Page 3 - Lesson Note 2

Step 4: Analysing Deviations:
Some deviation in performance canbe expected in all activities. It is,therefore, important to
determine theacceptable range of deviations. Also,deviations in key areas of businessneed to be
attended more urgentlyas compared to deviations in certaininsignificant areas. Critical
pointcontrol and management by exceptionshould be used by a manager in thisregard.
1. Critical Point Control: It is neithereconomical nor easy to keep acheck on each and every
activityin an organisation. Controlshould, therefore, focus on keyresult areas (KRAs) which
arecritical to the success of anorganisation. These KRAs are setas the critical points. If
anythinggoes wrong at the critical points,the entire organisation suffers.For instance, in a
manufacturingorganisation, an increase of5 per cent in the labour costmay be more troublesome
thana 15 per cent increase in postalcharges.
2. Management by Exception:Management by exception, which is often referred to as control by
exception, is an important principle of management control based on the belief that an attempt to
control everything results in controlling nothing. Thus, only significant deviations which go
beyond the permissible limit should be brought to the notice of management. Thus, if the plans
lay down 2 per cent increase in labour cost as an acceptable range of deviation in a
manufacturing organisation, only increase in labour cost beyond 2 per cent should be brought to
the notice of the management. However, in case of major deviation from the standard (say, 5 per
cent), the matter has to receive immediate action of management on a prioritybasis.

The box below highlights the advantages of critical point control and management by exception.

Advantages of Critical Point Control and Management by Exception
When a manager sets critical points and focuses attention on significant deviations which
cross the permissible limit, the following advantages accrue:
1. It saves the time and efforts of managers as they deal with only significant deviations.
2. It focuses managerial attention on important areas. Thus, there is better utilisation
ofmanagerial talent.
3. The routine problems are left to the subordinates. Management by exception,
thus,facilitates delegation of authority and increases morale of the employees.
4. It identifies critical problems which need timely action to keep the organisation in
righttrack.

After identifying the deviations that demand managerial attention, these deviations need to be
analysed for their causes. Deviations may have multiple causes for their origin. These include
unrealistic standards, defective process, and inadequacy of resources, structural drawbacks,
organisational constraints and environmental factors beyond the control of the organisation.