Classification of Policies: Understanding the Different Types of Organizational Policies


Understanding the different types of organizational policies and their classifications is essential for organizations to develop effective policies and achieve their objectives. Policies are essential for every organization to achieve its objectives. However, policies are not the same, and they can be classified based on several factors. In this article, we will explore the different types of organizational policies and their classifications.

The previous article discussed why policies matter the most and how they streamline your business operations for growth. This article explained the impact of policies on management effectiveness.

Classification of policies

Policies can be classified into various categories, similar to objectives. These categories include the following:

Based on the level of formationFunctional area policiesBased on expression  Origin-based policiesOrganizational scope policiesManagerial function-based policiesSituational or contingency policies
Top Management policiesProduction PoliciesVerbal policiesPrescribed PoliciesFundamental PoliciesPlanning policiesSituational policies
Middle level Management policiesMarketing and sales policiesWritten policiesSuggested PoliciesBroad PoliciesOrganizing policiesContingency Policies
Lower Level Management policiesFinancial PoliciesImplicit policiesCompulsory  PoliciesSpecific or Departmental PoliciesDirectional policiesEnvironmental policies
Operational Level Management policiesPersonnel Policies Derived Policies Controlling policiesEthical policies

1. Based on the level of formation

Categorized based on their level of formulation, which includes top management policies, middle-level management policies, lower-level management policies, and operational level management policies.

a) Top Management policies: These policies are created by the higher executives such as the Managing Director, Vice-Chancellor, and General Manager. They deal with matters such as investments, diversification, acquisitions, available capital, HR requirements, R&D needs, issues related to promotion, transfer, and achievement of organizational goals.

b) Middle-level Management policies: These policies are developed after discussions between middle and upper-level executives. They pertain to matters such as employee selection for a specific job, installation of new equipment, resource selection, determination of wages and salaries, and formulation of incentive plans, among other things. They may also be related to obtaining finance to address issues.

c) Lower-level Management policies: These policies are developed by supervisors who are in charge of providing tools, raw materials, training, quality control, discipline, improving employee morale, and reducing absenteeism, among other things. They are directly involved in achieving the organization’s goals.

d) Operational-level Management policies: These policies are written down in manuals and workbooks that the operational-level employees are expected to follow.

2. Functional area policies

These are classified based on functional areas like production policies, marketing and sales policies, financial policies, and personnel policies.

a) Policies pertaining to production: These encompass strategies relating to the product line, product type, technology selection, production process, equipment and tools, plant location, layout, budgeting, maintenance, inventory management, quality control, cost management, labor relations, etc.

b) Policies related to marketing and sales: These deal with analyzing the market, forecasting demand, defining the product and market mix, identifying potential markets, determining the size and characteristics of the customer base, analyzing competitors, developing product distribution channels, establishing pricing and promotion strategies, recruiting and training the sales force, segmenting the market area, setting sales volume and budget goals, etc.

c) Financial policies: These are designed to ensure prosperity and longevity, and include defining the capital requirements for working capital, short-term, medium-term, and long-term needs, identifying methods of funding, utilizing funds effectively, setting profit and accounting policies, allocating resources, establishing finished goods inventory policies, and creating provisions for bad debts, etc.

d) Policies related to personnel: These are concerned with recruitment, selection, and utilization of human resources. They include identifying sources for human resources, training, promoting, transferring, establishing wages, incentives, benefits, services, etc.

3. Based on expression

Policies can be classified based on how they are expressed, such as oral policies, written policies, and implied policies.

a) Verbal policies: These are policies that are communicated through spoken words, often used in small organizations where face-to-face communication is preferred for greater flexibility and better understanding. However, they are prone to improper interpretation and may be easily forgotten if not frequently reiterated.

b) Written policies: These are policies that are documented in writing, providing clarity, completeness, and precision to personnel. They use simple language, contain legal terms, and are easily accessible for reference and application when needed. However, poorly framed written policies may cause problems and lead to legal issues.

c) Implicit policies: These are policies that are not explicitly stated or written down, but can be understood from the behavior of executives, the philosophy of the business, social values, and traditions. Examples include dress codes, smoking or drinking prohibition in working areas, and employing people of certain community, race, gender, etc. However, explicit policies may be necessary to avoid legal problems.

4. Origin-based policies

These are classified based on their origin, including originated policies, appealed policies, imposed policies, and derivative policies.

a) Prescribed Policies: These policies are formulated by the top management based on the company’s objectives, and employees are expected to comply with them.

b) Suggested Policies: Also known as “proposed policies”, these are based on employee suggestions or input from consultants. They are often more effective as they involve employee participation and can help build buy-in.

c) Compulsory Policies: These are policies that are not willingly accepted by employees but are enforced by external forces such as government regulations, trade unions, legal acts, and societal norms. Employees must follow these policies, whether they agree with them or not.

d) Derived Policies: These policies are developed by departments or sections based on the major or basic policies. They serve as operational guidelines for day-to-day activities.

5. Organizational scope policies

Classified based on their scope, including basic policies, general policies, and specific or departmental policies.

a) Fundamental Policies: These policies, developed by the top management, form the foundation of the organization. They provide information about the company, its activities, and its environment, and their impact on other policies. These policies are crucial for the organization’s success.

b) Broad Policies: Middle-level management usually develops these policies, and they are specific to large segments of the organization. They provide general guidelines that govern the organization’s operations and help in achieving its goals.

c) Specific or Departmental Policies: Developed by specific departments to manage their day-to-day activities, they focus on the routine activities of the department and help in achieving specific objectives.

6. Managerial function-based policies

classified based on the nature of managerial functions, such as planning policies, organizing policies, staffing policies, directing policies, and controlling policies.

a) Planning policies are essential for organizational management as they provide direction and help achieve company objectives. These policies involve several steps, including collecting information, developing alternate courses of action, and determining the best course of action. They also establish standards, rules, procedures, and budgets to ensure effective execution of the plan..

b) Organizing policies are essential for any organization to function efficiently. These policies involve establishing and maintaining a clear and precise organizational structure, determining the role of each level of management, deciding the level of authority, responsibility, and degree of centralization and decentralization. Additionally, line and staff relationships and their communication channels are also an important aspect of organizing policies. Implementing these policies helps organizations run smoothly and effectively by providing a clear understanding of roles, responsibilities, and communication channels.

C) Directional policies are crucial for achieving organizational goals by providing effective leadership and guiding individuals towards success through suitable tasks and communication. These policies also focus on creating a positive work environment that promotes employee development and motivation. By implementing directional policies, organizations can create a motivated workforce that contributes to their overall success.

d) Controlling policies are crucial for measuring organizational performance, involving continuous observation of results against pre-established standards, identifying deviations, and taking corrective action. It’s important to determine the best mode of control and find the causes of significant deviations to ensure to take corrective actions. Implementing controlling policies helps organizations stay on track towards achieving their objectives.

7. Situational or contingency policies

a) Organizations formulate these policies on an ad-hoc basis in response to specific situations or events that require a unique or customized solution. They are not a part of the regular policies of the organization.Situational policies, known as contingency policies, are temporary and are applicable to a specific situation only. Top management formulates these policies in consultation with other stakeholders such as middle and lower-level management and employees.

b) Contingency policies can be of various types, such as crisis management policies, disaster management policies, risk management policies, etc. For example, if a natural disaster occurs, the organization may formulate disaster management policies that include emergency procedures, evacuation plans, and recovery plans.

c) Organizations revise these policies according to changes in the situation and modify them as needed since they are not static and remain flexible.

d )Environmental policies: These policies outline an organization’s commitment to environmental sustainability and responsible business practices, such as reducing waste and minimizing carbon emissions.

e) Ethical policies: These policies outline an organization’s code of ethics and standards for ethical behavior, such as anti-discrimination policies, whistleblower policies, and conflict of interest policies.


Organizational policies are crucial for the efficient functioning and success of any organization. They involve establishing and maintaining clear organizational structures, determining the roles and responsibilities of each level of management, and ensuring effective communication channels. Directional policies focus on providing effective leadership, integrating people into suitable tasks, and creating a positive work environment. Controlling policies are essential for measuring performance against pre-established standards and taking corrective action in case of deviations. Implementing these policies helps organizations achieve their goals and objectives while ensuring a positive work environment and efficient functioning.

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  • Ram

    Ram, the author of "Business Development: Perspectives" on Amazon Kindle, has a wealth of experience in business development across multiple industries. He has over 30 years of experience in commodities, FMCG, and software industries, and has held various leadership positions in these sectors. In the commodities and FMCG industries, Ram served as GM of Business Development for southern India, where he successfully established new businesses and expanded existing ones. In the software industry, he was Regional Director of Business Development for Asia, where he was responsible for expanding the company's presence in the region. Ram has a proven track record of turning around loss-making ventures and establishing successful businesses. Ram has also served as the Director of Industry Partnerships and IT Blog editor at a software company, showcasing his expertise in technology and industry partnerships.

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