In this blog, I’ll show you how to solve the common problem of users misinterpreting how to apply the “manage by exception” principle, leading to improper delegation or escalation of issues.
You will learn how to clarify the principle, explain tolerances (time, cost, quality, etc.), and provide a flowchart for escalating issues to the project board when tolerances are exceeded.
This is a topic that trips up even seasoned project managers: the Manage by Exception principle in PRINCE2.
Specifically, I’m tackling why it’s so often misunderstood and how you can apply it correctly using the latest PRINCE2 7th Edition framework.
Management By Exception (MBE) Basics
In PRINCE2, MBE is one of the seven core principles, and it’s all about empowering teams while keeping control.
The idea is simple: senior management sets boundaries, called tolerances, for a project’s time, cost, quality, scope, benefits, sustainability, and risk.
So long as the project stays within those boundaries, the project manager and team can work without interference. But if something pushes the project outside those limits, it’s time to escalate to the project board.
Here’s where the misunderstanding creeps in.
Some folks think Manage by Exception means “hands-off management” or just dumping decisions on the project board whenever things get tricky. Others swing too far the other way, micromanaging every detail and never escalating anything.
Both such approaches miss the mark.
Next, let’s talk about tolerances
In PRINCE2 7th Edition, tolerances are like guardrails for your project. They define how much wiggle room you have before you need to raise a flag. There are seven types of tolerances: time, cost, quality, scope, benefits, sustainability, and risk.
For example, let’s say your project has a budget of £100,000 with a cost tolerance of plus or minus 10%. That means you can spend between £90,000 and £110,000 without needing to escalate.
Go over £110,000 or spend less than £90,000? That’s an exception, and you need to notify the project board.
Note. Although counterintuitive, spending LESS than minimum allocated funds means that sum COULD have been used on other initiatives.
Time tolerances work the same way.
If your project is set to finish in six months with a tolerance of plus or minus two weeks, you’re fine if you stay within that window.
Quality tolerances might define acceptable performance levels for a deliverable, like a website loading in under three seconds.
Scope tolerances set boundaries on what changes are allowed without approval.
Benefit tolerances focus on the expected outcomes, like revenue or customer satisfaction.
And risk tolerances? They define how much uncertainty the project can handle before it’s a problem.
Sustainability tolerances are documented in the Business Case and tolerance is documented at the project, stage, and team levels. These set the sustainability permissible deviations in the sustainability performance targets.
A sustainability tolerance example might be a new production line operating within 5 percent of an emissions target.
The key is to set these tolerances at the start of each project stage.
The project board agrees these with the project manager during the Directing a Project process. This gives everyone clarity on when to act independently and when to escalate.
So, why do people get this wrong?
One big reason is misunderstanding delegation.
Some project managers think Manage by Exception means they can delegate everything and walk away. That’s not it! You’re still responsible for day-to-day management.
The project board only steps in when tolerances are breached.
On the flip side, some managers hold onto every decision, afraid to escalate because they think it shows weakness. That defeats the purpose of the principle, which is to balance autonomy with oversight.
Another common mistake is vague tolerances.
If your tolerances are too loose, like a 50% cost overrun allowance, you’re inviting chaos, whereas too tight, like zero flexibility on time, and you’re escalating every tiny issue, overwhelming the project board.
PRINCE2 7th Edition emphasizes setting realistic tolerances based on the project’s context, complexity, and risk profile.
Here’s a practical example.
Imagine you’re managing a project to launch a new application.
Your cost tolerance is £50,000 plus or minus 10%, and your deadline is three months with a one-week tolerance.
Halfway through, a key supplier raises their price, pushing your costs to £56,000—above your £55,000 limit.
This is an exception.
Don’t panic or try to hide it, just follow the escalation process.
The PRINCE2 Escalation Process
PRINCE2 7th Edition gives us a clear path for handling exceptions, and I’ll describe it step-by-step:
Step one:
Identify the issue. Something’s gone off track—maybe costs are too high, or a deliverable doesn’t meet quality standards. You, as the project manager, spot this through regular monitoring, like checking your highlight reports or risk register.
Step two:
Assess the impact. Ask yourself: Does this issue push us outside our tolerances? If it’s within limits, you handle it yourself. If not, it’s an exception. In our app example, the £56,000 cost is over the £55,000 tolerance, so it’s an exception.
Step three:
Create an exception report. This is a concise document that explains the issue, its impact, and your recommended options.
For example, you might suggest cutting a non-essential feature to bring costs back in line or request extra budget from the project board. PRINCE2 7th Edition stresses that this report should be clear and actionable—no fluff.
Step four:
Escalate to the project board. You submit the exception report through the Directing a Project process. The board reviews it and decides what to do—maybe approve more funds, adjust the scope, or even pause the project.
Step five:
Act on the decision. Once the board responds, you update your plans and keep the project moving. The beauty of this process is that it keeps everyone aligned without micromanaging. See this as a simple decision flowchart
At the top, you ask: “Is the issue within tolerances?” If yes, the arrow points to “Handle it yourself.” If no, the arrow leads to “Prepare exception report.” From there, it flows to “Escalate to project board,” then “Implement board’s decision.” Keep this flowchart handy, it’s a lifesaver for staying on track.
Now, let’s address a real-world challenge:
What if your project board isn’t engaged?
Sometimes, boards don’t set clear tolerances or aren’t available for escalations.
PRINCE2 7th Edition tackles this by emphasizing the Directing a Project process.
When appointing members to project board roles (executive, senior user, senior supplier), one criteria is that they must be available!
The project board must define tolerances upfront and be ready to act when exceptions arise. As a project manager, you can help by proposing realistic tolerances during stage planning and keeping the board informed with regular highlight reports.
Communicate early and often
If you see tolerances getting tight—like costs creeping close to the limit—don’t wait for an exception. Raise an issue in your highlight report to give the board a heads-up. This builds trust and avoids surprises.
The Way ahead
Manage by Exception is about empowerment, not abdication. It lets project managers run the show within clear boundaries while giving the project board the big-picture control they need.
The steps to get it right are:
- Set realistic tolerances for time, cost, quality, scope, benefits, sustainability, and risk at the start of each stage
- Monitor your project closely using tools like highlight reports and the risk register
- Escalate exceptions promptly with a clear exception report
- Use the PRINCE2 escalation process to keep decisions structured and efficient
- Communicate proactively with your project board to avoid last-minute scrambles.
By following these steps, you’ll avoid the traps of micromanaging or over-delegating, and you’ll keep your project on track.
Here is a swift scenario.
You’re managing a project to redesign the company website. Your time tolerance is plus or minus one week, but a key developer calls in sick, delaying the project by 10 days.
What do you do?
Pause and think: Is this within tolerance?
If not, what’s your next step?
If you said, “Prepare an exception report and escalate to the project board,” you’re spot on!
DO check out my online project management courses at projex.com, where I break down PRINCE2 7th Edition in practical, bite-sized lessons. Until next time, keep managing your projects with confidence!
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