A policy is a deliberate system of principles to guide decisions and achieve rational outcomes. A policy is a statement of intent, and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an organization. Policies can assist in both subjective and objective decision making. Policies to assist in subjective decision making usually assist senior management with decisions that must be based on the relative merits of a number of factors, and as a result are often hard to test objectively, e.g. work-life balance policy. In contrast policies to assist in objective decision making are usually operational in nature and can be objectively tested, e.g. password policy.
The term may apply to government, private sector organizations and groups, as well as individuals. Presidential executive orders, corporate privacy policies, and parliamentary rules of order are all examples of policy. Policy differs from rules or law. While law can compel or prohibit behaviors (e.g. a law requiring the payment of taxes on income), policy merely guides actions toward those that are most likely to achieve a desired outcome.
Policy or policy study may also refer to the process of making important organizational decisions, including the identification of different alternatives such as programs or spending priorities, and choosing among them on the basis of the impact they will have. Policies can be understood as political, managerial, financial, and administrative mechanisms arranged to reach explicit goals. In public corporate finance, a critical accounting policy is a policy for a firm/company or an industry that is considered to have a notably high subjective element, and that has a material impact on the financial statements.
The intended effects of a policy vary widely according to the organization and the context in which they are made. Broadly, policies are typically instituted to avoid some negative effect that has been noticed in the organization, or to seek some positive benefit.
Corporate purchasing policies provide an example of how organizations attempt to avoid negative effects. Many large companies have policies that all purchases above a certain value must be performed through a purchasing process. By requiring this standard purchasing process through policy, the organization can limit waste and standardize the way purchasing is done.
The State of California provides an example of benefit-seeking policy. In recent years, the numbers of hybrid cars in California has increased dramatically, in part because of policy changes in Federal law that provided USD $1,500 in tax credits (since phased out) as well as the use of high-occupancy vehicle lanes to hybrid owners (no loew hybrid vehicles). In this case, the organization (state and/or federal government) created an effect (increased ownership and use of hybrid vehicles) through policy (tax breaks, highway lanes).
Policies frequently have side effects or unintended consequences. Because the environments that policies seek to influence or manipulate are typically complex adaptive systems (e.g. governments, societies, large companies), making a policy change can have counterintuitive results. For example, a government may make a policy decision to raise taxes, in hopes of increasing overall tax revenue. Depending on the size of the tax increase, this may have the overall effect of reducing tax revenue by causing capital flight or by creating a rate so high that citizens are deterred from earning the money that is taxed. (See the Laffer curve.)
The policy formulation process theoretically includes an attempt to assess as many areas of potential policy impact as possible, to lessen the chances that a given policy will have unexpected or unintended consequences.
In political science, the policy cycle is a tool used for the analyzing of the development of a policy item. It can also be referred to as a "stagist approach", "stages heuristic" or "stages approach". It is thus a rule of thumb rather than the actual reality of how policy is created, but has been influential in how political scientists looked at policy in general. It was developed as a theory from Harold Lasswell's work.
One version by James E. Anderson, in his Public Policy-Making (1974) has the following stages:
An eight step policy cycle is developed in detail in The Australian Policy Handbook by Peter Bridgman and Glyn Davis: (now with Catherine Althaus in its 4th and 5th editions)
The Althaus, Bridgman & Davis model is heuristic and iterative. It is [clarification needed] and not meant to be [clarification needed] or predictive. Policy cycles are typically characterized as adopting a classical approach, and tend to describe processes from the perspective of policy decision makers. Accordingly, some postpositivist academics challenge cyclical models as unresponsive and unrealistic, preferring systemic and more complex models. They consider a broader range of actors involved in the policy space that includes civil society organisations, the media, intellectuals, think tanks or policy research institutes, corporations, lobbyists, etc.
Policies are typically promulgated through official written documents. Policy documents often come with the endorsement or signature of the executive powers within an organization to legitimize the policy and demonstrate that it is considered in force. Such documents often have standard formats that are particular to the organization issuing the policy. While such formats differ in form, policy documents usually contain certain standard components including  :
Some policies may contain additional sections, including:
The American political scientist Theodore J. Lowi proposed four types of policy, namely distributive, redistributive, regulatory and constituent in his article 'Four systems of Policy, Politics and Choice' and in 'American Business, Public Policy, Case Studies and Political Theory'. Policy addresses the intent of the organization, whether government, business, professional, or voluntary. Policy is intended to affect the 'real' world, by guiding the decisions that are made. Whether they are formally written or not, most organizations have identified policies.
Distributive policies extend goods and services to members of an organization, as well as distributing the costs of the goods/services amongst the members of the organization. Examples include government policies that impact spending for welfare, public education, highways, and public safety, or a professional organization's benefits plan.
Regulatory policies, or mandates, limit the discretion of individuals and agencies, or otherwise compel certain types of behavior. These policies are generally thought to be best applied when good behavior can be easily defined and bad behavior can be easily regulated and punished through fines or sanctions. An example of a fairly successful public regulatory policy is that of a highway speed limit.
Policies are dynamic; they are not just static lists of goals or laws. Policy blueprints have to be implemented, often with unexpected results. Social policies are what happens 'on the ground' when they are implemented, as well as what happens at the decision making or legislative stage.
The actions the organization actually takes may often vary significantly from stated policy. This difference is sometimes caused by political compromise over policy, while in other situations it is caused by lack of policy implementation and enforcement. Implementing policy may have unexpected results, stemming from a policy whose reach extends further than the problem it was originally crafted to address. Additionally, unpredictable results may arise from selective or idiosyncratic enforcement of policy.
Types of policy analysis include:
These qualifiers can be combined, so one could, for example, have a stationary-memoryless-index policy.