POLICY vs PROCEDURE

compiled by Dib Mossavi

We usually hear the term “policy & procedure” together.  But are there differences between the two? 

Policies and procedures are all around us all the time.  Formal company policy is developed by management and documented ina company policy manual.  Informal policy evolves from an organization’s culture and is undocumented, which makes them harder to learn and change.

What Is a POLICY?

A policy communicates an organization’s principles.  Companies have many diffrent types of policies.  For example, in Marketing there is the Pricing Policy on how customers will be charged for their products.  Accounting will have an Accounting Policy on how reimbursement is issued, depreciation is booked, or purchase decisions are made.  Your policy on quality (Quality Policy), is a required element of an ISO 9001 Quality Management System.

Company policy is used to influence decisions that employees must make.  We use company policy as a guide to company decision making.  Unfortunately, company policy is also used to make rules (for eg. think about an employee policy from your Employee Handbook) like No Smoking Policy, Policy Against Drinking, or policies on how to dress for the job.  Employee policy is focused on office rules that are used to support your management principles.

Procedure Policy

But a company policy can also be seen as a Mission Statement, as part of a business procedure (for eg. an Accounting Policy & Procedure Manual).  A Policy in a Procedure acts as a mini-mission statement containing the customer of the policy, it’s purpose, and a key performance indicator (KPI) to communicate how users know if the procedure is working.

Eg. of Accounts Receivable Procedure POLICY  :  “Accounts receivable personnel shall ensure that all outstanding customer invoices are paid in a timely manner.”

In the Accounts Receivable Policy, you will notice that the customer here is the “Accounts Receivable personnel”.  The purpose is “to ensure that all outstanding customer invoices are paid”.  The KPI is “in a timely manner”.  Next, the procedure needs to define what timely manner means.  A timely manner could mean 30 days today (net 30) and 20 days next quarter (net 20), which provides a process improvement objective of 33%.

What Is A Procedure?

Company procedures assist companies in building consistencybetween each and every employee.  Procedures define a series of steps, actions or methods to be followed as a consistent or repetitive approach to accomplish end results.  Company procedures answer to the “HOW” questions as in “How do you collect receivables?”.

Eg. of Accounts Receivables PROCEDURE :

  1. Send the first-notice invoice immediately (same day) as the sale.
  2. Produce a receivables aging report.
  3. Send a second notice to all invoices outstanding for 30 days.
  4. Call all invoices outstanding for 45 days.
  5. Send a third-notice to all invoices outstanding for 60 days.
  6. Call all invoices outstanding for 75 days.
  7. Send all invoices outstanding for 90days to collections.

A procedure can be something as simple as a checklist.  The goal of a procedure is to provide consistency.  Using simple checklists is the easiest way to begin to get consistency in your business.

The Difference Between Policy and Procedure

A Policy dictates an organization’s principles.  A company’s procedures assist companies in maintaining consistency.  The main difference between a Policy and Procedure is that the policy communicates a direction, whilst a procedure describes the steps and methods you take in the direction.  Company policies answer the “what” and the company procedures describe the “how” questions.

 

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