Management By Exception: Accountability, Meaning, Advantages, & Disadvantages

The role of a manager is significant in an organization. He is responsible for the smooth flow of work in the organization. This requires his attention to various tasks of different importance.

The manager is not only expected to get things done but also required to keep his team members motivated.

One of the skill or style of work of managers to get work done is called “Management by Exception.” The general meaning of management by exception, is to understand what tasks require the most attention.

In this article, you will learn about Management of exception in detail, along with the advantages and disadvantages of opting this style of work in the organization.

Management by Exception can be defined as the concept which focuses on really important and strategic tasks. It ignores the tasks which are not important. This is known as exception. Management by exception, guides you through preparing a framework which tells you to focus on the most critical tasks of Planning, organizing, and controlling.

The meaning and definition of “Managing by Exception.”

The management of exception is a system that helps the manager to which most important tasks require the attention of the manager at a particular point of time.

In this, a manager can first focus on solving most critical problems first and make decisions and take suitable actions and problems which are less critical can be tackled later or can be tackled by the subordinates.

The problems like infrastructural issues, connectivity issues in the organization, deviation in process, poor quality of business rules, and misleading and poor data, etc. this type of issues let the manager handle such issues with utmost urgency. The decisions and actions are taken by investigating, resolving, and handling such issues using tools or with the assistance of skilled employees.

A manager can manage works more accurately using management by exception. The problems which can’t be solved at one level should be passed to a higher level of management.

For example, it is a responsibility of subordinates to track the performance of all products manufactured by the company and from the data collected, they found that all products and management by exception method one product are not performing as expected. Hence, they summarize the data and create reports to present it to their manager.

The summarize report will help the manager to understand the issue by investigating the problem and finding out the root cause of the problem.

Management by exception, helps the organization to grow more as problematic areas in the organization can be identified, and managers can spend their efficiency to solve these issues to enhance the productivity of the organization. Managers can learn and prepare strategies for changing competition and new business opportunities.

Process of Managing by Exception

Objectives are set for a particular project with pre-decided outcomes. Then the outcomes are compared with the actual outcomes obtained.

Employees are not required to take any action if no anomaly found in the performance and they can carry out their work as usual and in case any deviation is observed from the management by exception method, and the report is presented to higher management so that they can determine the root cause of the problem and take required actions to solve the problem otherwise, they can pay attention to more important work.

In this way, any problem or management by exception occurred in the project can be resolved immediately so that loss can be avoided. Let us understand this process in detail, step by step :

#1 Establish objectives for the procedure

In the first step, the norms and objectives are established for the project or procedure in hand.

For example, you run a retail store and sells grocery products. It is important for you to monitor the sales and expenses occurred in the store. To do this, you are required to establish norms for each task and procedure.

The norms set by you should be in the quantifiable amount and should be easy to measure. For example, you can set a norm for a total amount of sale in a month. You will decide a number based on your past sales and to meet the expenses and to ensure steady growth of the business.

The norm decided that you should be realistic and should not be an unrealistic number. For example, the average sale by you each month is of $5000, and you are required to make $7000 to make a profit and meet the expenses.

Therefore, you should set the norm the amount of total should earn you $7000, and if you decide amount like $10,000, then it will be a realistic norm which can never be fulfilled no matter how much you try.

Decided right norm is not an easy task. It requires thorough analysis and deep understanding of the process and looks for an exception in the process. However, you are not required to look into each change in the performance of the business.

But you should pay attention to those variances which are important to look into. The important variances can be any financial exception, or low productivity, etc.

#2 Analyze the exceptions and compare it with the norm decided

The management by exception, begins once the norms are decided. The data from the process is decided, and it is compared with the norms decided. The comparison of the data can be made manually with the assistance of skilled staff, or it can also be done using software tools.

The method opted for comparison depend on the size of your business. The comparison can be made once the data is collected, or it can be done in parallel with the data collection. You will collect the data weekly and compare it with the norm decided to determine any sign of an anomaly.

#3 Compare actual data with norm data and analyze the existence of all exceptions

When the data is compared, there are two possibilities for the outcome. The first outcome can be no significant deviation, and the second outcome of the comparison can result in significant deviation.

In the first case, there is no need to take any special actions. Employees can proceed with their work normally and in case of the second case, you should prepare and report the deviation and present it to your higher level of management.

And once you have identified the problem, try to find out the root cause of the problem. There could be many reasons for the anomalies to occur.

Your employees could have made a mistake in analysis, Or the deviation took place because of the changes going in the system. It is not necessary to correct anomaly existed every time. Some deviations can’t be ignored. Hence, don’t waste your time on solving it.

#4 Find a solution for the deviation

After you have determined the root cause of the deviation. Then it becomes the responsibility of the management to provide a solution for it. Tackle the issue and fix it so that further loss can be avoided.

For example, if the decline in the retail store’s sales is because of your employees’ behavior or it can be because of the poor quality of products. Once you know the root cause of the deviation solves try to solve it.

There are chances that after analysis, you come to know that you are required to many changes in your norms to get desired exception outcome.

Advantages of Management by Exception

1. The large exception in the work procedure of a company is determined by the auditor team of the company annually, and these issues can be investigated to overcome them.
2. Employees can take a decision on their own, and in this way, they can complete tasks fast. Management involves the work only when the exception takes place.
3. With the help of an automated system, reports can be generated weekly or daily, and comparison can be conducted to determine exception and to try to solve it to avoid the exception.
4. It reduces the workload of management by exception and they can utilize their time in more complete more important tasks.

Disadvantages of Management by Exception

1. In this system, it is assumed that problems can only be solved by the management. Employees can solve the problems easily and provide better solutions as they have more understanding about the work.
2. Some chances decided norms can be full of anomalies. In that case, the time of both management and employees will be wasted to try to do something which is not possible.
3. It is a centralized system, where only decisions taken by the senior management is accepted. However, the outcome can be better if the system is made decentralized and let everyone take part in the decision process.
4. It causes an extra layer of expenses for the organization as financial analysts; auditors are required to higher to compare and prepare variance summaries.
5. The whole process is ineffective if your analyst is incompetent and fail to determine the serious issue.