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Policies are formal statements of an organization's practices, procedures, or intentions. Policies guide managerial decision making and actions to ensure compliance with the mission and strategy. Policies are broad, precedent-setting decisions that guide or substitute for repetitive or time-sensitive managerial decision making. A policy establishes broad limits and provides direction, but it permits some initiative and discretion. Examples of common policy areas include: customer relationship policies, human resource policies, privacy policies, and security policies. In the public sector, a policy is a broad statement of administrative law and often the intent of political leaders.

Related terms include procedure, method and rule. These terms have different degrees of scope and impact. A procedure is a sequence of steps or operations describing how to carry out an activity. It is more specific than a policy and establishes a customary way of handling a recurring activity. Thus, less discretion is permissible in its application. An example of a procedure is the sequence of steps in the routing of parts. A method establishes the manner and sequence of accomplishing a recurring, individual task. Almost no discretion is allowed. An example of a method is the set of steps in cashing a check. A rule is an established guide for conduct. Rules include definite things to do and not to do. There are no exceptions to the rules. An example of a rule is "No Smoking" or "First come, first served".

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