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Management by Exception

In order to apply the style of management by exception, or MBE, several things must be already in place, to begin with. Management by exception is a rule whereby management only intervenes in the operations of a business the moment an actual result is vastly different from the expected outcome. Given this rule, the assumptions to the application are as follows:

  • First of all, management by exception must be exceptionally clear in its visions, whether it is the main thrust of the organization, or simply in its daily operations. Vision will define what the expected result will be, given its conditions. This clarity in the organization's objectives is important in measuring any deviation from the expected result.

  • The second important element in this style of management is the reliability of the data and its security. Measuring the actual result against the desired result is all well and good, but if the data from the actual result is faulty to begin with, the measurement will also be inaccurate.

Applying Management by Exception

The management of any organization cannot apply this style of management on a whim. This style needs preparation and thorough study before any application can be made inside any organizational management. Additionally, this style of management is part of a process of evolution in the styles of management, and jumping in midstream will have more disastrous consequences than desirable outcomes.

A Credible History of the Organization

First of all, it will be difficult to apply this style of management to a new company. Even if the visions of the new company are clear and the data gathering methods streamlined and reliable, a new company will not have enough information to begin with to have any credible desired results.

The reason for this is that the objectives of the company are yet to have any historical significance or statistical importance. For example, a profit margin in the first quarter of operations might immediately be considered a standard profit margin, but second quarter conditions are very different from any first quarter market environments. This disparity will be difficult to see without a previous history of past first quarter profit margins, even if the company is clear in its objectives.

With enough historical data from the organization, more reasonable objectives can be made. With more reasonable objectives, management will not be looking into situations that fit in the exception rule, when historically; the data has always had a wide range of possibilities. Or similarly, there will be data where less noticeable differences actually correlate to important consequences for the company, and the minor disparity can be easily overlooked.

The Importance of Variance

The allowable variance of data or the tolerable difference between actual and desired results can be calculated with greater accuracy when historical data from the organization's previous performance is available. But the historical data is still only data, and will need careful analysis even before any concrete and clear objectives can be formulated.

And making heads or tails out of any historical data will be a job unto itself. The data, first of all, will not all be in numerical forms, so a direct application of statistical formulas will not suffice. This effort entails identifying, which data are possible causes and which data are effects of such causes. This will, in essence, involve reducing the business model into a mathematical model so that the data will be useful.

And when such a model can be constructed, only then can the objectives of the business be clearly defined. The goals will be more clearly seen, and you can easily identify which department will need to perform and which activity is crucial to the business. If this data can be clearly seen, then the operations of the business can be more easily measured, along with any allowable errors an activity or result can have.

Without the history of the organization and the sense to understand the data provided, everything is an exception to the rule, and management will be too busy handling all of it, which is the one thing management by exception seeks to avoid.

The Fruits of MBE

MBE is a style of management that seeks to relieve management of pressures that are unnecessary to begin with. For example, a CEO should not bother about the payment of an electric bill, especially if the company is large. Due to recent economic conditions, corporations have resorted to flattening their corporate structure, and this move has left higher management overburdened with otherwise mundane concerns.

Through MBE, only exceptions are raised to the manager's list of concerns, and nothing more. Therefore, management is left to concentrate on the more important tasks of actually managing a company, while employees are left to their own devices, for as long as their objectives are met, and no exception flags are raised to the manager's table.

And this is the second benefit of MBE. Because the management entrusts the employees with the responsibility of consistent activities in the organization's daily operations, an employee under this style of management is trained to be more responsible with the assigned task. With the employee being given a margin of error, this is tantamount to being given a certain degree of freedom, which an employee should take advantage of.

  • And this brings us to the only potential drawback of MBE. Since it is a style of management based on exception, management is only concerned with errors that exceed the allowed limits, and nothing more. This could potentially keep an employee that performs consistently and well outside the radar of the management, since that specific employee's responsibilities are never raised to a managerial level.

    Should You Use MBE?

  • But without that exception, MBE is a goal-oriented style of management that only needs objectives and metrics to keep its performance up to par, and with little interference from management. The proper application of MBE should help any company that needs guidance and direction. It also has the ability to keep a performing business to its expected level of production, without much chaos both from management and its employees.