they could face from these activities. In particular, the PRA will look for further improvements in firms’ ability to identify and assess correlations across financing activities with multiple clients.

Replacing assimilated law

HMT has prioritised the CRR as one of the initial areas of focus in the process of transferring assimilated law into the supervisory authorities’ rules and legislation following the enactment of FSMA 2023. The latter granted the PRA expanded rulemaking powers to replace assimilated law with PRA rules, thereby moving towards a more British system of regulation. In 2024/25, the PRA will consult on proposed rules to replace, with modifications where appropriate, the relevant firm-facing provisions in Part Two of the CRR.

Model risk management (MRM) and internal ratings-based approach/hybrid models

Banks’ use of and reliance on models and scenario analysis to assess future risks has increased significantly over the past decade. The introduction of new, sophisticated modelling techniques – including the potential use of Artificial Intelligence and Machine Learning (AI/ML) – has highlighted the need for sound model governance and effective model risk management practices.

In 2023, the PRA published a supervisory statement (SS)1/23 – Model risk management principles for banks , which applies to firms with internal model (IM) approval to calculate regulatory capital requirements. It is structured around five high-level principles that set out the core disciplines necessary for a robust model risk management framework to manage model risk effectively across all model and risk types. The adoption of these principles will help banks to develop good practices of model risk management, raising prudential standards at banks operating in the UK. The new policy comes into effect on 17 May 2024. Banks within the scope of the policy are expected to conduct an initial self-assessment against these principles, and, where relevant, prepare remediation plans to address any identified shortcomings.

During 2024, the PRA will focus on how banks are embedding and implementing the expectations set out in SS1/23. In particular, the PRA will seek to understand the extent to which banks’ management teams are adopting the principles and promoting the management of model risk as a risk discipline in its own right across their firms.

The PRA has published a range of policy statements on changes to the internal ratings-based (IRB) approach to credit risk over recent years. footnote [6] The PRA will continue to work with firms as they progress their model approval and review submissions in line with these requirements and expectations. The PRA will focus on the ‘hybrid’ approach to mortgage modelling, and the IRB repair programme, both carried forward from previous years.

Where appropriate, firms are holding post-model adjustments (PMAs) in the form of risk-weighted asset (RWA) add-ons, helping to mitigate potential capital underestimation while they develop their new models. During 2024, the PRA will continue to assess the adequacy of the PMAs to ensure any potential capital underestimation is addressed.

Liquidity risk management

The events of 2023 brought a further focus on the liquidity and funding risks faced by deposit takers, in particular the deposit outflows experienced by CS and SVB leading up to their acquisition and resolution, respectively.

The PRA will continue its close supervision of firms’ liquidity and funding risks in light of recent stresses. Through its ongoing supervision of banks and building societies, the PRA will follow up on how firms are taking account of the lessons they learnt from the events at CS and SVB. The PRA will continue to use its regular programme of Liquidity Supervisory Review and Evaluation Processes (L-SREPs) across PRA-authorised firms to assess their liquidity and funding risks, in quantitative and qualitative terms, and to ensure appropriate financial and non-financial resources are in place to manage and mitigate these risks.

The PRA will also continue to engage with firms and within the wider Bank on PRA-authorised firms’ access to the Bank’s Sterling Monetary Framework .

The PRA will also monitor closely how firms consider changes in depositor behaviour in the current funding environment and proactively take into consideration forthcoming changes in bank funding and liquidity conditions. footnote [7]

Credit risk management

The PRA is closely monitoring firms’ credit risk management practices given the uncertain credit risk outlook across key markets. The PRA’s assessment will include a focus on how credit risk management practices have evolved – in particular, how they can remain robust and adaptable to changing conditions, whether there is appropriate consideration of downside and contagion risks, as well as firms’ monitoring and planning for the impacts of customer refinancing. The PRA will undertake a thematic review of smaller firms’ credit risk management frameworks during 2024/25.

The PRA will monitor changes to firms’ business mix and credit exposures, and continue to monitor vulnerable segments, including cyclical sectors and key international portfolios, as well as traditionally higher-risk portfolios such as buy-to-let, credit cards, unsecured personal loans, small to medium-sized enterprises, leveraged lending, and commercial real estate. In addition, counterparty credit risk will remain a key area of supervisory focus through 2024, especially exposures to NBFI across certain business lines.

Separately, in 2024, the PRA will continue to progress its review of regulatory policies to assess whether the policy framework for trading book risk management, controls, and culture is adequate, robust, and accessible.

The UK banking system is well capitalised. However, the overall operating and risk environment remains challenging, and firms must manage their financial resilience to ensure that the financial sector can continue to support businesses and households. The PRA will continue to assess firms’ capital positions and planning, including firms’ use of forward-looking capital indicators, stress testing, and contingency plans.

The PRA intends to review its Pillar 2A methodologies (see section ‘Review of the Pillar 2 framework’ of PS17/23 ) for banks after the rules on Basel 3.1 are finalised, with a view to consulting on any proposed changes in 2025.

Securitisation regulation

HMT has prioritised the Securitisation Regulation as one of the initial areas of focus in the process of transferring assimilated law into regulatory rules and legislation following the enactment of FSMA 2023. The PRA will publish its final policy (simultaneously with the FCA) on final rules to replace or modify the relevant firm-facing provisions in the Securitisation Regulation and related Technical Standards in 2024-25.

The PRA also intends to consult on draft PRA rules to replace firm-facing requirements, subject to HMT making the necessary legislation. The PRA has gathered views and evidence from firms through DP3/23 – Securitisation: capital requirements , which will inform its approach to capital requirements for securitisation.

Financial resilience – insurers

Solvency uk implementation.

In June 2024, the PRA will publish its final policy on the matching adjustment (MA) reforms set out in CP19/23 – Review of Solvency II: Reform of the Matching Adjustment . The majority of these reforms will take effect from end-June to allow PRA-authorised firms to take immediate advantage of new investment opportunities. The remaining Solvency II reforms consulted upon in CP12/23 – Review of Solvency II: Adapting to the UK insurance market will take effect on 31 December 2024.

To facilitate implementation of the reforms consulted on in CP12/23 and CP19/23, the PRA will streamline the application processes for new internal model permissions and variations of existing permissions. There will be similar proposals for MA permissions, if the final policy is the same as set out in the CP. The PRA remains committed to assessing and providing decisions on applications for permissions as quickly as possible and aims to do this within the timescales published in the associated statements of policy. This will be supported by the establishment of dedicated, specialised teams for reviewing applications.

In practice, delivering timely decisions will in part depend on good engagement between firms and the PRA during the application process, and on the preparation of high-quality and complete applications by firms. To facilitate this, the PRA will publish templates for use by firms , including templates for reporting the updated Matching Adjustment Asset and Liability Information Return (MALIR) and the Analysis of Change (AoC) and Quarterly Model Change (QMC) for internal models. These measures are intended to assist with a smooth transition to the Solvency UK regime.

A variety of proposals were made in responses to CP19/23 to further reform the MA in the form of so-called ‘sandboxes’, which would allow an element of self-certification of eligibility, or a route to further expand eligibility in response to innovations in primary financing markets. In 2024, the PRA will explore these proposals with industry with the goal of determining whether they can be developed into schemes that further advance the objectives of the Solvency II review.

Solvency II reporting reforms

To deliver the regulatory reporting and disclosure reforms consulted on in CP14/22 and CP12/23 , the PRA published PS3/24 – Review of Solvency II: Reporting and disclosure phase 2 near-final , including finalised templates and instruction files. The PRA will also publish a finalised single taxonomy package in 2024 Q2, which encompasses proposals in CP14/22 and CP12/23 , and deletions published in PS29/21 . The PRA will engage with firms, including through industry roundtables, to prepare them in meeting the new reporting requirements coming into force from 31 December 2024.

Solvency II transfer

The PRA will publish a CP in 2024 H1 that will set out how it will transfer the remaining Solvency II requirements from assimilated law into the PRA Rulebook and other policy material such as supervisory statements or statements of policy (‘the UK framework’).

This will provide a more comprehensive Rulebook and will make it easier for firms to access and navigate the rules that apply to them.

Insurance stress testing

Stress testing forms an important part of the PRA’s supervisory approach and risk assessment of insurance firms, helping to assess and identify the vulnerabilities of life and general insurance sectors to a range of risks in different scenarios.

Major life insurers participate in regular and concurrent stress testing prescribed by the PRA, and the next test will take place in 2025. For the first time, the PRA will publish the individual results of the largest annuity-writing firms to help inform stakeholders about the level of firms’ resilience in the scenarios set out, and thereby strengthen market discipline.

The PRA will continue to engage with the industry on the technical, operational, and communication aspects of the stress test, and will publish an approach document for the life insurance stress test 2025. The 2025 test will for the first time include an exploratory scenario to assess exposure to the recapture of funded reinsurance contracts.

For general insurers, the PRA has previously conducted four general insurance stress test exercises between 2015 and 2022. In 2025, the PRA will run its first dynamic stress test . The objectives of the exercise will be to:

• assess the industry’s solvency and liquidity resilience to a specific adverse scenario;
• assess the effectiveness of insurers’ risk management and management actions following an adverse scenario; and
• inform the PRA’s supervisory response following a market-wide adverse scenario.

The dynamic nature of the 2025 exercise represents a significant change from previous exercises and will involve simulating a sequential set of adverse events over a short period of time. The PRA has begun engaging with industry trade bodies and will provide more details of this exercise (including participation, design, and timelines) during 2024. Results of this exercise will be disclosed at an aggregate industry level.

Cyber underwriting risk

As the scope of technology continues to expand globally, cyber underwriting risk has become increasingly relevant, as reflected in the actual and planned growth of cyber insurance within the UK sector. As well as being inherently volatile and systemic in nature, cyber underwriting risk is diverse in how it can manifest in different lines of business.

Given the uncertainty of this risk, robust risk management, risk appetite-setting, and stress testing will be important factors in ensuring that capital and exposure management capabilities reflect firms’ actual exposures.

Monitoring and assessing cyber underwriting risk will be at the core of the PRA’s supervisory focus, particularly for firms with material exposures. The PRA will share the aggregate findings of its recent thematic project focused on cyber underwriting risk with industry, and continue to monitor the risk landscape and market dynamics to identify and assess potential risk drivers, including areas such as contract (un)certainty risk.

Model drift

The PRA will continue its scrutiny of internal models used by insurers to calculate capital requirements and aid risk management, to identify potential trends in the strength of firms’ calibrations, and as an indicator of the effectiveness of firms’ risk management.

In its 2023 model drift analysis , the PRA identified a number of findings across firms using internal models within the non-life sector. These are related to levels of allowances for inflation uncertainty, potential optimism in expected underwriting profits, potential optimism in the cost and benefit of reinsurance, and the limited allowance for economic and geopolitical uncertainties.

In 2024, the PRA will address perceived systemic trends that may weaken the robustness of models used across the market as a whole. The PRA will also focus on specific model drift within individual firms, with an emphasis on improving the effectiveness of internal model validation, so that firms can develop the capability to self-identify and address potential challenges.

Funded reinsurance

In 2024, the PRA will continue to pay close attention to the rapidly increasing use of funded reinsurance transactions in the UK life insurance market, and the risks that the growth in their use may pose to policyholder protection and UK financial stability. The PRA is particularly focused on the risk of an erosion in standards for assets used as collateral in these transactions, and individual and sectoral concentrated exposures to correlated, credit-focused counterparties.

As well as preparing to examine exposures to the recapture of funded reinsurance in the 2025 life insurance stress test, in 2024. The PRA will also, subject to responses to CP24/23 – Funded reinsurance , finalise and implement its policy expectations for UK life insurers that use funded reinsurance arrangements. As stated in the PRA’s letter on ‘ Insurance supervision: 2024 priorities ’, these policy expectations will cover how firms should manage risks associated with funded reinsurance at both individual transaction and at aggregate level. This will include the expectation that firms place limits on their activities to ensure sound risk management.

Impact on general and claims inflation

Claims inflation continues to be a significant risk for general insurers. Following a thematic review, the PRA published a Dear Chief Actuary letter in June 2023 setting out its findings that, while reserves have increased, there remains material uncertainty and the potential for excessive optimism with respect to reserving, pricing, and capital and reinsurance planning.

The PRA expects a continued lag in the emergence of claims inflation in the data, which insurers should be alert to. The PRA will continue to monitor the ongoing impact through the regulatory data collected and supervisory activities throughout 2024. Should the PRA’s assessment of this risk change, further focused work may be considered.

Market-wide stresses in March 2020 and September 2022 highlighted gaps in insurers’ liquidity risk management frameworks and, consequently, the importance of having comparable, accurate, and timely information on insurers’ liquidity. The PRA will build on the existing liquidity framework, currently based on risk management expectations set out in SS5/19 – Liquidity risk management for insurers , and develop liquidity reporting requirements for insurance firms most exposed to liquidity risk. The information collected will be used to supervise firms’ liquidity positions more effectively and produce meaningful peer comparisons. The PRA will work closely with firms to inform them about its development of these requirements and explore the necessity of a minimum liquidity requirement as part of a future policy consultation.

In addition, the Bank has signalled its intention to develop a new lending tool for eligible NBFIs to help tackle future episodes of severe dysfunction in core markets that threaten UK financial stability. The development of the PRA’s approach to supervising liquidity will therefore inform the design of the lending tool as it relates to insurers.

The reforms to Solvency II offer life insurers opportunities to expand the range of credit risk assets that are used to back their annuity liabilities, and enable them to meet their commitment to invest in assets that contribute to the productivity of the economy and the transition to net zero. These opportunities require sophisticated credit risk management, and insurers’ capabilities will remain a key focus. Increased activity in the bulk purchase annuity (BPA) market is expected to lead to further growth in firms’ exposure to credit risk, and potentially to concentrations in exposure to internally valued and rated assets.

The PRA will continue to focus on the effectiveness of firms’ credit risk management capabilities and seek further assurance that firms’ internal credit assessments appropriately reflect the risk profile of their asset holdings. The PRA will assess how firms’ credit risk management frameworks are evolving in line with its supervisory expectations, and also review the suitability of firms’ current and forward-looking internal credit assessment validation plans and approaches. In both cases, the PRA will seek to provide feedback on a firm-specific or thematic basis as appropriate.

Regulatory reforms

Operational risk and resilience (including the implementation of the critical third-party regime).

Operational disruption can impact financial stability, threaten the safety and soundness of individual firms and financial market infrastructures, or cause harm to consumers, policyholders, and other parts of the financial system. The PRA defines operational resilience as the ability of firms and the financial sector to prevent, respond to, recover, and learn from operational disruptions, including cyber threats.

The FCA, Bank, and PRA’s operational resilience policies came into force in March 2022 . Firms have now identified their most important business services, set impact tolerances, and commenced a programme of scenario testing. The PRA will continue to work closely with the FCA to assess firms’ progress, with a particular focus on the ability of firms to deliver important business services within defined impact tolerances during severe but plausible scenarios over a reasonable time frame, and no later than March 2025.

The PRA will also continue to monitor threats to firms’ resilience, including their growing dependency on third parties, while respecting the principle of proportionality.

Critical third parties to the UK financial sector

Section 312L of FSMA 2023 gave HMT the power to designate certain third-party service providers as ‘critical’ if they provide services to the financial sector, which, if disrupted or subject to failure, could cause financial stability concerns or risks to the confidence in the UK’s financial system. Prior to designating these parties, HMT must consult with the Bank, PRA, and FCA (the authorities the Act appoints as Regulators of the new regime). FSMA 2023 also gives the Regulators new powers to oversee the services provided by critical third parties (CTPs) to regulated firms. In December 2023, the PRA, Bank, and FCA jointly published CP26/23 – Operational resilience: Critical third parties to the UK financial sector , proposing how these powers could be used to assess and strengthen the resilience of services provided by CTPs to firms and FMIs, thereby reducing the risk of systemic disruption. The PRA will continue to work with other authorities to develop the final policy and oversight approach in 2024.

Additionally, the PRA is developing regulatory expectations on incident reporting, aligned with its operational resilience expectations.

Review of enforcement policies

Enforcement supports and supplements the PRA’s regulatory and supervisory tools by ensuring that it has credible mechanisms for holding regulated firms to account when they do not meet requirements and expectations. Enforcement policies also provide a wider deterrent effect. The PRA is therefore committed to holding individuals to account and, when appropriate, taking regulatory and/or enforcement action against those individuals that breach its standards. The PRA clearly sets out, for the benefit of the whole regulated community, the actions and standards of behaviour that are considered unacceptable ( The Bank of England’s approach to enforcement ).

In January 2024, following a review of its policies and public consultation, the PRA published PS1/24 – The Bank of England's approach to enforcement , which sets out the revised approach to enforcement across the Bank’s full remit (including when acting as the PRA).

The PRA is committed to conducting any enforcement investigations as promptly and efficiently as possible. In line with that aim, PS1/24 introduced a new Early Account Scheme (EAS or ‘the Scheme’), which provides for a new path for early cooperation and greater incentives for early admissions with the aim of reaching outcomes more quickly in specific cases.

Diversity and inclusion in PRA-regulated firms

Enhancing diversity and inclusion (D&I) can support better governance, decision-making, and risk management in firms by reducing groupthink and promoting a culture that allows employees to feel able to speak up and challenge the status quo.

In September 2023, the PRA published CP18/23 – Diversity and inclusion in PRA-regulated firms . Under the proposals, all in-scope firms would need to understand their D&I position, develop appropriate strategies to make meaningful progress, and monitor and report on progress. The proposals are flexible and carefully tailored to recognise that firms are at different stages of their work on D&I, and, most importantly, are best placed to develop their own D&I solutions.

The PRA also outlined that the proposals in CP18/23 contribute towards its secondary objectives of ensuring effective competition and facilitating competitiveness and growth, because enhanced D&I can help support greater innovation and make firms more attractive in the labour market.

In 2024, the PRA will continue its industry engagement, assess responses to CP18/23, and provide a further update in due course.

The PRA maintains flexibility to adapt and respond to changes in the external environment, economic and market developments, and any other risks that may affect its statutory objectives or priorities. The PRA has continued to use its horizon-scanning programme to achieve the following aims:

• identify emerging external risks, regulatory arbitrage, and potentially dangerous practices;
• highlight features of the regulatory regime that are not yet delivering the desired results; and
• allocate supervisory and policy resources to tackling the highest-priority risks in a timely manner.

Consistent with its mission, the PRA will continue to contribute to lessons learned internationally, policy/standards evaluation, and, in particular, internationally agreed standards with the aim of promoting the safety and soundness of the firms it regulates. For example, in 2024/25, the PRA will continue to focus on identifying and addressing emerging risks internationally, working closely with the BCBS on its response to consultations launched in 2023 (including on cryptoassets; disclosure for climate-related financial risks; and the Basel Core Principles and other outstanding work in support of its 2023/24 work programme and strategic priorities ). The PRA will also continue to work closely with the International Association of Insurance Supervisors (IAIS) on its finalisation of the Insurance Capital Standard (ICS), Insurance Core Principles on valuation (ICP 14) and capital adequacy (ICP17) .

In addition, the PRA will continue to monitor the potential for capital and profit erosion in firms that are slower to adopt new technologies, as well as firms’ involvement in new technologies, and changes in the profile of cyber-risks they face.

International engagement and influencing regulatory standards

The PRA plays a leading role in influencing international regulatory standards and will continue to participate actively in global standard-setting bodies, such as the Basel Committee on Banking Supervision (BCBS) , the IAIS, and the Financial Stability Board (FSB) .

Building on the BCBS’s report on the 2023 banking turmoil , the PRA will work with international stakeholders and the BCBS to strengthen supervisory effectiveness and identify issues that could merit additional guidance at a global level. The PRA will work with BCBS to pursue additional follow-up analytical work based on empirical evidence to assess whether specific features of the Basel Framework have performed as intended, such as liquidity risk and interest rate risk in the banking book, and assess the need to explore policy options over the medium term, alongside supporting the BCBS in pursuing its medium-term programme on evaluating the impact and efficacy of Basel III, and in light of lessons drawn from the Covid-19 pandemic.

In addition, the PRA pursues international collaboration through less formal mechanisms, for example through regular bilateral and trilateral engagements, ensuring close collaboration on a number of supervision, risk, and policy topics of joint interest. The PRA also collaborates internationally on joint global thematic reviews with other regulatory authorities, for example, to address a joint interest in banks’ exposures to NBFIs and the use of critical third parties.

The PRA will also continue to support international efforts to monitor and promote consistent implementation of Basel 3.1, as well as the implementation and monitoring of the ICS.

Supervisory co-operation

Effective international collaboration remains crucial to addressing global risks, and is central to maintaining UK financial stability, the safety and soundness of internationally active firms, and reducing regulatory arbitrage.

The PRA will continue to promote international collaboration through supervisory colleges and set out clear expectations for firms wanting to branch into the UK. The PRA will also maintain its existing memoranda of understanding (MoUs) and, if needed, expand the number of jurisdictions with which it has an MoU to facilitate the supervision of international groups and therefore enhance the safety and openness of the UK for financial services activities.

The PRA will continue to support HMT via its international collaboration activities (eg The Berne Financial Services Agreement ) and with assessments of other jurisdictions to facilitate safe access to overseas markets for UK firms, among other benefits.

Overseas bank branches

The PRA will consult on targeted refinements to its approach to banks branching into the UK, reflecting lessons from the failure of SVB to ensure the PRA’s framework for assessing branches captures activities of potential concern. The PRA is committed to the UK remaining a responsibly open jurisdiction for branches, and expects the vast majority of branch business to be unaffected by any changes. The PRA also intends to consult on clarifying expectations for group entity senior manager functions (SMFs) footnote [8] and expectations of booking arrangements.

Operational and cyber resilience

The PRA engages internationally on operational and cyber resilience, in support of its supervision objectives and to raise international standards. The PRA co-chairs the G7 Cyber Expert Group (CEG), which works to coordinate cyber resilience strategy and management across G7 jurisdictions. The PRA also co-chairs the European Systemic Cyber Group (ESCG), which helps European authorities develop systemic capabilities to prevent and mitigate risks to the financial system that might emanate from cyber incidents. The PRA has also led work at the Financial Stability Board (FSB) on cyber incident reporting. In 2024, the PRA will continue to engage with standard-setting bodies and bilaterally with other jurisdictions on third-party risk management and CTPs.

Managing the financial risks arising from climate change

Climate change presents a source of material and increasing financial risk to firms and the financial system. Managing the risks to firms’ safety and soundness from climate change requires action and remains a key priority for the PRA. The Bank first set out expectations around enhancing banks’ and insurers’ approaches to managing the financial risks emanating from climate change in April 2019 via SS3/19 –  Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change . The PRA has since provided further guidance via two Dear CEO letters, footnote [9] incorporating observations from supervisory processes and the 2022 Climate Biennial Exploratory Scenario exercise , as well as by providing thematic feedback via Dear CFO letters footnote [10] to promote high-quality and consistent accounting for climate change .

As noted in its 2024 priorities letter to firms, the PRA expects firms to make further progress and demonstrate how they are responding to the PRA’s expectations, and to set out the steps they are taking to address barriers to progress. The PRA will continue to assess firms’ progress in managing climate-related financial risks. In 2024, the PRA will commence work to update SS3/19 and publish thematic findings on banks’ processes to quantify the impact of climate risks on expected credit losses.

The PRA, alongside the FCA, will continue to work with industry through the Climate Financial Risk Forum to produce practical guides and tools that help financial firms embed the financial risks from climate change into their operations. The PRA will also continue to engage with domestic and international partners, including international standard-setters, to contribute to the development of international frameworks in support of managing climate-related risks.

Artificial Intelligence and Machine Learning

Following the publication of a feedback statement (FS)2/23 – Artificial Intelligence and Machine Learning , the PRA and FCA intends to conduct the third edition of the joint survey on machine learning in UK financial services , in 2024 Q2. Responses to the survey will allow the PRA and FCA to further explore how best to address the issues/risks posed by AI/ML in a way that is aligned with the PRA’s and FCA’s statutory objectives. The PRA will also continue to monitor firms’ compliance of its expectations, as set out in SS1/23 , and will seek to explore further updates where necessary.

International policy on digitalisation and managing associated risks

The PRA aims to be at the forefront of identifying and responding to opportunities and risks faced by PRA-authorised firms as they seek to use technology in innovative ways to attract and retain customers, reduce costs, and increase efficiencies.

External context and business risk are important facets of the PRA’s approach to supervision. Developments are monitored, with specialist input from the Bank’s Fintech Hub , to identify risks such as fragmentation of the value chain, novel outsourcing arrangements, and concentration risks across and within firms.

In order to take a responsive and responsibly open approach, the PRA will continue to consider policy proposals to respond to digitalisation and adapt its supervisory approach accordingly. Through the New Bank Start-up and Insurer Start-Up Units, the PRA will continue to engage with applicant firms that have novel uses of technology. The PRA will continue to work closely with domestic and international partners, and through engagement with industry and stakeholders, to take a pro-active approach to digital innovations within the financial sector.

The PRA is a significant contributor to discussions on digitalisation in international standard-setting fora, and will continue to support the BCBS’s work on the developments in the digitalisation of finance and the implications for banks and supervisors . The PRA will also continue be an active part of the IAIS Fintech Forum.

Digital money and innovation

In February 2023, HMT published a consultation and Call for Evidence on the future financial services regulatory regime for cryptoassets , focused on enhancing market integrity, custody requirements, and transparency. The consultation closed in October 2023 with the publication of an update on the government’s plans for its legislative approach to the regulation of stablecoins. HMT confirmed that tokenised deposits would continue to be regulated as deposits. The PRA will continue to work with HMT and the FCA to ensure that the regulatory perimeter and the boundaries between different activities are clearly and robustly delineated.

In November 2023, the Bank, PRA, and FCA published a cross-authority package on innovations in money and payments . As part of this, the PRA published a Dear CEO letter to provide clarity on the PRA’s expectation on how deposit-takers should address risks arising from the emergence of multiple forms of digital money and money-like instruments. footnote [11] It published the letter alongside the Bank’s proposed regime for systemic payment systems using stablecoins and related service providers , and the FCA’s proposed regime for stablecoin issuers, custodians, and the use of stablecoins as a means of payment. A roadmap paper was also published to explain how these regimes fit together.

The PRA will continue to contribute to the Bank’s broader work on innovation in money and payments, which in 2024 will include work on wholesale payments and settlements – and their interaction with retail payments.

In 2024, the PRA will continue to work within the global regulatory community to finalise a set of amendments made to the international standard on the treatment of banks’ cryptoassets exposures. These amendments were published for consultation by the Basel Committee in December 2023, following the finalisation of the standard in 2022.

Once the amendments are finalised, the PRA will implement the standard within the UK, following the PRA’s policymaking process. Alongside this, the PRA will continue to engage with international partners, including the BCBS, to assess bank-related developments in cryptoassets markets, the role of banks as issuers of stablecoins and tokenised deposits, custodians of cryptoassets, and potential channels of interconnections with the cryptoassets ecosystem.

The PRA advances its primary and secondary objectives by making rules that support competitive and dynamic markets in the sectors that it regulates. The PRA will go further in developing proportionate and efficient prudential requirements, thereby reducing the burden on firms where appropriate, and pursuing its secondary objectives. The PRA also remains committed to playing an active role in international standard-setting, given the important role of global rules in safeguarding the UK’s open economy through ensuring safe financial markets.

Regulatory change – embedding the PRA’s approach to rule-making

FSMA 2023 has significantly changed the powers and responsibilities of the PRA, allowing it to ensure the UK financial services framework is fit for the future, reflecting the UK’s position outside of the EU. FSMA 2023 also introduces enhanced objectives and accountability requirements that support the PRA’s transparency and accountability to Parliament.

FSMA 2023 provides a framework to repeal and replace assimilated law relating to financial services. Most technical rules will now be made by operationally independent regulators within a framework set by Parliament, enabling the PRA to deliver policies better suited to the UK financial sector. The PRA’s responsibility, in cooperation with HMT and FCA, is to ensure that the new rules are made in accordance with the PRA’s remit and statutory objectives, including the new secondary competitiveness and growth objective.

The PRA has worked closely with HMT and FCA on the sequencing of the repeal and the replacement of the files of assimilated law. Once the replacement material is in PRA rules, the PRA will have the power to evaluate these rules, amend them if needed, and/or create new rules when required.

The PRA has already made good progress with respect to the files that HMT has prioritised into the first two ‘tranches’, including key files such as Solvency II, Securitisation, CRR, among others. The PRA has consulted on significant parts of tranches 1 and 2 in 2023 and will continue this work throughout 2024 and 2025. The completion of the repeal and replacement of Solvency II and Securities Regulation files is expected by the end of 2024, and the last of the PRA's tranche 1 and 2 files is planned for implementation in 2026. Work on the remaining files that were not included in tranches 1 and 2 will begin in 2024.

The PRA is consulting its stakeholders as it develops its approach to policymaking in light of the new requirements. In December 2023, the PRA published CP27/23 , setting out the proposed approach to policy under the regulatory framework as amended by FSMA 2023, and building on the previously published DP4/22 – The Prudential Regulation Authority’s future approach to policy . CP27/23 outlines the PRA's planned approach to maintain robust prudential standards, which are the cornerstone of UK financial stability and long-term economic growth, while addressing risks and opportunities in a responsive manner, appropriately adapted to the circumstances of the UK. Responses to CP27/23 will inform the PRA’s finalised approach document to be published in 2024 H2.

Secondary competitiveness and growth objective (SCGO)

FSMA 2023 gave the PRA a new secondary objective which requires the PRA to act, so far as reasonably possible, to facilitate the UK economy’s international competitiveness (including in particular the financial services sector through the contribution of PRA-authorised persons) and its growth over the medium to long term, subject to alignment with international standards. FSMA 2023 maintained the PRA’s other objectives without change.

In addition to specific policy measures, the PRA has taken practical steps to embed the SCGO in its operations, including through internal changes, and the launch of a research programme to deepen its understanding of the ways prudential requirements can affect the international competitiveness and growth of the UK economy.

The PRA will continue to look for ways in which it can facilitate the UK’s competitiveness and growth when discharging its general functions. The approach focuses on strengthening the three regulatory foundations that were set out in CP27/23, specifically:

• Maintaining trust among domestic and foreign firms in the PRA and UK prudential framework via a range of policies, including those that promote strong prudential standards appropriately calibrated for the UK, and the alignment of said policies with international standards.
• Adopting effective regulatory processes and engagement, including providing for the efficient handling of regulatory processes, such as authorisations and data collections, as well as facilitating the accessibility of the PRA Rulebook to reduce the operating costs of firms.
• Taking a responsive and responsibly open approach to UK risks and opportunities, including making rules that account more effectively for the needs of the UK. This approach means responding faster to emerging risks and opportunities in the UK financial sector, for example, by using regulatory tools to support innovation safely. To this end, in 2024, the PRA will hold a pilot roundtable to gather stakeholders’ views on how the PRA can help to reduce the barriers to innovation that the industry faces.

The policy initiatives discussed in the rest of this section provide examples of how the PRA will advance its secondary objectives in 2024/25.

Furthermore, the Bank’s Independent Evaluation Office (IEO) is evaluating the PRA’s approach to its new secondary objective. Both the outcome of the IEO’s evaluation and the PRA’s response to it will be included in the PRA’s – ‘Secondary Objectives Report’ to be published alongside the PRA’s Annual Report 2023/24. The Secondary Objectives Report will also give an overview of all the PRA’s policy initiatives that have advanced the SCO and the SCGO .

Strong and Simple framework

In 2021, the PRA published FS1/21 – A strong and simple prudential framework for non-systemic banks and building societies , that set out a vision to simplify prudential requirements for smaller, domestic-focused banks and building societies, while maintaining those firms’ resilience.

As outlined in the PRA 2023/24 Business Plan , the PRA will continue its planned programme of work on creating a simpler but equally resilient prudential framework for smaller, domestically focused banks and building societies, known as the Strong and Simple framework. This framework is designed to maintain the financial resilience of banks and building societies operating in the UK, while reducing costs associated with prudential requirements for non-systemic banks and building societies. In 2023/24, the PRA published its final policy on scope criteria and simplified liquidity and disclosure requirements for SDDTs in PS15/23.

In December 2023, the PRA published PS16/23 – The Strong and Simple Framework: Scope criteria, liquidity and disclosure requirements , which finalises the scope of the framework. The PS builds on the first layer of the Strong and Simple framework, which focused on the smallest firms and is known as the SDDT regime. The overall aim of the framework is to maintain the financial resilience of banks and building societies operating in the UK, while addressing the ‘complexity problem,’ under which the same prudential requirements are applied to all firms, regardless of size, even though the costs of interpreting and operationalising those requirements are higher for small firms, relative to the associated public policy benefits.

In 2024/25, the PRA will move further towards finalising and implementing the Strong and Simple prudential framework for SDDTs. A key step will be to implement the simplifications to liquidity requirements that were introduced in Phase 1. The PRA will also finalise the rules for the Interim Capital Regime, which will allow firms eligible to be SDDTs to stay under capital rules equivalent to those currently in place until the simplified capital regime for SDDTs is implemented. The PRA plans to consult on a simplified capital regime for SDDTs in 2024 Q2.

Insurance Special Purpose Vehicles regime

In 2017, the PRA introduced a framework for the authorisation and supervision of ISPVs to provide guidance for parties wishing to obtain authorisation as an ISPV, or for insurers and reinsurers seeking to use UK ISPVs as risk mitigation in accordance with Solvency II.

The UK ISPV regime has not seen as much activity as originally envisaged. While new issuances of insurance-linked securitisations (ILS) transactions in the UK over the last two years have exceeded USD400 million, there are steps to be taken which can improve the regime and increase its usage.

The PRA has been in discussion with industry on this matter with the aim of understanding the key areas of the regime in which market participants would recommend changes.

The PRA expects to consult on a package of reforms to the UK ISPV regime. These reforms are intended to:

• allow a wider range of transaction structures in the UK regime;
• improve the speed of the application process, and thereby also reduce costs for applicants; and
• clarify the PRA’s expectations of UK insurers who cede risks to ISPVs, wherever they are established.

Remuneration reforms

The PRA’s remuneration rules ensure that key decision-makers and material risk-takers at PRA-regulated firms have the right incentives and can be held accountable. In 2023, following consultation, the PRA removed the bonus cap and made changes to its rules to enhance proportionality for small firms .

In advancing its primary and secondary objectives, the PRA is considering further changes to the remuneration regime that is better suited to the UK’s financial sector, while maintaining the remuneration regime’s overall structure and objectives, which are based on internationally agreed FSB principles and standards . The PRA intends to consult on any changes in 2024 H2.

Implementing changes to the Senior Managers & Certification Regime (SM&CR)

In March 2023, the PRA and FCA jointly published DP1/23 – Review of the Senior Managers and Certification Regime (SM&CR) , with a particular focus on gathering views about the regime’s effectiveness, scope, and proportionality. HMT in parallel launched a Call for Evidence covering the legislative aspects of the SM&CR. The period for sending responses to the discussion paper ended on 1 June 2023.

The PRA received over 90 responses relevant to its work as a prudential regulator, reflecting the significant level of stakeholder interest in the regime. The PRA, working closely with the FCA and HMT, is considering potential policy options for reform in response to the comments received and intends to consult on proposed changes to the regime in 2024 H1.

Complete the establishment of the Cost Benefit Analysis (CBA) Panel

The PRA is continuing to make progress under the new framework provided by FSMA 2023, setting out CBA as an integral part of developing the best possible policy approach, and the results will help shape the PRA’s policymaking. CBAs inform and refine the policy approach to identified issues, helping to design approaches that offer the greatest benefits.

One of the key elements of enhancing the PRA’s scrutiny and accountability mechanisms relates to its approach to CBA and the establishment of a new CBA panel. The role of the CBA Panel is to support increased transparency and scrutiny of the PRA’s policymaking by providing regular, independent input into the PRA’s CBAs relating to PRA rules and the PRA’s statement of policy in relation to CBAs . The Panel will review how the PRA is performing more generally in carrying out its duties with regard to CBA and may provide recommendations to the PRA.

The PRA has completed an open, competitive, and rigorous recruitment process for identifying and appointing a diverse range of expert individuals to constitute the CBA Panel. The PRA will finalise the set-up of the Panel and then start consulting it on the PRA’s statement of policy in relation to CBAs and on the preparation of CBAs. The appointments, including that of the Chair, will be announced in due course.

In 2024, the PRA will consult on its CBA framework, which will set out how the PRA intends to continue to conduct a robust CBA and how it engages with the CBA panel.

PRA Rulebook

The new regulatory framework set out in FSMA 2023 enables the PRA to develop a more coherent and easily accessible Rulebook. The aim is to improve the efficiency and accessibility of the PRA Rulebook by reducing the number of policy document formats currently in use to three: rules, supervisory statements, and statements of policy. In order to achieve this, the PRA’s specialist teams will begin the process of reviewing the EU Guidelines, European Supervisory Authorities (ESA) Q&As, and UK technical standards (UKTS) that are relevant to PRA rules, to determine what should be incorporated into those rules or related supervisory statements and statements of policy. Once the review of these documents is completed, references to the EU Guidelines, ESA Q&As, and UKTSs will be removed.

The PRA is also looking at grouping the elements in the Rulebook to make it easier for users to access relevant information. To support usability and clarity, the PRA will take a consistent approach to the structure of, and language in its policies.

The speed at which the PRA will achieve many of its ambitions for the Rulebook will partly depend on the Government’s approach to the repeal of relevant assimilated law and its replacement in PRA rules and other policy materials. However, the PRA will move ahead with the proposed reforms as quickly as possible to help users more easily navigate the new regulatory landscape.

Banking Data Review

The Banking Data Review BDR, launched in 2023-24, will be delivered as an integral part of the Transforming Data Collection TDC programme. The work will enable the PRA’s banking regulatory data collections to be better aligned with the day-to-day needs of supervisors, ensure the PRA has good-quality data to carry out its new policymaking responsibilities in line with the post-Brexit regulatory framework, and reduce burdens on firms by better integrating and streamlining data collections.

The PRA will consult on the first of three phases of reforms under the BDR in 2024 H2. The consultation will focus on streamlining of the existing regulatory reporting estate, removing reporting templates that may no longer be needed or which contain information that can be gathered at lower cost elsewhere, reviewing collections of counterparty credit information, and incorporating lessons from recent market events.

In parallel, the PRA will continue to work on plans for future phases of reform, focused on credit risk in the second phase, and with all remaining areas covered in a third phase. Engagement with industry participants will be done under the newly appointed TDC Advisory Board, which will be responsible for setting industry working groups on key topics relating to TDC. The TDC’s main industry forum in this area is the Data Standards Committee (DSC), which led the work on the recommendations underpinning the jointly published response by the Bank and the FCA, entitled Transforming data collection – Data Standards Review with recommendations and Bank of England and FCA response . A further working group is the BDR Industry Consultative Forum that is open to all PRA-regulated banks.

Supporting and authorising new market entrants via new ‘mobilisation’ regime

The PRA will continue to support potential market entrants in navigating the authorisation process. This includes providing clear online guidance and industry engagement to build awareness of expectations and seek feedback on firms’ experience of the process. The PRA offers potential applicants the opportunity to meet with staff through a structured pre-application stage, allowing firms to iterate and develop their proposition to support a better-quality application.

The PRA will continue to make use of the mobilisation stage for newly authorised banks, where appropriate, to allow them to operate with restrictions while they complete their set-up before starting to trade fully.

In line with PS2/24 – Review of Solvency II: Adapting to the UK insurance market , the PRA will introduce a new ‘mobilisation’ regime to facilitate entry and expansion for new insurers from 31 December 2024, similar to the mobilisation stage for new banks. Mobilisation will help to facilitate competition, and the international competitiveness and growth of the UK insurance sector, with the aim of benefiting firms who are contemplating applying for authorisation as an insurer in the UK now or in the future.

Newly authorised insurers in mobilisation could be offered the option of using a set period of extra time to build up systems and resources while operating with business restrictions, proportionate regulatory requirements, and lower minimum capital requirements. New insurers could be suitable for mobilisation when they have a shortlist of activities to complete before they can meet full regulatory requirements.

Ease of exit

Improving how firms can leave regulated markets in an orderly way is a vital corollary to greater ease of entry into those markets. It enables a dynamic and competitive market which entrants can join and leave with minimal impact on the wider market and the PRA’s statutory objectives. The PRA has published the first of two planned policy in this topic, (eg, PS5/24 – Solvent exit planning for non-systemic banks and building societies ). A further PS on solvent exit planning for insurers is expected in 2024 H2, following the completion of the market consultation initiated by CP2/24 – Solvent exit planning for insurers . Both of these form part of the PRA’s strategic focus on increasing the ease of exit.

Ring-fencing regime

The Bank and PRA continue to work closely with HMT on implementing the recommendations made in March 2022 by the Independent Review of Ring-fencing and Proprietary Trading , led by Sir Keith Skeoch. On 28 September 2023, both HMT and the PRA published consultations with the aim of giving effect to recommendations of that review.

HMT consulted on removing the blanket restriction which prevents ring-fenced bodies (RFBs) operating in countries outside the EEA. The PRA consulted on introducing a new rule and updating SS8/16 – Ring-fenced bodies (RFBs) , to align with HMT’s proposed legislative changes. These changes aim to implement certain safeguards to ensure that RFBs are not exposed to material risks through the business of their overseas subsidiaries or branches. The PRA will publish its policy and a rule Instrument once the legislative changes are brought into force. Simultaneously, the PRA will update SS8/16 to reflect the changes.

FSMA requires the PRA to conduct a review of its ring-fencing rules and provide a report to HMT every five years. The first such review was completed on 12 December 2023 and the resulting report was laid before Parliament on 25 January 2024 and published on the Bank’s website.

The PRA intends to consult on potential changes to the ring-fencing regime identified by the Rule Review once a fuller exploration of costs and benefits has been undertaken. The Bank and PRA will continue to support HMT with technical advice to enable HMT to finalise its legislative changes, and to consider responses to its Call for Evidence on longer-term reforms.

Effective authorisation processes

The PRA handles over 1,800 regulatory transactions a year, ranging from new firm authorisations to variations of permission for existing firms and cancellations of permission for firms leaving the market. Over the coming year, the PRA will continue to handle these transactions in more streamlined, efficient, transparent, and accessible way while maintaining strong risk controls to ensure the UK’s success as a global financial centre.

In parallel to consulting on reforms to the SM&CR, the PRA will continue to enhance and streamline internal processes on SM&CR applications and other transactions to drive further improvements in operational effectiveness, as measured through the quarterly publication of metrics on timeliness of decisions. This will include close collaboration with the FCA to ensure an efficient and coordinated review of cases, as well as improvements to case handling and recording technology platforms. The PRA will extend existing industry engagement on New Bank Start-ups to also cover new insurers and SM&CR applications in order to promote transparency and spread best practice in support of efficient case handling. In addition, the Wholesale Insurance Accelerated Authorisation Pathway, developed jointly by the PRA and FCA, will continue to provide an accelerated route for the authorisation of a sub-set of London market wholesale applicants.

The PRA’s operation within the Bank plays a critical role in maintaining the stability and integrity of the UK’s financial system. In pursuit of its objectives and work programme, the PRA ensures that its regulatory framework is inclusive, considering the diverse landscape of financial institutions. It aims to create a level playing field, while recognising and planning for the potential impact of the changes in the environment in which we are operating.

In line with its mission, the PRA continually adapts regulations to address emerging risks and opportunities, fostering inclusivity to enhance trust, transparency, and accountability in the financial sector. As a prudential regulator, the PRA maintains and strives for operational efficiency in its regulatory processes, technology, and its workforce. This involves streamlining procedures, driving inclusive recruitment, and leveraging technology to enhance effectiveness – noting that efficient regulation benefits both regulated entities and the broader economy by reducing unnecessary burdens and facilitating smoother interactions between financial institutions and the regulator.

Data and technology

The PRA will continue its programme of work to strengthen and transform its data-related capabilities. The PRA will also continue to play a leading role in international collaboration on the regulatory use of data and technology, liaising closely with other regulators, central banks, academic institutions, and industry. The PRA intends to run a multi-day innovation-focused event for PRA colleagues to support learning and increase awareness about the impact of technological advances and initiatives across the financial sector.

Transforming Data Collection by building on digital regulatory reporting

The PRA will continue to work towards achieving the objectives of the TDC programme for 2026:

• Goal 1: the PRA has the data and tools it needs to rapidly identify and probe emerging issues, risk, and policy questions, including integration into a single customisable supervisory dashboard; and
• Goal 2: the PRA only collects data that it needs from firms, thereby reducing unnecessary burdens on firms.

Regarding Goal 1, the PRA will continue to improve existing and deliver new priority data visualisation and analysis tools to support supervision, covering financial and operational data for PRA-regulated firms. The PRA will also make use of speech-to-text technology to support day-to-day work for staff, and to contribute to the Bank’s wider work on the appropriate use of artificial intelligence to support its objectives, including large third-party language models. This will be underpinned by ongoing support for PRA staff undertaking renewed digital skills training alongside individual and group coaching for some staff cohorts, and planning for those programmes in future years.

Regarding Goal 2, the PRA will continue to work with the FCA and the wider Bank on the TDC programme , which envisions that ‘regulators are able to get the data they need to fulfil their mission at the lowest possible cost to industry’ through improvements to the integration of reporting, reporting instructions, and data standards. Over the coming years, TDC therefore aims to deliver a new target operating model for all of the Bank’s regulatory, statistical, and stress-testing data collections.

Diversity, equity and inclusion at the PRA

The PRA continues to take action to strengthen its culture and working environment. The Bank’s Court review into ethnic diversity and inclusion reported its findings in July 2021. The PRA, alongside the rest of the Bank, is implementing the recommendations of this review and has made considerable progress in terms of embedding inclusive recruitment, investing in talent development, and advancing a psychologically safe culture to promote employees’ ability to voice their opinions via the ‘speak my mind’ initiative. There is also increased accountability for senior leaders to advance a diverse and inclusive Bank.

The PRA recognises the importance of all staff feeling valued and being able to thrive. Key focus areas for 2024/25 include progressing initiatives to improve psychological safety, ethnic and gender representation, and disability disclosure. The PRA continues to benefit from the Bank’s excellent employee networks that cater to diverse groups such as disability, LGBTQ+, social mobility, gender, age, carers, different ethnicities, and many more.

PRA Agenda for Research

The PRA plans to build on its research efforts in 2024/25, including through improving central coordination and capacity-building projects.

Research priorities are captured in the PRA Research agenda 2023+ below (Table 1). The PRA will continue to deliver on those, while making sure that a timely delivery of high-quality research, expertise, and critical evaluation is given to PRC, FPC, and other senior decision-making activities. These deliverables are captured in the research metrics and the PRA Research Annual. The metrics track the quantity, quality, and impact of the PRA’s research, while the PRA Research Annual provides further details on how timely and effective the research advisory (inside and outside the institution) has been. New for this business year is that the PRA will additionally produce impact cases, with the purpose of tracking the lifespan of key research projects and evaluating their total policy/social impact.

To ensure that the organisation has the right capacity and skills, the PRA will initiate new capacity-building projects on models, tools, and data, while reinforcing external collaborations on those. It will also continue efforts to disseminate this work and foster strategic cooperations with research departments at other central banks, regulatory authorities, research institutes, or universities.

Table 1: PRA Research agenda 2023+

Risks to delivery of business plan.

Operating in a complex and fast-moving environment gives rise to risks to the delivery of this business plan. The PRA monitors, manages, actively mitigates (where possible), and reports these risks to the PRC and relevant Bank fora on a regular basis.

Over the course of 2023/24, attrition levels reduced and there was an improvement in recruitment into key roles. Looking ahead to 2024/25, headcount required to deliver this Business Plan is forecast to remain broadly flat.

The PRA will continue to impose discipline on how it deploys its budget to ensure resources are allocated appropriately. The PRA will also need to reprioritise during the year in response to changes in the external environment, as it routinely does. The PRA will continue to focus on managing operational risks and strengthening horizon-scanning capabilities so that it can respond quickly to changes in risk and drive decisions on prioritisation, business planning, and resourcing.

Having access to the right technology and data remains a key area of focus in 2024/25 as part of a multi-year investment across the PRA and the Bank to ensure that the PRA’s technology capabilities support its strategic priorities. This focus will take account of developments in regulatory technology, reduce inefficiencies, and leverage the benefits of being a regulator within the UK’s central bank. There is a risk that the PRA may be unable to deliver its intended technology ambition given the congested change agenda across the Bank. This challenge is being managed through careful prioritisation and scoping of key projects, including delaying some lower-priority activities.

Dependencies

Given the interconnected nature of the global financial system, dependencies on external parties, such as the FCA, HMT, and overseas regulators, could present a risk for the PRA. Policy development, authorisation processes, and supervision activities are contingent on maintaining relationships and co-operation with these parties. The PRA fosters its domestic relationships to ensure effective regulation and supervision across the UK financial sector. The PRA also works closely with international regulators to address cross-border risks for firms operating internationally. The PRA continues to foster these important relationships at all levels of the organisation through several channels, including international committees, supervisory colleges, joint reviews, information-sharing, and joint publications.

PRA Budget 2024/25

The PRA’s provisional budget for 2024/25, which is subject to finalisation of pension costs and year-end adjustments, is estimated at £353.0 million. This is an increase of £34.0 million (11%) on the 2023/24 budget. To reduce the impact to firms in 2024/25, the PRA has taken two measures, as set out in CP4/24 , to limit the increase in fees paid by firms to 7%. This increase follows a 1% reduction to fees in 2023/24 compared with 2022/23.

The PRA is constraining the increase in its own direct costs to 2%, which means a real-terms cut to the budget that will be managed by increasing efficiency in the PRA’s supervisory approach, end-to-end policymaking process, and operations. Alongside this, the PRA needs to fund inflation-driven increases in support services provided to the PRA by the Bank and the PRA’s share of tackling obsolescence in the Bank’s technology estate on which the PRA relies.

Budgeted headcount is forecast to remain broadly flat for 2024/25 ending the year at 1,541 (this compares closely to the actual year-end headcount position for 2023/24 of 1,537). The budgeted headcount reflects the PRA’s need to invest in key areas, including increasing the capacity to approve the efficiency of the IRB model review process, the implementation and supervision of CTPs, investment in the BDR, and implementing lessons learned from the failure of SVB and CS.

Details on how the PRA proposes to fund its budget can be found in CP4/24 – Regulated fees and levies: Rates proposals 2024/25 . It includes proposals for allocating costs of the PRA’s 2024/25 ongoing regulatory activities across PRA fee payers.

Abbreviations

ACS – Annual Cyclical Scenario

AI/ML – Artificial Intelligence/Machine Learning

AoC – Analysis of Change

Bank – Bank of England

BCBS – Basel Committee on Banking Supervision

BDR – Banking Data Review

CBA – Cost Benefit Analysis

CEG – Cyber Expert Group

CEO – Chief Executive Officer

CMORG – Cross Market Operational Resilience Group

CP – Consultation Paper

CRR – Capital Requirements Regulation

CTP – Critical Third Party

DEI – Diversity, equity, and inclusion

DP – Discussion paper

DSC – Data Standards Committee

D&I – Diversity and inclusion

EAS – Early Account Scheme

EU – European Union

ESA – European Securities and Markets Authority

ESCG – European Systemic Cyber group

FCA – Financial Conduct Authority

FinTech – Financial Technology

FMI – Financial Market Intermediary

FMIs – Financial Market Infrastructures

FPC – Financial Policy Committee

FRF – Future Regulatory Framework

FSB – Financial Stability Board

FSMA – Financial Services and Markets Act 2000 (as amended)

HMT – His Majesty's Treasury

IAIS – International Association of Insurance Supervisors

ICS – Insurance Capital Standard

ILS – insurance-linked securitisations

IRB – internal ratings-based

IRRBB – interest rate risk in the banking book

ISPV – Insurance special purpose vehicle

L-SREPs – Liquidity Supervisory Review and Evaluation Processes

MA – Matching adjustment

MALIR – Matching Adjustment Asset and Liability Information Return

MDA - Maximum distributable amount

MoU – Memorandum of Understanding

MRM – Model Risk Management

NBFI – Non-Bank Financial Institution

PMA – Post Model Adjustment

PRA – Prudential Regulation Authority

PRC – Prudential Regulation Committee

PS – Policy statement

QMC – Quarterly Model Change

RFB – Ring-fenced bodies

RWA – Risk-weighted asset

SCGO – Secondary Competitiveness and Growth Objective

SCO – Secondary Competition Objective

SDDT – Small domestic deposit takers

SMCR – Senior Managers and Certification Regime

SME – Small and medium-sized enterprise

SMF – Senior management function

SS – Supervisory statement

SVB – Silicon Valley Bank

SWES – System-wide exploratory scenario

TDC – Transforming Data Collection

TFSME – Term Funding Scheme with additional incentives for SMEs

TPR – The Pension Regulator

UKTS – UK Technical Standards

Contacting the Bank of England and the PRA

Please send any enquiries related to this publication to [email protected] .

In PS15/23, the PRA set out its rationale to rename Simpler-regime firms to Small Domestic Deposit Takers (SDDTs), and Simpler-regime consolidation entities to SDDT consolidation entities. To avoid confusion, throughout the rest of this document, the PRA will refer to SDDTs, SDDT consolidation entities, the Small Domestic Deposit Takers regime or SDDT regime, and SDDT criteria, rather than Simpler-regime firm, Simpler-regime consolidation entities, simpler regime, and Simpler-regime criteria, even when referring to past consultations.

A CTP is an entity that will be designated by HMT by a regulation made in exercise of the power in section 312L(1) of 2000, as amended by the FSMA 2023.

As at 1 January 2024.

Strictly speaking, DIFs do not accept deposits and are included under the category of deposit-takers for presentational purposes only.

Section 2E of FSMA.

SS11/13 – Internal Ratings Based (IRB) approaches .

As set out in the 2024 priorities letter on UK deposit takers .

SMFs are a type of controlled function carried out by ‘approved persons’, ie individuals who have to be approved. SMFs are the most senior people in a firm with the greatest potential to cause harm or impact upon market integrity.

Managing climate-related financial risk – thematic feedback from the PRA’s review of firms’ SS3/19 plans and clarifications of expectations and Thematic feedback on the PRA’s supervision of climate-related financial risk and the Bank of England’s Climate Biennial Exploratory Scenario exercise .

Thematic feedback from the 2021/2022 round of written auditor reporting and Thematic feedback from the 2022/2023 round of written auditor reporting.

‘Digital money’ refers to claims on deposit-takers or other financial institutions, which exist only in electronic form and whose value is preserved through a combination of strict regulation and issuers’ access to central bank deposits. ‘Digital money-like instruments’ refers to other assets that exist only in electronic form and are used for payments. Some of these are regulated to support a stable value, but their issuers do not have access to central bank deposits and are subject to lighter regulation.

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Inflation Was Hotter Than Expected in March, Unwelcome News for the Fed

The surprisingly stubborn reading raised doubts about when — and even whether — the Federal Reserve will be able to start cutting interest rates this year.

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+3.8% excluding

food and energy

+3.5% in March

By Jeanna Smialek

A closely watched measure of inflation remained stronger than expected in March, worrying news for Federal Reserve officials who have become increasingly concerned that their progress on lowering price increases might be stalling.

The surprisingly stubborn inflation reading raised doubts among economists about when — and even whether — the Fed will be able to start cutting interest rates this year.

The Consumer Price Index climbed 3.8 percent on an annual basis after stripping out food and fuel prices, which economists do in order to get a better sense of the underlying inflation trend. That “core” index was stronger than the 3.7 percent increase economists had expected, and unchanged from 3.8 percent in February. The monthly reading was also stronger than what economists had forecast.

Counting in food and fuel, the inflation measure climbed 3.5 percent in March from a year earlier, up from 3.2 percent in February and faster than what economists anticipated. A rise in gas prices contributed to that inflation number.

This week’s inflation figures come at a critical juncture for the Fed. Central bankers have been hoping to confirm that warmer-than-expected inflation figures at the start of the year were just a seasonal quirk, not evidence that inflation is getting stuck well above the 2 percent target. Wednesday’s report offers little comfort that the quick early 2024 readings have not lasted.

“It is what it is: It’s a stronger-than-expected number, and it’s showing that those price pressures are strong across goods and services,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “It’s problematic for the Fed. I don’t see how they can justify a June cut with this strong data.”

Policymakers have made it clear in recent months that they want to see further evidence that inflation is cooling before they cut interest rates. Fed officials raised borrowing costs to 5.3 percent in 2022 and mid-2023, which they think is high enough to meaningfully weigh on the economy. Central bankers forecast in March that they would cut interest rates three times this year.

But Fed officials do not want to cut rates before they are confident inflation is on track to return to normal. Lowering borrowing costs too early or too much would risk allowing price increases to pick back up. And if households and businesses come to expect inflation to remain slightly higher, officials worry that could make it even harder to stamp out down the road.

That threat of lingering inflation has become a more serious concern for policymakers since the start of the year. Inflation flatlined in January and February after months of steady declines, raising some alarm at the Fed and among forecasters. Going into the year, investors expected the Fed to cut rates sharply in 2024 — perhaps five or six times, to about 4 percent — but have steadily dialed back those expectations .

Stocks dropped sharply after the inflation release as investors further pared back their expectations for lower rates. Following the report, market pricing suggested that many investors now expect just one or two cuts his year.

The S&P 500 and the tech-heavy Nasdaq composite each closed nearly 1 percent lower on Wednesday. The Russell 2000 index, which tracks smaller companies, was down nearly 3 percent.

Investors would like to see lower interest rates, which tend to bolster prices for assets like stocks. But the Fed might struggle to explain why it is cutting rates at the current moment: Not only is inflation showing signs of getting stuck well above the central bank’s target, but the economy is growing at a fairly rapid pace and employers are hiring at a robust clip.

In short, the Fed’s policies do not appear to have pushed America to the brink of a recession — and in fact, there are signs that they may not be having as much of an effect as policymakers had expected when it comes to growth.

While the Fed officially targets Personal Consumption Expenditures inflation , a separate measure, the Consumer Price Index report released on Wednesday comes out earlier and includes data that feeds into the other metric. That makes it a closely watched signal of how price pressures are shaping up.

The inflation report’s details offered little reason to dismiss the gauge’s continued stubbornness as a fluke. They showed that housing inflation remains firm, auto insurance costs picked up at a rapid pace and apparel prices climbed.

Monthly changes in March

Motor vehicle insurance

Gasoline (all types)

Motor vehicle repair

Hospital services

Meats, poultry, fish, eggs

Electricity

All items excl. food and energy

Tobacco products

Rent of primary residence

Nonalcoholic beverages

Food away from home

Medical care commodities

Fruits, vegetables

Alcoholic beverages

Physicians’ services

Piped utility gas service

Dairy products

New vehicles

Airline fares

Cereals, bakery products

Used cars, trucks

Motor vehicle maintenance and repair

Meats, poultry, fish and eggs

All items excluding food and energy

Tobacco and smoking products

Nonalcoholic beverages and materials

Fruits and vegetables

Dairy and related products

Cereals and bakery products

Used cars and trucks

In a development that is likely to be especially notable for Fed officials, a measure of services inflation contributed to the pickup in annual inflation. Policymakers watch those prices closely, because they can reflect the strength of the underlying economy and because they tend to persist over time.

The question, increasingly, is whether Fed officials can cut interest rates at all this year in a world where inflation appears to be flatlining.

Ms. Uruci said that with every month inflation stays stubborn, the Fed may need to see more convincing evidence — and a more sustained return to deceleration — to feel confident that price increases are genuinely coming under control.

Kathy Bostjancic, Nationwide’s chief economist, predicted that rate cuts could now be delayed to this autumn, if they happen in 2024 at all.

“We now think September, if they start to cut rates, is more likely than July,” Ms. Bostjancic said. The new report “shakes the confidence that inflation is on this downward trend.”

If the Fed does not cut rates soon, the election could make the start of reductions more politically fraught. Central bankers are independent of the White House and typically insist that they do not make policy with an eye on the political calendar.

Still, cutting in the months just before the election could put policymakers under a partisan spotlight : Former President Donald J. Trump, the presumptive Republican nominee, has already painted possible rate cuts as a political ploy to help Democrats. Lower rates tend to help incumbents, since they bolster the economy.

But the current economic moment is a politically complicated one.

Consumers dislike rapidly rising prices, and inflation has been dogging President Biden’s approval ratings for months. That said, consumers have become less concerned about them in recent months as the pace of inflation has come down from its peak in 2022.

At the same time, some Americans are chafing against high interest rates, the medicine the Fed uses to cure rapid inflation because they make it more expensive to borrow to buy a house or make other large purchases.

Mr. Biden has struck a concerned tone about high prices and tough housing affordability conditions in recent months, while pinning at least some of the blame for recent rapid inflation on corporations.

He reiterated that message on Wednesday, while saying that he still expects to see rate cuts this year. Mr. Biden’s comments amounted to a forecast rather than a prescription, but they were unusual coming from a White House that usually avoids talking about Fed policy out of respect for the central bank’s independence.

“We have dramatically reduced inflation down from 9 percent to close to 3 percent,” Mr. Biden also noted.

Jeanna Smialek covers the Federal Reserve and the economy for The Times from Washington. More about Jeanna Smialek

When and where the solar eclipse will be crossing the U.S.

A total solar eclipse will grace the skies over North America on Monday, one of the most hotly anticipated sky-watching events in recent years.

Weather permitting , millions of people in Mexico, 15 U.S. states and eastern Canada will have the chance to see the moon slip between Earth and sun, temporarily blocking the sun’s light .

The total solar eclipse will be visible along a “path of totality” that measures more than 100 miles wide and extends across the continent. Along that path, the moon will fully obscure the sun, causing afternoon skies to darken for a few minutes.

Follow live updates on the solar eclipse

In all other parts of the continental U.S., a partial solar eclipse will be visible, with the moon appearing to take a bite out of the sun. Exactly how big a bite depends on the location.

The first spot in North America that will experience totality on Monday is on Mexico’s Pacific coast at around 11:07 a.m. PT, according to NASA .

After moving northeast across Mexico, the eclipse’s path travels through Texas, Oklahoma, Arkansas, Missouri, Illinois, Kentucky, Indiana, Ohio, Pennsylvania, New York, Vermont, New Hampshire and Maine. Slivers of Michigan and Tennessee will also be able to witness totality if conditions are clear.

In Canada, the eclipse will be visible in parts of southern Ontario, Quebec, New Brunswick, Prince Edward Island and Cape Breton, at the eastern end of Nova Scotia.

The timing of the eclipse and the duration of totality varies by location. Most places will experience around 2 minutes of darkness, but the longest periods of totality are typically in the center of the eclipse’s path.

This year, the longest stretch of totality will last 4 minutes and 28 seconds in an area northwest of Torreón, Mexico.

Below is a list of timings for some U.S. cities along the path of totality, according to NASA .

• Dallas: Partial eclipse begins at 12:23 p.m. CT and totality at 1:40 p.m. CT.
• Idabel, Oklahoma: Partial eclipse begins at 12:28 p.m. CT and totality at 1:45 p.m. CT.
• Little Rock, Arkansas: Partial eclipse begins at 12:33 p.m. CT and totality at 1:51 p.m. CT.
• Poplar Bluff, Missouri: Partial eclipse begins at 12:39 p.m. CT and totality at 1:56 p.m. CT.
• Paducah, Kentucky: Partial eclipse begins at 12:42 p.m. CT and totality at 2:00 p.m. CT.
• Carbondale, Illinois: Partial eclipse begins at 12:42 p.m. CT and totality at 1:59 p.m. CT.
• Evansville, Indiana: Partial eclipse begins at 12:45 p.m. CT and totality at 2:02 p.m. CT.
• Cleveland: Partial eclipse begins at 1:59 p.m. ET and totality at 3:13 p.m.
• Erie, Pennsylvania: Partial eclipse begins at 2:02 p.m. ET and totality at 3:16 p.m. ET.
• Buffalo, New York: Partial eclipse begins at 2:04 p.m. ET and totality at 3:18 p.m.
• Burlington, Vermont: Partial eclipse begins at 2:14 p.m. ET and totality at 3:26 p.m. ET.
• Lancaster, New Hampshire: Partial eclipse begins at 2:16 p.m. ET and totality at 3:27 p.m.
• Caribou, Maine: Partial eclipse begins at 2:22 p.m. ET and totality at 3:32 p.m. ET.

Other resources can also help you figure out when the various phases of the eclipse will be visible where you live, including NationalEclipse.com and TimeandDate.com .

If you plan to watch the celestial event, remember that it’s never safe to look directly at the sun, including through binoculars, telescopes or camera lenses. Special eclipse glasses are required to safely view solar eclipses and prevent permanent eye damage.

Denise Chow is a reporter for NBC News Science focused on general science and climate change.