Question

“Only a 5 % increase in material cost was found critical”. What technique is this?

• A. Break-even analysis
• B. Cost-benefit analysis
• C. Budgetary control
• D. Management by exception

Hint:

Management by exception allows managers to focus their attention on significant variances rather than monitoring every aspect of performance.

Answer 1

The Correct Option is D

The scenario mentioned, "Only a 5% increase in material cost was found critical," is related to a management technique known as Management by Exception. This technique is used in business management to focus on significant deviations from planned performance or expected outcomes. The idea is that management attention is needed only when actual results differ substantially from planned results. By concentrating on exceptions or significant variations, this approach aims to prioritize resources and managerial effort efficiently.

Here's how it applies in this context:

• Identification of Deviations: Only changes that fall outside a pre-determined range are considered critical. A 5% increase signals an exception.
• Focus on Critical Issues: Managers can then concentrate their time and resources on addressing these exceptions rather than routine performance.
• Efficient Resource Allocation: This allows for efficient management intervention tailored to issues that significantly impact the organization's objectives.

Therefore, the technique being referred to here is Management by Exception.