12th Standard Commerce — Management by Objectives (MBO) and Management by Exception (MBE) Online Test

About Management by Objectives (MBO) and Management by Exception (MBE)

Medium ~40 min study

Management by Objectives (MBO) and Management by Exception (MBE) is the third chapter of Unit 1, Management Process, in the Tamil Nadu State Board Class 12 Commerce book. It opens with Thirukkural 637, which asks us to understand the ways of the world before we act.

The first half of the chapter shows how MBO lets superiors and subordinates set goals together, so that each person's goal is harmonised with the organisation's goal. The second half explains MBE, a technique that lets managers concentrate only on cases that deviate from the norm.

This page brings together the five book-back one mark questions with answers checked against the lesson, plus additional questions on definitions, the MBO process, key result areas, advantages, disadvantages and the MBE process, each with a short explanation.

What you'll learn

• Define MBO in the words of George Odiorne and Prof. Reddin.
• List the objectives and features of MBO.
• Arrange the eight steps of the MBO process in order.
• Explain the advantages and disadvantages of MBO.
• Describe the meaning and process of Management by Exception with the book's quality-control example.
• State the advantages and disadvantages of MBE and distinguish them from those of MBO.

Before you start

• The functions of management, especially planning and controlling, from chapter 2.
• The principles of management, including delegation of authority, from chapter 1.
• The idea of standards and performance appraisal in a business organisation.

Management by Objectives (MBO) and Management by Exception (MBE) explained

What this chapter covers

Meaning and definitions of MBO

MBO is a management system in which every member participates; it gives full scope to individual strength and responsibility. George Odiorne popularised it in the USA and defined it as superior and subordinate managers jointly identifying common goals. Prof. Reddin defined it as setting effective standards and converting them into measurable, time-bound objectives.

Objectives and features

MBO measures performance, links individual performance to organisational goals, guides salary and promotion decisions and serves as a device for control and integration. Its features include combining long-run and short-run goals, relating organisational goals to society's goals and replacing authority with consultation.

Process of MBO

Eight steps: defining organisational objectives, goals of each section, fixing key result areas, setting subordinate objectives, matching resources with objectives, periodical review meetings, appraisal of activities and reappraisal of objectives.

Advantages and disadvantages of MBO

MBO supports participative management, easy delegation, job enrichment and quick decisions, but it is time consuming, costly, rigid and stresses short-term objectives.

Management by Exception

MBE, suggested by classical writers, holds that trying to control everything controls nothing. Norms are set, actual performance is compared, and only significant deviations go to senior managers. It saves managers' time and widens the span of control, but can demotivate lower-level staff.

Common mistakes to avoid

• Naming Prof. Reddin as the person who popularised MBO in the USA. It was George Odiorne; Reddin gave a separate definition.
• Starting the MBO process with key result areas. Defining organisational objectives is the first step; KRA is the third.
• Treating MBO as long-term focused. The book lists stressing only short-term objectives as a disadvantage.
• Mixing up the advantages: saving managers' time and alerting management to threats belong to MBE, not MBO.
• Thinking every defect is reported under MBE. Only deviations beyond the norm, such as more than 5 defects per 100 units, reach the manager.

Test yourself on these with the practice test, then check the worked reasoning in the solved MCQs.

Frequently asked questions

What is Management by Objectives?

MBO is a management system in which each member of the organisation participates and involves himself. It gives full scope to individual strength and responsibility, harmonises the individual's goal with the organisation's goal, creates self-control and motivates managers to act before being told.

Who popularised MBO and how did he define it?

George Odiorne popularised MBO in the USA. He described it as a system in which superior and subordinate managers jointly identify common goals, define each individual's major area of responsibility in terms of expected results, and use these measures to run the unit and assess each member's contribution.

What are Key Result Areas?

Key Result Areas are fixed on the basis of organisational objectives in the third step of the MBO process. They are arranged on a priority basis and indicate the strength of an organisation. Profitability, market standing and innovation are the examples given in the book.

What are the steps in the process of MBO?

The book lists eight steps: defining organisational objectives, goals of each section, fixing key result areas, setting subordinate objectives or targets, matching resources with objectives, periodical review meeting activities, appraisal of activities and reappraisal of objectives.

What is Management by Exception?

MBE is a principle of managerial control suggested by classical writers. It rests on the belief that an attempt to control everything results in controlling nothing, so managers handle only cases that deviate from the norm, while routine matters within limits are left to subordinates.

What are the disadvantages of MBE?

Only managers hold power over really important decisions, which can demotivate lower-level employees. It also takes time to pass issues up to managers, and employees who deviate from normal procedures through compliance failures are hard to manage and may finally be dismissed.