Observational assessments tend to take place over multiple observations. These multiple observations are necessary because, in order to diagnose a disorder, behaviors must exist in multiple environments (typically). A person cannot only exhibit a behavior in one environment (work) because other factors could bring about the behavior (outside of a mental disorder).
As for observational assessments, psychologists and psychiatrists use multiple techniques. Formal, informal, direct, indirect, and naturalistic observations all help to assess clients.
Formal observations are observations which define precise times, dates, environments, behaviors, and recording methods (tallies, recordings, time intervals).
Informal observations do not include any specifics about the observation. The observer does not make an appointment, have a specific behavior he or she is looking for, has no named recording method, and can show up in any environment (school, home, work).
Indirect observations are not observations where the observer is in contact with the client. Instead, an indirect observation is conducted through interviews with those who know the client (parents, teachers, siblings). These can be very formal (with pre-written questions) or informal (the interview leads itself).
Direct observations are those made by the psychologist, psychiatrist, or observer. He or she is the one who actually witnesses the behavior.
Naturalistic observations take place in the natural environment of the client. This environment is not altered in any way by the observer. (The observer is not trying to illicit a behavior.)