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This is a term that people who are new to PRINCE2 will most likely not have heard before. As it is important that you understand it, I will start a simple explanation and then give you the PRINCE2 definition. When it comes to factors like time, cost, and scope, the Project Manager has some tolerance to play with before they have to advise the Project Board that there is or might be a problem (e.g. costs could change ±10%). If the problem is small and it remains within the tolerances (e.g. the costs increase by 2% -- less than the 10% tolerance), then the Project Manager can deal with it and doesn’t have to alert the Project Board and take up their time.

Manage by Exception is used by each level in the Project Organization to manage the level below. The layer below should only notify the above management layer if there is a big issue that is outside their tolerance. The PRINCE2 name for a big issue is Exception, which means the issue is outside the agreed tolerance.

Now, imagine you are sitting on the Project Board. If everything is going OK, you won’t hear from the Project Manager except for the regular reports during a stage and at the end of the stage, unless there is an exception, hence the term Manage by Exception. The PRINCE2 definition for Manage by Exception is as follows: A PRINCE2 project has defined tolerances for each project objective to establish limits of delegated authority.

PRINCE2 lists 6 tolerances that can be set. These are:

  • Time
  • Cost
  • Quality
  • Scope
  • Risk
  • Benefit

Here are examples only for Quality, Scope, Risk and Benefit, as Time and Cost are easier to understand:

  • Tolerance Quality: You are creating a new GSM (a common name used to refer to a mobile telephone in Europe) and you want the keyboard to work for an average user for 7 years but you have a tolerance of ±5%.
  • Tolerance Scope: The requirements for a new GSM will have mandatory requirements plus ‘nice to have’ requirements. So the project can decide which ‘nice to have’ requirements to include, but must include the mandatory requirements.
  • Tolerance Benefit: A Benefit is a measurable improvement resulting from the project for one or more of the stakeholders. These are benefits for the project stakeholders. For example, increase marketing share by 5%, or create a new profitable market segment. One question asked throughout the project is: “Is the project still on track to meet the expected benefits?”
  • Tolerance Risk: Again, I’ll use the example of the GSM. There will be a set tolerance level for risk and if you hear of something that is above this level, then you will notify the Project Board. Example: You find out that the risk is now very high - that one of the providers cannot supply a 5 megapixel camera with the correct integration specifications. This can cause many issues for your project.

To summarize: Manage by Exception provides the above management layer with a system to manage and control the lower management layer, and they don’t need to be bothered by each small issue.