Management by Exception: Prioritising Managerial Intervention at the Right Time
In this article, we will explain the management by exception approach. Explore its principles, benefits, implementation processes, examples, challenges, and best practices. Let's embark on a journey through the landscape of management by exception, unravelling its importance and impact on diverse business domains.
Among various business management strategies, management by exception is a beacon of efficiency.
You can think of the controlling function of a manager. There are other management functions to take care of. So, instead of controlling every activity in the organisation, the manager can focus (or be reported to) when there is an extreme case of deviance from the results they had planned.
Definition of Management by Exception
Management by exception or MBE is a dynamic leadership approach, focusing on managerial attention to only significant deviations or variations from results that had been planned ahead. This approach is used for streamlining decision-making by highlighting exceptional cases that require the manager’s intervention. Most of the day-to-day work is handled by the ones under the manager, facilitating independence.
In a more formal way, here is how Cambridge English Dictionary defines it “a style of management that involves giving the people who work for you the authority to control their work or particular jobs, projects, etc., unless there is an exception (= an unusual situation) that causes a problem.”
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Potential Causes of Deviations in Management by Exception
A few types of deviations are mentioned below.
Process Deviation
An exception may arise due to a deviation from the standard operating procedures or processes set in place. For instance, if a manufacturing process is altered without proper authorisation, it could lead to exceptions.
Infrastructure or Connectivity Issues
Issues related to the underlying infrastructure or connectivity can contribute to exceptions.
Suppose, a sudden network outage affecting the communication between systems.
External Deviation
Factors external to the business processes, such as market fluctuations or changes in regulations, may cause exceptions. Think of, a sudden change in import/export regulations that entirely impacts the supply chain.
Management by Exception Examples
Operations Management
In operations, it could be the efficient handling of supply chain disruptions, production delays, or quality issues. This results in streamlined operations and heightened responsiveness to market dynamics. Some of the intermediate operations manager courses cover this aspect.
Project Management
Project managers leverage management by exception to pinpoint deviations in project timelines, resource allocation, and deliverables. This approach facilitates on-time project completion and successful outcomes.
Human Resource Management
In human resource management, attention is directed towards exceptional situations such as workforce performance issues, enabling HR teams to implement targeted interventions and foster a productive work environment.
Who Introduced Management by Exception?
Management by except as a managerial concept is often attributed to Frederick Winslow Taylor, who introduced the Scientific Management Theory. According to Allen C. Bluedorn in The Academy of Management Review (1986), Taylor’s thoughts on scientific management are largely available in three of his works - Shop Management, The Principles of Scientific Management, and Testimony Before the Special House Committee - between 1903 and 1912.
In Shop Management, he recommends two basic principles on the division of labour (also one of the core principles of management from Henri Fayol) between a manager and their subordinates. First, the planning process should be handled by a specialist, instead of the subordinates. The second principle, is ‘exceptional principle’, aka management by exception. He says that managers should concentrate on things that significantly differ from the usual or expected, whether they are exceptionally good or bad deviations.
6 Components of Management By Exception
- Measurement. It involves assigning values to past and present performances based on the planning. This facilitates the easy identification of exceptions.
- Projection. It is about forecasting relevant measurements. They should be aligned with organisational objectives.
- Selection. This is the determination of the parameters the upper management utilises.
- Observation. Here, the managers measure existing performance to gain knowledge of the current state of affairs.
- Comparison involves assessing actual and planned performance. It highlights exceptions where managerial action and reporting variances occur.
- Decision-making. After comparison, prescribing ensues. It is about the necessary course of action to bring performance under control or adjust expectations in response to changing conditions.
Implementing Management by Exception
Establishing Clear Performance Standards and Expectations
Clarity in performance standards is fundamental. Setting clear expectations provides a benchmark for identifying deviations.
Dos:
- Clearly define performance standards and expectations to provide a solid foundation.
- Ensure that expectations are communicated effectively to all relevant stakeholders.
Don'ts:
- Avoid vague or ambiguous language when setting performance standards.
- Do not assume that everyone understands the expectations without clear communication.
Setting Up Monitoring and Reporting Mechanisms
Effective monitoring and reporting mechanisms ensure that deviations are promptly identified and communicated to relevant stakeholders.
Dos:
- Establish efficient monitoring systems for prompt identification of deviations.
- Regularly communicate and update stakeholders on the monitoring and reporting processes.
Don'ts:
- Don't rely solely on manual monitoring processes; explore automated options.
- Avoid delays in communicating identified deviations to relevant stakeholders.
Identifying Key Performance Indicators
Defining and tracking Key Performance Indicators (KPIs) is vital for assessing deviations and ensuring alignment with overall objectives.
Other ways or tools to measure are variance analysis, balance scorecard, etc.
Dos:
- Clearly define and track relevant KPIs aligned with overall objectives.
- Regularly review and update KPIs to ensure their continued relevance.
Don'ts:
- Avoid selecting KPIs without considering their alignment with organisational goals.
- Don't overlook the need for periodic reassessment of KPIs.
Analysing and Interpreting Deviations
In-depth analysis and interpretation of deviations provide insights into root causes, facilitating targeted corrective measures.
Dos:
- Conduct in-depth analysis to understand the root causes of deviations.
- Use insights gained to develop targeted corrective measures.
Don'ts:
- Avoid superficial analysis; delve into the underlying reasons for deviations.
- Don't delay the analysis process, ensuring timely corrective actions.
Taking Appropriate Actions and Corrective Measures
Timely and strategic actions based on deviation analysis prevent issues from escalating, maintaining smooth operations.
Dos:
- Implement timely and strategic actions based on deviation analysis.
- Ensure that corrective measures are aligned with the identified root causes.
Don'ts:
- Avoid reactive or impulsive actions without a thorough understanding of the situation.
- Don't overlook the need for a strategic approach; focus on long-term solutions.
Benefits of Management by Exception
Control by exception or management by exception allows managers to allocate resources judiciously. Also, in this scenario, the managers are not focused on lesser variations. Instead, the lower level managers can handle them, and they adapt or learn to do that.
The ones under the managers can have much independence in their work and only report in times when the targets are not met. Since the manager is not focused on every activity that goes on, they can contribute to broader organisational goals.
Criticism on Management by Exception
The majority of the challenges occur on a psychological level on employees/subordinates.
According to Peter Brownell in the Journal of Accounting Research, MBE tends to concentrate managerial attention on unfavourable budget variances, neglecting favourable ones. This narrow focus can lead to a negative work environment where only problems are highlighted. This creates a culture of blame.
When managers implement MBE, the response to favourable deviations not requiring corrective actions may be weaker. This can result in defensive and overcautious behaviour among subordinates. This creates a fear of punishment for unfavourable outcomes without sufficient recognition of positive achievements. One of the biggest examples is Nokia, where the subordinates were scared of declaring the real results. (Refer to our blog on Marketing Myopia).
Comparison: Management by Exception vs. Other Management Strategies
Management by Objectives (MBO)
While MBO focuses on goal-setting and achievement, Management by Exception centres around addressing significant deviations from planned outcomes. MBE complements MBO by providing a framework for strategic intervention when deviations occur.
Total Quality Management (TQM)
TQM emphasises continuous improvement and quality excellence. Management by Exception aligns with TQM by concentrating on exceptional cases that impact overall quality, ensuring prompt corrective actions. Also, look into the 7QC tools.
Six Sigma
Six Sigma aims to improve processes by reducing defects. Management by Exception supports Six Sigma by identifying and addressing significant deviations that may lead to process inefficiencies.
So, if you found this blog helpful in clarifying the concept of what is MBE in management, you may go check out some business management courses online.
FAQs
How does Management by Exception impact employee autonomy and decision-making?
Management by Exception (MBE) significantly enhances employee autonomy by delegating routine decision-making to lower-level managers or team members. This approach empowers employees to handle day-to-day operations independently, only escalating situations that deviate significantly from the norm. It fosters a sense of responsibility and can lead to increased job satisfaction and efficiency. However, it's crucial to ensure that employees are well-trained and confident in their decision-making skills to fully realise the benefits of MBE.
What are the key challenges in implementing Management by Exception effectively?
Implementing Management by Exception can be challenging due to the need for precise criteria to identify exceptions, effective communication channels, and a culture that supports this management style. Key challenges include setting clear performance standards, ensuring accurate and timely reporting systems, and avoiding micromanagement. Additionally, managers must be careful not to overlook positive performance or minor issues that could escalate. Balancing attention between exceptional and routine matters is crucial for the success of MBE.
Can Management by Exception be applied in all types of organizations and industries?
While Management by Exception is a versatile approach, its effectiveness can vary depending on the organization's size, industry, and nature of work. It is well-suited for larger organizations and those with well-defined processes and measurable outcomes. Industries like manufacturing, IT, and logistics, where operations can be quantified and deviations are easily identified, can benefit significantly from MBE. However, in creative industries or smaller organizations where flexibility and continuous innovation are key, a more hands-on management approach might be more effective.
What are the benefits of implementing Management by Exception in a business?
Management by Exception allows for more efficient use of managerial time, focuses attention on critical issues, fosters independence among team members, and can lead to improved decision-making and resource allocation.
Can Management by Exception be integrated with other management strategies like TQM or Six Sigma?
Yes, MBE aligns well with Total Quality Management (TQM) and Six Sigma. It focuses on exceptional cases that impact overall quality and process efficiency, supporting the goals of continuous improvement and defect reduction.
Aquib is a seasoned wordsmith, having penned countless blogs for Indian and international brands. These days, he's all about digital marketing and core management subjects - not to mention his unwavering commitment ... Read Full Bio
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