Definition: Management by Exception, shortly called as MBE is a management style or philosophy that empowers the manager to concentrate on the exceptionally important or critical matters and taking important decisions while facilitating the front line workers to complete the day to day activities.
It aims at keeping the focus of the management on extremely important tasks and problems or areas in need of action.
Components of Management By Exception
- Measurement: Assignment of values to the past and present performances, so as to easily recognize an exception.
- Projection: Forecasts that measurement which is relevant to the organizational objectives and extends the same, to future expectations.
- Selection: Determines the parameters used by the management to pursue organizational objectives.
- Observation: Measurement of existing performance so that the managers are having the knowledge of the existing state of affairs of the organization.
- Comparison: Compare the actual and planned performance and indicating the exception which needs managerial action and reports the variances.
- Decision Making: Prescription of the course of action which needs to be taken so as to ensure that the performance is back in control or to adjust expectations, which represents the changing conditions.
This principle requires the compliance of the principle of delegation of authority, i.e. a substantial degree of delegation must be present in the organization. According to this principle, any issue of unusual or non-recurring nature needs to be referred upwards, so as to be decided by the top tier executives and managers.
Process of Management By Exception
The steps involved in the process of Management by Exception (MBE), are listed as under:
- Identifying and describing Key Result Areas (KRA).
- Establishing standards and determining an acceptable level of deviations.
- Making Comparison of actual result with that of the expected or the standard result.
- Ascertaining variance.
- Analysing the causes of such variance (deviation).
- Strategizing and taking necessary actions wherever required and possible.
It is a well-known fact that if an organization seeks to control everything, resultantly it controls nothing. Hence, only material deviations, that exceed the specific limit, are referred to the management. Meaning that any information reflecting a considerable variance from the budgeted or planned results are taken to the notice of the top-level management.
Therefore, if the company’s policies lay down 3% increase in the overheads as an acceptable range, then anything over and above will be informed to the top executives.
Once the management is made aware of such deviation, it should be analysed to know the causes for such deviation, be it defective process, the inadequacy of resources, unrealistic standards, etc. Thereafter the actual cause is identified, corrective action is taken to overcome, at the appropriate level.
Importance of Management By Exception
The points given below will discuss the importance of management by exception:
- Effective utilization of manager’s time, by driving their attention to those areas that need managerial experience and action.
- Timely identification of discrepancies and its causes
- Prompt decision making and a suitable flow of action.
- Assists the firm in growing and improving its output.
- Optimum utilization of the organization’s resources.
- Better delegation of authority
- Identification of crises
- Enhances degree of communication
In a nutshell, in management by exception, the manager steps in, only when the employees fail to meet out their performance standards.