A statistical approach implementing Singular Value Decomposition (SVD) to a policy-based management system for autonomic and on-demand computing applications. The statistical approach empowers a class of applications that require policies to handle ambiguous conditions and allow the system to “evolve” in response to changing operation and environment conditions. In the system and method providing the statistical approach, observed event-policy associated data, which is represented by an event-policy matrix, is treated as a statistical problem with the assumption that there are some underlying or implicit higher order correlations among events and policies. The SVD approach enables such correlations to be modeled, extracted and modified. From these correlations, recommended policies can be selected or created without exact match of policy conditions. With a feedback mechanism, new knowledge can be acquired as new situations occur and the corresponding policies to manage them are recorded and used to generate new event and policy correlations. Consequently, based on these new correlations, new recommended policies can be derived.