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Policies provide the framework within which the decision-makers are expected to operate while making decisions relating to the organisation. They are a guide to the thinking and action of subordinates for the purpose of achieving the objectives of the business successfully. According to George R. Terry, "Policy is a verbal, written or implied overall guide setting up boundaries that supply the general limits and directions in which managerial action will take place." Thus, the policies are a guide to thinking and action of those who have to make decisions.

They also lay down the limits within which decisions have to be made for accomplishing the enterprise objectives. They are the basis for executive operation and provide ready answers to all questions faced in running the enterprise. Some of the examples of policies are: an enterprise may follow a policy of selling its products only on a cash basis or may adopt a policy of employing only local people or may have a policy not to employ any person over 60 years of age.

Characteristics of a Good Policy

The characteristics of a good policy are:

(a) Policy should help in achieving the enterprise's objectives.

(b) It should provide only a broad outline and leave scope to subordinates for interpretation so that their initiative is not hampered.

(c) Policies should not be mutually contradictory and there should not be inconsistency between any two policies which may result in confusion and delay in action.

(d) They should be sound, logical, flexible and should provide a guide for thinking in future planning and action. Further, they should provide limits within which decisions have to be made.

(e) Policies should reflect the internal and external business environment.

(f) Policies should be in writing and the language of the policies should be intelligible to the persons who are supposed to implement them and to those who are to be affected by them.

Kinds of Policies

Fig. 4.7 Kinds of Policies

Kinds of Policies

Policies may be of different types. They can be classified on the following basis:

Originated Policies. These policies are formulated by the managers. They tell subordinates how to act in a given situation and the subordinates are expected to follow them strictly. They are the basic policies and they have the support of organisational authorities.

Appealed Policy. If, on any matter, the subordinate is not clear and the a doubt about his authority to handle a situation and if that subject matter is not already covered by the existing policies, he may refer the matter for his superior's verdict. Superior's verdict generates appealed policy and thus becomes a guide for the future action of the subordinates.

External or Imposed Policy. Sometimes, outside agencies like government, trade associations, trade unions etc. may also be instrumental in the formulation of a policy by the enterprise. For example, if the government imposes a condition on the enterprises to reserve a certain percentage of jobs for the backward sections of society or for persons within the state, it becomes an external or imposed policy.

Functional Policies. Policies which are formulated for various functional areas of management are known as functional policies. Some examples of functional policies are: financial policy, production policy, marketing policy and personnel policy.

Policies on the basis of levels. Policies formulated on this basis may be basic policies meant to be used by top managers, general policies meant to be used normally by middle managers and departmental policies meant to be used by the departmental managers.

Guidelines for Effective Policy-making

Guidelines for making effective policies are as follows:

1. Policies as far as possible should be in writing.

2. They should be clearly understood by those who are supposed to implement them.

3. They should reflect the objectives of the organisation.

4. To ensure successful implementation of policies, the top managers and the subordinates who are supposed to implement them must participate in their formulation.

5. Conditions change and policies must also change accordingly. Hence, a policy must strike reasonable balance between stability and flexibility.

6. Different policies in the organisation should not pull in different directions and should support one another.

7. Policies should not be detrimental to the interests of society.

8. Policies should be periodically reviewed in order to see whether they are to be modified, changed or completely abandoned.

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