PRINCE2 Principle Manage by exception
A PRINCE2 project establishes limits of delegated authority by defining tolerances for performance against its plans.
The definition of tolerance
The permissible deviation above and below the plan’s target for benefits, cost, time, quality, scope, sustainability, and risk without escalating the deviation to the next management level. Tolerance is applied at project, stage, and team levels.
PRINCE2 enables appropriate governance by defining distinct responsibilities for directing, managing, and delivering the project and clearly defining accountability at each level.
Accountability is established by:
- delegating authority from one management level to the next by setting tolerances against the seven aspects of performance (benefits, cost, time, quality, scope, sustainability, and risk) for the respective level (project, stage, team)
- establishing controls so if tolerances are forecast to be exceeded, they are flagged as being an exception and immediately escalated to the next management level for a decision on how to proceed
- establishing an assurance mechanism so that each management level can be confident that the exception controls are adequate.
The seven aspects of a plan’s performance requiring tolerances to be defined are:
- Benefits: the degree to which it is permissible to underdeliver or overdeliver benefits; for example, the business case for a sales improvement project modelled with a plus or minus two per cent range of increased income generation. costs: the degree of permissible overspend or underspend against an agreed budget (both person-hours and financial)
- Costs: the degree of permissible overspend or underspend against an agreed budget (both person-hours and financial).
- Time: the degree to which it is permitted to deliver earlier or later than an agreed target completion date compared to the project plan, stage plan, or work package description.
- Quality: how much something can vary from agreed acceptance criteria; for example, a project to produce a new sports watch might target the watch to work underwater to a depth of 50 metres with a permissible tolerance of plus or minus five metres.
- Scope: the permissible variation of the plan’s products; for example, a project that requires delivery of all the mandatory requirements but can deliver only 60 per cent or more of its should-have and could-have requirements.
- Sustainability: the degree to which the project product or activities required to deliver the project can vary from sustainability targets; for example, a new production line operated within five per cent of an emissions target and was provided using around 70 per cent of the workforce from the local community.
- Risk: limits on the plan’s aggregated risks; for example, a tolerance that the cost of aggregated threats must remain less than 10 per cent of the agreed budget and that the cost of any single threat must be no more than five per cent of the budget.
Manage By Exception.
The implementation of ‘manage by exception’ efficiently uses senior management time as it reduces senior managers’ time burden without removing their control. This ensures that decisions are made at the right level in the organization.
The goal is to alert the next management level in the project as early as possible that the work will exceed the agreed-upon tolerances and that a decision is needed on whether and how to proceed.
The decision-maker can accept the deviation and its consequences or act to remove or reduce it.
A project using an iterative-incremental delivery method with defined timeboxes will typically fix time and cost and vary in scope. In this case, time and cost will have much tighter tolerances than the scope.
An example of applying the ‘manage by exception’ principle is that tolerances will differ depending on the project’s context, such as a project with a commercial arrangement between customer and supplier where the tolerances will be reflected in the contract.
In this example, if the project manager learns that procured materials will be delivered late and the issue cannot be resolved within the tolerances, the project manager will need to alert the project board quickly.
The contract may define any cost remedies available between the customer and supplier, but there may be consequences for the project’s stakeholders caused by the delay.
In this case, the project board must decide what actions to take and provide direction to the project manager.
By reviewing the tolerances at the end of every stage, the project can adapt and modify the following stage activities to reflect a changing operating environment.