What is the concept of “management by exception”?

Question

BlackTom AI · Accepted Answer

Management by exception focuses managerial attention on outcomes that deviate materially from expectations; only significant variances (both favourable and adverse) need to be investigated.

1) Relevant knowledge points and concepts
- Variance analysis: comparing actual results to budgets/standards, producing variances (actual − expected).
- Materiality/threshold: managers set significance limits so trivial differences are ignored.
- Both favourable and adverse variances matter because a favourable variance can hide future problems (e.g., cutting quality to reduce costs) while adverse variances indicate problems needing correction.
- Purpose: efficient use of management time, prompt corrective action for material issues, and delegation of routine control.

2) Step-by-step reasoning
- Organizations prepare budgets/standards (expected values).
- Actual performance is measured and variances calculated for each line item.
- Apply a pre-determined threshold (e.g., ±5% or $5,000) to decide significance.
- Investigate only those variances whose magnitude exceeds the threshold, regardless of sign.
- Investigations identify causes and lead to corrective actions or updated plans.

3) Example with intermediate steps
- Budgeted sales = $100,000; actual sales = $92,000.
- Variance = Actual − Budget = $92,000 − $100,000 = −$8,000 (adverse).
- If the investigation threshold is $5,000, |−$8,000| = $8,000 > $5,000 → investigate.
- If another item shows a +$2,000 favourable variance and threshold is $5,000 → no investigation.

4) Why the correct answer is correct
This approach is explicitly about investigating only material deviations to concentrate resources on meaningful issues. Including both favourable and adverse variances prevents overlooking beneficial-looking results that may have harmful causes.

5) Why other possible choices would be incorrect
- “Investigate all variances” is inefficient: trivial differences waste management time.
- “Investigate only adverse variances” is incomplete: favourable variances can mask problems or unsustainable gains.
- “Managers make all routine decisions” misstates the control objective; management by exception delegates routine matters.

Conclusion: The correct interpretation is that only significant variances, whether favourable or adverse, are investigated — matching the provided answer.

What is the concept of “management by exception”?单项选择题

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