Policy formation is a creative and analytical phase of planning. It is based on the underlying objectives of the organisation. Policy formulation process involves various steps or activities and their analysis in order arrive at a decision. The important steps involved in policy formulation may be briefly described as follows:
1. Understanding of Corporate Objectives
Organizational objectives are the starting point for policy formulation. They are ultimate results, which an organisation tries to achieve. They provide the foundation for policy formulation.
2. Analysis of the Environment
The basic purpose of policies is to integrate the organisation with its environment; hence the policy makers must know the nature and other feature of the organisation environment. This requires a comprehensive analysis of the environment – its opportunities and threats.
3. Internal Analysis
The policy makers should be fully conversant with the strengths and weaknesses of the organisation. They should clearly identify the factors which are critical for the success of the organisation.
4. Definition of Policy Area
Policy makers should then specify clearly the areas, which require policies to be made.
5. Choice Or Selection of Policy
After evaluation of different policy alternatives, the most appropriate or suitable policy alternative is selected. This is the stage where the manager arrives at the right policy in the concerned area.
6. Communication and Implementation of Policy
The selected policy is communicated in clear words to those who are supposed to implement it. Implementation of policy is the operative aspect of policy whereby it is put into action. The concerned people apply the policy when problematic situations arise or when they normally do their jobs.
7. Review and Modification of Policy
The correctness of a policy is perceived when it is put into practice. On the basis of feedback from the executors of the policy, a periodical review is carried out and wherever necessary, desired modification are made in the policy from time to time. Sometimes outdated or obsolete policies are reconstituted or reframed.