A policy is a general guide to thinking and action rather than a specific course of action. It defines the area or limits within which decisions can be made to achieve organizational objectives. Policies are not rigid and specific. They are flexible and broad providing scope for judgment and interpretation.

They channel the thinking of organisation members towards the achievement of organizational objectives. According to Terry, “a policy is a verbal, written or implied overall guide setting up boundaries that supply the general limits and direction in which managerial action will take place.”

“Policies are general statements or understandings which guide or channel thinking in decision-making of subordinates.”‘ According to R.C. Davis, “policies are statements, either expressed or implied, of those principles and rules that are set up by executive leadership as guides and constraints for the organization’s thought and action.”

These definitions suggest the following characteristics of a policy:


(i) A policy is formulated in the context of objectives and it seeks to contribute to the organizational objectives. However, policies should be differentiated from objectives.

Objectives are the ends to be reached while policies are the means or routes to those ends. Objectives decide ‘what to do’ whereas policies deal with ‘how to do’. Objectives indicate the destination; policies lay down the routes to that destination.

(ii) A policy is a long term decision, a standing answer to recurring problems or repetitive situations. It is formulated through the process of decision making.

(iii) Policy formulation is a function of all managers in an organization. But higher level managers play a more important role in policy making. Policies are formulated at all levels in an organization.


(iv) A policy is a broad guide to thinking and action of organization members. It does not specify the action but restricts the freedom in choosing action. It lays down limits within which decisions are to be made. It is stated in broad terms.

(v) Policies are both restrictive and permissive in nature. They are restrictive in so far as they contain certain constraints for ensuring con­sistent action and behavior on the part of executives. Policies are per­missive in the sense that subordinates are given the freedom to operate within specified constraints.

(vi) A policy is an expression of the intentions of top management. As standing decisions for repetitive situations, policies facilitate mana­gerial decisions.