What Is Management by Exception? Definition and Principles

Management by exception is the practice of examining the financial and operational results of a business, and only bringing issues to the attention of management if results represent substantial differences from the budgeted or expected amount.

Being a manager is a tough task. You must be able to divide your attention between multiple issues, each of which appears to be the most pressing issue to resolve. To make sure the company succeeds, you must manage a variety of tasks. You may use various strategies or management types to accomplish your goals and maintain employee motivation.

One such approach is management by exception, which can assist management in realizing where their focus should be directed. Let’s examine the idea, how it functions, and what its guiding principles are in more detail. I’ll also discuss the benefits of the well-liked approach and list a few drawbacks you should be aware of before choosing the framework.

Management by Exception

How does management by exception work?

Management by exception functions by following these steps:

1. Set a standard for normal operations

The business must establish a standard for daily operations so that managers can decide which issues employees should contact them about. This means that every employee is familiar with the typical events that occur during a workday as well as the typical discussion topics.

For instance, it’s crucial for the staff members in charge of an account to understand the weekly pattern if a deposit is made into it every Friday. This enables the staff to alert a manager if the account does not receive a deposit on Friday because that would be outside of the course of business.

2. Establishing a hierarchy

Some businesses structure their leadership so that lower-level managers deal with minor issues while upper-level management members deal with major issues when they employ management by exception. Although not all businesses use this method of hierarchy inclusion in their management by exception practices, those that do identify who employees should report specific issues to.

One manager in a company, for instance, might be in charge of all budget-related issues, while another might be in charge of employee behavioral issues.

3. Assessing employee performance

Management professionals can understand how their workforce’s productivity compares to the ideal company standard by evaluating employee performance. Keeping an eye on business activity is crucial to managing my exception because it enables managers to see when manager intervention is required.

4. Investigating and solving exceptions

Professionals notify the appropriate manager when they come across situations or data that deviates from company policy. The manager then addresses the problem either individually or as a team. For instance, if a manager notices that a department is not meeting its productivity targets, they look into it to determine why. This prompts them to develop a remedy and raise the bar for the company.

What is management by exception?

Finance and business sectors frequently employ the practice of “management by exception” in the workplace. This procedure enables staff members to consult with managers on particular issues only. For instance, a worker who oversees the budget of the company might only need to get in touch with their manager if the account falls below a certain threshold. This practice frees up time for managers to deal with more urgent issues than daily operations while enabling professionals to work independently.

Additionally, it guarantees that management professionals devote the majority of their time and energy to developing new rules and making business decisions rather than participating in the day-to-day operations of the company.

The principles of management by exception

Professionals characterize management by exception with these principles:


Management by exception works through the delegation of lower-priority tasks. Employees handle more routine tasks and aid in monitoring productivity because this business practice doesn’t require managers to be involved in all aspects of a company’s daily operations. Larger tasks that fall under the purview of managers include implementing workplace regulations and making financial decisions for the business.


Professionals use organizational skills to spot any departures from the company norms in order for a company to employ management by exception effectively. When deciding who to notify about a deviation, the experts take into account the leadership structure within their organization.

Professional improvement

Management by exception promotes professional development by establishing a standard for business productivity and enabling experts to handle minor issues without supervision. Employees who fall short of the productivity standard may be helped by the standard to comprehend and visualize how to improve their work potential.


Businesses that employ management by exception seek to create an environment that is effective and productive. By ensuring that senior executives concentrate on the company’s growth while other professionals assist in achieving the goals of the day-to-day operations, management by exception enables businesses to accomplish this.

Common goals

Companies decide on workplace production norms while also setting company goals. This is due to the fact that the expectations a company sets for its workers usually reflect what must be done for the company to succeed. Then, by adhering to the company standards, each employee in the company strives to fulfill these objectives.


To keep an eye on business activity, managers and employees employ analysis principles and techniques. This enables experts to maintain corporate standards and identify any potential issues. Managers also use analysis to create solutions for these problems.

Cons of management by exception

Although some businesses succeed using management by exception techniques, the approach may not be appropriate for all businesses. Consider the following list of drawbacks to management by exception:

Less preventive

Because management by exception is based on responding to issues as they arise, it may fail to implement preventative measures. This implies that a business may be better equipped to handle a problem than to prevent one from arising in the first place. However, many businesses take extra care to both respond to and prevent issues while using management by exception practices, keeping this in mind.

Requires close monitoring

Companies that use management by exception must set up strict monitoring procedures to ensure that experts notify managers as soon as a problem arises in order for it to be effective. These managers rely on other professionals to inform them of any problems because they do not concentrate on day-to-day operations.

To maintain an accurate and efficient management system, the majority of organizations that employ management by exception train their staff to have strong observational skills and hire dependable professionals.

Advanced problem-solving

Additionally, management by exception necessitates that all company leaders possess exceptional problem-solving abilities. This enables them to address problems quickly and come up with innovative solutions for them. Despite the fact that this is an advanced skill, most management professionals receive training in it regardless of the organization’s management style.

Pros of management by exception

It can be advantageous for business executives to implement management by exception procedures within their organizations. Here are some pros about management by exception to consider:

Efficient practices

By assigning tasks, management by exception enables managers to efficiently run their business. While other employees work on daily tasks to keep the company operational, managers concentrate on achieving the company’s vision. This enables all personnel to continue to be productive and to focus on particular tasks.

Sets clear priorities

Managers can clearly define priorities by creating a productivity standard for the company. For instance, if an employee is aware of the importance of signing a high-profile client and when to notify a manager of it, that individual is also aware of the importance of that activity. Employees can also infer that something is low priority if they can alter certain business practices without manager intervention.

Motivates employees

Management by exception encourages employees to take on more responsibility at work because it permits employees to work independently. This business strategy can help employees improve their capacity for work because it encourages professionals to concentrate on productivity. Management by exception can also encourage staff to apply for management positions if a professional has a special interest in problem-solving.

Quickly addresses problems

When using management by exception, experts respond to any problem right away. This can help companies address problems in a timely manner. Additionally, management by exception promotes effective communication, which enables managers to quickly resolve problems.


What is management by exception means?

Looking at any business enterprise’s financial and operational results is known as “management by exception.” The purpose is to draw attention to the notable discrepancies between the expected and budgeted amounts. When expenses exceed the desired amounts, the company controller notifies management of them.

What does by exception mean?

the act of excluding or the fact of excluding; omission 2 anything that is not included in or adheres to a general rule, principle, class, etc. 3 criticism, esp. when it is adverse; objection.

What is manage by exception in project management?

Identifying and handling cases that deviate from the norm is the focus of the business management strategy known as “management by exception.” When it comes to project management, this entails continuously keeping an eye out for problems and deviations that could endanger the project.

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