Management by exception
Management by exception focuses managerial attention on significant deviations from plan, leaving results that are close to budget unexamined. It directs scarce time to variances large or unusual enough to warrant investigation.
FrameworkResponsibility accounting
See it move
A standard costing system might generate thirty separate variance lines in a month. Management by exception leaves the twenty-six that sit within a tolerable band — say, under 5% of budget or €10,000 — unexamined, and directs investigation only at the four flagged as material exceptions. The judgement lies in setting that threshold and watching for small variances that together signal a systemic problem.
Check yourself
At month end, a management accountant generates a 40-line variance report. She routes only the 7 lines where variance exceeds either 6% of budget or €8,000 in absolute terms to the operations director, leaving the remaining 33 lines unreviewed. Which management control concept does this apply?