Pros and Cons of Managing by Exception

A manager plays a crucial role in any organization as he is responsible for ensuring smooth workflow. This requires him to be attentive to various tasks of different levels of importance. However, the manager's duties go beyond merely getting things done. It is also his responsibility to keep his team members motivated and engaged.

Understanding which tasks require the most attention is a crucial skill for managers to get work done, and one way to approach this is through "Management by Exception." In this article, we will delve into the details of this style of work, exploring its advantages and disadvantages for organizations.

Management by Exception is a strategic approach that prioritizes critical tasks over less significant ones. This framework allows organizations to focus on the most important aspects of Planning, Organizing, and Controlling, while disregarding tasks that do not contribute significantly to achieving their objectives. In essence, Management by Exception enables businesses to optimize their time and resources by directing their attention towards tasks that matter most.

The meaning and definition of “Managing by Exception.”

The process of managing exceptions is a valuable tool for managers to prioritize the most pressing tasks that require their attention at any given moment. By tackling the most critical issues first, managers can make informed decisions and take appropriate actions, leaving less urgent problems to be addressed by either themselves at a later time or delegated to subordinates.

Issues such as infrastructural challenges, connectivity disruptions within the organization, process deviations, inadequate business rules, and inaccurate or unreliable data require immediate attention from managers. They must investigate, resolve, and manage such issues using appropriate tools or by seeking assistance from skilled employees.

Implementing management by exception can help managers oversee tasks more efficiently. Any issues that cannot be resolved at a particular level should be escalated to higher levels of management.

Subordinates are tasked with monitoring the company's product performance, and upon collecting data, they discovered that one product, in particular, is not meeting expectations. They compile this information into reports for their manager's review. By analyzing the summarized data, the manager can identify the root cause of the issue and investigate further.

Management by exception enables organizations to identify problem areas and allows managers to focus their efforts on finding solutions to improve productivity. By utilizing this approach, managers can also gain valuable insights and develop strategies to address changing competition and new business opportunities.

Process of Managing by Exception

Once objectives have been established for a project, predetermined outcomes are put in place and then compared to the actual outcomes achieved. If no anomalies are found in employee performance, they may continue their work as usual. However, if there is a deviation from expected results, the management by exception method is utilized. A report is presented to higher management to determine the root cause of the problem and necessary actions are taken to address the issue. This allows for a focus on more important tasks and overall improvement in project outcomes.

#1 Establish objectives for the procedure

To ensure that problems or management by exception can be addressed promptly and prevent any potential losses, it is crucial to follow a detailed step-by-step process. This process allows for immediate resolution of any issues that may arise during the project.

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

As the owner of a retail store selling groceries, keeping a close eye on sales and expenses is crucial. To effectively manage these aspects of your business, it's essential to establish clear norms for each task and procedure. These norms should be quantifiable and easily measurable, allowing you to track progress and identify areas for improvement. For instance, you might set a monthly sales goal based on past performance, aiming to generate enough revenue to cover expenses and promote steady growth.

Set a realistic norm for yourself based on your average monthly sales of $5000. Aim to earn at least $7000 to cover expenses and make a profit. Avoid setting an unrealistic goal such as $10,000, as it will be difficult to achieve no matter how hard you work.

Identifying the correct standard to follow can be a challenging undertaking, requiring in-depth analysis and a comprehensive understanding of the processes involved. It is not necessary to scrutinize every single change in business performance, but it is crucial to focus on significant variances that require closer examination. These variances may include financial discrepancies or low productivity, among others.

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

Once the norms are established, management by exception can be implemented. This involves comparing the collected process data to the predetermined norms. The comparison can be done manually with the help of trained personnel, or by using software tools. The choice of method depends on the size of the business. The comparison can be performed after data collection or simultaneously. Weekly data collection and comparison with the established norms can help identify any anomalies.

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

If the data comparison results in no significant deviation, employees can continue their work as usual. However, if significant deviation is found, it is important to prepare and report the findings to higher management.

After identifying the problem, it's important to determine the root cause. There may be a variety of factors contributing to the anomalies.

For example, an error in analysis by an employee could be the culprit, or the deviation could be a result of changes in the system. It's important to note that not every anomaly needs to be corrected. Some deviations may be acceptable and not worth the effort to solve.

#4 Find a solution for the deviation

Once the root cause of the deviation has been identified, it is up to the management to take action and provide a solution. Addressing the issue promptly and effectively can prevent any future losses. For instance, if the decline in sales at a retail store is due to employee behavior or subpar product quality, the management must tackle the root cause and resolve 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

The company's auditor team identifies significant exceptions in the work process on an annual basis, which are then examined and resolved. Employees are given the autonomy to make decisions and complete tasks efficiently, with management only getting involved when exceptions occur.

Reports can be generated on a weekly or daily basis using an automated system, which allows for comparison and identification of exceptions. This approach enables timely resolution of exceptions, reducing the workload of management and freeing up their time for more important tasks.

Disadvantages of Management by Exception

A flawed assumption in this system is that only the management can solve problems. However, employees possess a deeper understanding of the work and can offer better solutions. Empowering employees to solve problems can lead to more effective and efficient outcomes.

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The current centralized system only accepts decisions made by senior management, but this approach can lead to wasted time and frustration when trying to implement norms that have anomalies. Decentralizing the decision-making process and allowing everyone to participate could result in better outcomes.

Hiring financial analysts and auditors to compare and prepare variance summaries adds an additional layer of expenses for the organization. However, this process becomes ineffective if the analyst is incompetent and unable to identify serious issues.