What is Management By Exception?

Legal Definition
Management by exception is a style of business management that focuses on identifying and handling cases that deviate from the norm, recommended as best practice by PRINCE2.

Management by exception has both a general business application and a business intelligence application. General business exceptions are cases that deviate from the normal behavior in a business process and need to be cared for in a unique manner, typically by human intervention. Their cause might include: process deviation, infrastructure or connectivity issues, external deviation, poor quality business rules, malformed data, etc. Management by exception here is the practice of investigating, resolving and handling such occurrences by using skilled staff and software tools. Good management can contribute to efficiency of business processes. Often in these cases the process will be called exception management, as exceptional cases are not the sole focus of the managerial policy, and exception management (as opposed to management by exception) denotes a more moderate application of the process.

Management by exception (MBE), when applied to business is a style of management that gives employees the responsibility to take decisions and to fulfill their work or projects by themselves. It consists of focus and analysis of statistically relevant anomalies in the data. If an unusual situation or deviation in the recorded data appears, which could cause difficulties for the business and can’t be managed by the employee at his level, the employee should pass the decision on to the next higher level. For example, if all products are selling at their expected volumes for the quarter, except one particular product which is underperforming or overperforming at a statistically relevant margin, only the data for that product will be presented to the managers for further investigation and discovery of the root cause. Management by exception can bring forward business errors and oversights, ineffective strategies that need to be improved, changes in competition and business opportunities. Management by exception is intended to reduce the managerial load and enable managers to spend their time more effectively in areas where it will have the most impact.

Exception management also has an IT application. When writing code, if the programmer sees that there will be an exceptional case where a predefined assumption of the application will be breached, the programmer will need to deal with that exception programmatically from the outset.
-- Wikipedia
Legal Definition
Practice that brings a significant deviation to management's notice only if the information indicates actual results far off from the budgeted or planned results. Escalation is essential as an unsolvable issue at one level of management is sent up to the next higher level. Facilitating management's focus at important tactical and strategic tasks.