Disadvantages of Management by Exception

§      This concept is based on the existence of a budget against which actual results are compared. If the budget was not well formulated, there may be a large number of variances, many of which are irrelevant, and which will waste the time of anyone investigating them.

§     The concept requires the use of financial analysts who prepare variance summaries and present this information to management. Thus, extra people are required to prepare the report. Also, an incompetent analyst might not recognize a potentially serious issue.

§    This concept is based on the command-and-control system, where conditions are monitored and decisions made by a central group of senior managers. A decentralized organizational structure could be better, where local managers could monitor conditions on a daily basis.