Definition: Management by exception is a concept that managers use to focus on key areas of business performance instead of looking at the business as a whole. Managers only look at the areas that have large variances from the standard or budgeted projections.
Every other process that is running smoothly and closely to the standard goals is ignored. These variances could be good or bad. The budget on one project might have been way over and the budget of another project might be way under budget. A manager who uses the management by exception philosophy will take a look at both projects to determine why the large variances exist and how they can be minimized.
What Does Management by Exception Mean?
Managers use budget reports, revenue reports, and production schedules to gather information about the company’s performance. In all of these areas, managers usually have performance standards or goals that need to be met. A production goal for example might be increased production in a smaller amount of time. A budgetary goal might include producing the extra products without increasing costs across the board. Managers get tons of information and reports like these to help manage the company or a department, but how to do know what to look for?
Management by exception is a way for managers to effective save time and more efficiently run their department or business. Management by exception usually is most effective when managers have control over the problem areas. That way they can change processes to improve the company.