It is a system of identification and communication that signals the manager as to when and where his attention is needed. The main object of this system is to enable the manager to identify and isolate the problems that call for decision and action, and avoid or ignore or pay less attention to less critical problems which better be handled by his subordinates.
Under this system the manager should receive only condensed, summarised and invariable comparative reports covering all the elements, and he should have all the exceptions to the past averages or standards pointed out, both the specially good and the specially bad exceptions.
This gives him a full view of the progress in a few minutes of time. Thus by using the experience in a systematic way (i.e., having the knowledge of past attainments), a careful analysis is made with reference to existing records and standards of performances.
Advantages of Management by Exception:
- It saves time. Manager attends to real problems at a particular point of time.
- Concentrated efforts are possible, as this system enables the manager to decide when and where he should pay his attention. It identifies crisis and critical problems.
- Lesser number of decisions is required to be taken, which enables the manager to go into detail.
- This enables to increase span of control and increase the activities for a manager.
- Use of past trends, history and available data can be made fully.
- It alarms the management about the good opportunities as well as difficulties.
- Qualitative and quantitative yardsticks are provided for judging the current position.
- It prevents management from over managing.
Limitations of Management by Exception:
Management by exception is not a solution to all management problems; it has its limitations as well.
Some of them are:
- It requires a comprehensive observing and reporting system.
- It increases paper work.
- The system is silent till the problem becomes critical.
- Some important factors, like human behaviour, are difficult to measure.
System of Management by Exception:
I Phase: Measurement Phase:
In this phase, facts of operational situation are collected and assessed, i.e., use of performance of its whole range inputs such as efforts contributing to the goals of the organisation; its productivity, money flow, effectiveness of financial resources being used to produce goods, services and profits; availability and wastage of material and its economy from its purchase through processing and storing to delivery for finished products utilisation, capability and productivity of the machines.
The information about all these factors are utilised by way of quantitative measurements like using time standards, balance sheet data, inventory data, inspection results of finished products, inventory accumulation for sales, current assets, equipment utilisation data.
II Phase: Projection Phase:
In this phase, analysis of those measurements which are meaningful to the objectives of the organisation for future outlook or expectations is carried out. Past and present data are projected by using the statistical concept like probability, standard deviation, confidence, correlation, sample size, significance etc.
Examine the potential effect of changes expected as per forecast. Then the projections are modified by the forecasts to decide the ‘goals’. At this stage complete planning is thoroughly looked at from the angle of existing policies and procedures, organisation structure, adequacy and capability of the existing staff and equipment. If need arises necessary changes are made.
III Phase: Selection Phase:
In this phase, those vital and economical available measures are selected, which will best indicate the progress towards its objectives. Thus the criteria are selected, which the management would like to use to follow the progress or performance towards predicted objectives.
IV Phase: Observation Phase:
In this phase, current status of performance is periodically observed and measured. The system should be reliable, automatic and adequate. Adequate means of observations should neither be too less nor too more, and only necessary information at desired frequency is obtained.
V Phase: Comparison Phase:
In this phase, comparison is made between the actual and expected performance and progress in order to identify the exception, analyse causes and report the need for action to the appropriate authority about the exceptions that required priority of attention.
VI Phase: Action Phase:
This is the phase, where decisions are taken and implemented with a view to bring the performance to the desired level or adjust in anticipations to reflect changing conditions or take full advantage of better performance or opportunity.
Thus the Management by Exception compromise as systematic approach of handling the management problems and free the manager from the demands of routine work, which enables him to devote more time for creative efforts directed towards “improving the overall efficiency of the organisation”. This also provides necessary information readily available, for taking timely and qualitative decisions, which would require lot of time.