Management by Exception is a "policy by which management devotes its time to investigating only those situations in which actual results differ significantly from planned results. The idea is that management should spend its valuable time concentrating on the more important items (such as shaping the company's future strategic course). Attention is given only to material deviations requiring investigation." [1]
It is not entirely synonymous with the concept of exception management in that it describes a policy where absolute focus is on exception management, in contrast to moderate application of exception management.
In Project Management, an implication of Management by Exception is that the project board should meet when key decisions about the project should be taken, and not on regular intervals. The Project Manager should produce an Exception Report to summon the board for such meetings.[2]
This type of management can be powerful when it is necessary to process lots of data in order to make managerial decisions. The problem with this policy is that it can result in myopic behavior. This behavior implies that lower management shifts its goal from running a successful business in a real world environment, to feeding centralized auditors and managers with financial data which will be interpreted as within. In this situation, a company manager might sell off assets like equipment (vital to long run productivity) in order to manipulate accounting ratios used in determining exception. Thus, lower management can in some cases dodge being marked as an exception, to the long term detriment of the plant they are managing.
Management by exception is based on a positive attitude toward problem recognition.
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