Manage by Exception

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.

"Management By Exception — Accountingtools."

The benefits of using this technique are:

• A reduction in the quantity of financial and operational results for management to review, resulting in more efficient management.
• Some Accounting/ERP systems can be set to print reports at regular intervals that contain the predetermined exception levels, an objective reporting approach.
• Employees/ Managers can follow their own ways to achieve the results mandated in the company's budget. Management need only step in if exception conditions exist.
• The company's auditors will make inquiries about significant exceptions during annual audit activities. Management has the opportunity to investigate these issues in advance of the review.

The Importance of a Detailed Budget!

• The MBE concept is dependant on the existence of a well-formulated Budget Profit and Loss Statement against which actual results are compared.
• Providing this compels management to plan for the future, probably the single most important feature of a budgetary planning and control system. The process of establishing detailed plans and targets for each department, operation, and manager, as an inclusive project where all stakeholders are required to anticipate future costs and outcomes gives the organization purpose and direction while promoting coordination and communication.
• Results in clearly defined areas of responsibility. Managers of budget centers are made responsible for the achievement of fiscal targets for the operations under their control.
• Control is provided by comparisons of the achieved results against forecasted outcomes. Departures from the budget are then investigated, and the reasons for the differences can be established and actioned dependant on whether they are controllable or non-controllable factors.

What will the "NEW" company feel like?

Following these principles results in an Organisation that is marked by the following characteristics.

• Participation: involve as many people as possible in drawing up a budget.
• Collaboration: embrace the whole organization.
• Improved Standards: drive through Change and adopt Industry Best Practise.
• Flexibility: allows for agility in an ever-changing market.
• Feedback: continuously monitor performance throughout the company giving early indicators of pressure points.
• Engagement: Can be used to introduce a far more inclusive, project-based form of management.

Will you need external help?

• Possibly. Any process that involves a change from the Status Quo benefits from some form of external scrutiny especially if it means the giving up of previously "hard fought for" Control.
• The level of input required stretches from the Warehouse Floor to the C-Suite. Finding a Consultant who can operate throughout the entire business is difficult. This applies in particular in Family Business facing this transition.

Is it worth it?

Absolutely! If your business has stopped growing and you just don't have time to implement the change you have quite possibly reached a natural plateau where the ability and resources available to you is limiting your ability to expand. By changing your reporting structure and driving through change to a simplified, inclusive management structure you could liberate your organization and reinvigorate your team without having to resort to selling up or hiring external management to acheive this.

Some further Homework

1. ^ Anon (2014). "Management by exception". Cambridge Dictionaries Online. Cambridge: Cambridge. Archived from the original on 2014. Retrieved 16 October 2014.
2. ^ Anon (2014). "Management by exception (MBE)". BusinessDictionary. WebFinance. Archived from the original on 2014. Retrieved 14 October 2014.
3. ^ "Making sense of your data - Telecommunications business development". Verix.com. Retrieved29 December 2013.
4. ^ "Making sense of your data - Pharmaceutical sales". Verix.com. Retrieved 29 December 2013.
5. ^ a b Bragg, S (23 May 2014). "What is management by exception?". Accounting tools. Archived from the original on 23 May 2014. Retrieved 17 October 2014.
6. ^ Northouse, P.G. "Transactional Leadership Factors". Leadership: Theory and Practice. SAGE. p. 195.
7. ^ Guy, Handy. "Best Practices of Exception Management". Codeproject.com. Retrieved 29 December2013.
8. ^ Anon (18 January 2013). "Budgets".Tutor2u. Archived from the original on 18 January 2013. Retrieved 21 October2014.
9. ^ a b Banerjee, A (2012). "5 main process of management by exception". Preserve Articles. Archived from the original on 2012. Retrieved 14 October 2014.
10. ^ Academic Conferences. "The transactional leadership". Proceedings of the International Conference on Management, Leadership, and Governance. Academic Conferences Limited. p. 153.
11. ^ Anon (2011). "Management by Exception and Variance Analysis".Accounting explanation. Archived from the original on 2011. Retrieved 17 October2014.
12. ^ Rafique, S (31 March 2014). "Standard Cost-Management by Exception."Management Accounting. Archived from the original on 31 March 2014. Retrieved14 October 2014.
13. ^ a b Stimpson, P; Smith, A (2011).Budgetary control - variance analysis(Business and Management for the IB Diploma ed.). Cambridge: Cambridge University Press. p. 283.
14. ^ Heisinger, K; Hoyle, J (2014)."Determining Which Cost Variance to Investigate". Flat World Education. Archived from the original on 2014. Retrieved 16 October 2014.
15. ^ Smothers, A.E. "Transactional Leadership Style." Perceived Leadership Style of a Mayor and Its Impact on Organizational Commitment of Municipal Employees. Capella University. pp. 11–13.

From time to time, I am minded to share some of the experiences we have gained in contract packaging and packaging materials over the last quarter of century.(and on three different continents!) The topics will cover best practices for packaging (in the Transit Packaging field) and also proven tips that can be implemented in any operational field or Owner Managed Business. Hyper-links to other resources on the topic covered would be most welcome in the comments section below, that way we all keep learning.

(As would a like or follow if you think this post has been of some use to you.)