Management by exception is a workplace practice that empowers employees to work independently and involves managers only in specific issues or “exceptions” to normal operations. This concept, widely attributed to Frederick W. Taylor, emphasizes the efficient use of managerial resources by focusing on deviations from predetermined standards. This article explores the key aspects, advantages, and disadvantages of management by exception, drawing insights from reputable sources such as Indeed, Wikipedia, and GoCardless.
Key Aspects of Management by Exception
Management by exception involves a systematic process that includes:
Setting Objectives and Norms
Managers establish clear objectives, targets, and norms for various aspects of the business. These objectives serve as benchmarks against which actual performance is assessed.
Performance Assessment
Actual performance is continuously monitored and assessed to identify any deviations from the established objectives. This assessment can involve financial metrics, operational data, or other relevant indicators.
Deviation Analysis
Deviations from objectives are analyzed to determine their significance and potential impact on the business. Minor deviations may be handled by lower-level managers, while significant deviations are escalated to senior managers for attention.
Decision-Making and Corrective Action
Senior managers investigate significant deviations, identify the root causes, and take appropriate corrective actions to address the issues and bring performance back in line with objectives.
Variance Analysis in Management by Exception
Variance analysis plays a crucial role in management by exception. The accounting department forecasts budgets and cost performance reports. The difference between estimated and actual figures is defined as variance. Managers focus on significant adverse variances to identify areas of business that deviate from predetermined standards in a negative way.
Approaches to Management by Exception
There are two primary approaches to management by exception:
Active Management by Exception
In this approach, managers are proactive in assisting with issues, actively participating in operations, and taking steps to prevent mistakes. They closely monitor performance and intervene promptly to address any deviations.
Passive Management by Exception
In this approach, managers intervene only when standards are not being met and action must be taken. They rely on employees to handle routine operations and address minor issues, intervening only when significant deviations occur.
Advantages of Management by Exception
Management by exception offers several advantages:
Rapid Identification of Problematic Issues
By focusing on deviations from objectives, management by exception enables the rapid identification of problematic issues that require managerial attention.
Efficient Use of Managers’ Time and Energy
Managers can allocate their time and energy more effectively by focusing on significant issues and delegating routine tasks to lower-level employees.
Reduced Decision-Making Frequency
Since managers only intervene in exceptional cases, the frequency of decision-making is reduced, allowing them to focus on strategic issues.
Increased Employee Responsibility and Motivation
Employees are empowered to make decisions and take ownership of their work, which can increase their responsibility and motivation.
Disadvantages of Management by Exception
Despite its advantages, management by exception also has some disadvantages:
Potential for Mistakes in Calculating Budgets
Inaccurate budget calculations can lead to misleading variances, making it difficult to identify genuine performance issues.
Increased Overhead Costs
The involvement of financial analysts in variance analysis can increase overhead costs for the company.
Limited Decision-Making Power for Lower-Level Employees
Employees at lower levels may have limited decision-making authority, which can hinder their ability to address issues promptly.
Time Required to Pass Issues to Managers
Escalating issues to senior managers can take time, potentially delaying the resolution of problems.
Conclusion
Management by exception is a valuable tool that allows managers to focus on critical issues and improve overall business performance. By setting clear objectives, monitoring performance, analyzing deviations, and taking appropriate corrective actions, managers can ensure that the business operates efficiently and effectively. However, it is essential to address the potential disadvantages, such as the risk of budget calculation errors and the limited decision-making power of lower-level employees, to fully realize the benefits of management by exception.
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Key Facts
- Management by exception is a workplace practice that allows employees to work more independently and involve their managers only on specific issues or “exceptions” to normal operations.
- The concept of management by exception is widely attributed to Frederick W. Taylor, who first discussed it in his work “Shop management: A paper read before the American Society of Mechanical Engineers”.
- Management by exception involves setting objectives or norms with predictable or estimated results, assessing actual performance, analyzing deviations, and passing concerns to senior managers when significant deviations occur.
- Variance analysis is often used in management by exception. The accounting department forecasts budgets and cost performance reports, and the difference between estimated and actual figures is defined as variance. Managers investigate significant adverse variances to find areas of business that deviate from predetermined standards in a negative way.
- There are two approaches to management by exception: active and passive. Active management by exception involves proactive leadership, assisting with issues, and actively participating to prevent mistakes. Passive management by exception involves intervening only when standards are not being met and action must be taken.
- The advantages of management by exception include rapid identification of problematic issues, efficient use of managers’ time and energy, reduced decision-making frequency, increased employee responsibility and motivation.
- However, there are also disadvantages, such as the potential for mistakes in calculating budgets, increased overhead costs for financial analysts, limited decision-making power for employees at lower levels, and the time it takes to pass issues to managers.
- Indeed: Management by Exception
- Wikipedia: Management by Exception
- GoCardless: What is Management by Exception?
FAQs
Who gave management by exception?
Frederick W. Taylor is widely credited with introducing the concept of management by exception in his work “Shop management: A paper read before the American Society of Mechanical Engineers”.
What is the main objective of management by exception?
The primary objective of management by exception is to enable managers to focus their time and energy on significant issues and exceptions to normal operations, rather than routine tasks.
How does management by exception work?
Management by exception involves setting objectives, assessing actual performance, analyzing deviations from objectives, and taking corrective actions to address significant deviations.
What are the two main approaches to management by exception?
The two main approaches to management by exception are active management by exception and passive management by exception. Active management involves proactive leadership and intervention, while passive management involves intervening only when standards are not being met.
What are the advantages of management by exception?
The advantages of management by exception include rapid identification of problematic issues, efficient use of managers’ time and energy, reduced decision-making frequency, and increased employee responsibility and motivation.
What are the disadvantages of management by exception?
The disadvantages of management by exception include the potential for mistakes in calculating budgets, increased overhead costs, limited decision-making power for lower-level employees, and the time required to pass issues to managers.
How is variance analysis used in management by exception?
Variance analysis is used in management by exception to identify significant deviations between estimated and actual performance. Managers focus on adverse variances to find areas of business that deviate from predetermined standards in a negative way.
How can management by exception be implemented effectively?
To implement management by exception effectively, organizations should set clear objectives, monitor performance regularly, analyze deviations promptly, and take appropriate corrective actions to address significant issues. Additionally, organizations should consider the advantages and disadvantages of both active and passive management by exception approaches to determine the most suitable one for their specific context.