What is Management by Exception?

Management by Exception

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Management by Exception

Management by exception is a style of business management that focuses on identifying and handling cases that deviate from the norm. This strategy suggests that in order to use time and resources efficiently, management should focus on areas where performance is significantly different from what was expected, either for better or worse.

The principle is based on the concept that focusing on areas where results significantly deviate from plans can help managers to identify issues and opportunities more efficiently, enabling them to take corrective action or to exploit opportunities.

Here’s how the process generally works:

  • Set Standards: First, management sets performance standards or expectations. These standards can be related to various aspects of the business, such as sales, costs, quality, and so on.
  • Measure Performance: The next step is to measure actual performance and compare it with the standards or expectations.
  • Identify Deviations: If actual performance significantly deviates from the standard, then it’s highlighted for further investigation.
  • Investigate & Take Action: Management then investigates these deviations to understand their cause. Depending on the cause, management may then take action to correct the issue or to exploit the opportunity. This could involve changing processes, providing further training, altering strategy, etc.

This management style allows managers to focus their attention where it’s most needed rather than spending time on areas where things are going as expected. However, it’s also important to ensure that good performance that meets expectations is recognized and rewarded, and that the standards set are realistic and achievable.

Example of Management by Exception

Let’s take an example of a regional sales manager for a company that sells office supplies.

  • Set Standards: The sales manager sets sales targets (standards) for each salesperson in his team based on factors such as their territory, past performance, market conditions, etc.
  • Measure Performance: At the end of each month, the sales manager reviews the sales data to see how each salesperson has performed against their target.
  • Identify Deviations: The sales manager notices that one salesperson consistently exceeded their sales target by a significant margin over the last few months, while another salesperson consistently fell short of their target.
  • Investigate & Take Action: The sales manager then meets with each of these salespeople to understand what’s causing these deviations.
    • For the salesperson who exceeded their target, the manager finds out that they’ve developed an effective method for identifying potential clients and quickly building relationships. The sales manager decides to have this salesperson share their methods with the rest of the team to see if others can benefit from their approach.
    • For the salesperson who fell short of their target, the manager discovers they’re struggling with the company’s new sales software, which is impacting their productivity. The sales manager arranges for additional training for this salesperson.

In this way, by focusing on the exceptions rather than reviewing every salesperson in detail, the sales manager was able to efficiently identify issues and opportunities, and take appropriate actions.

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