PM Hut has a post on Managing By Exception. While the concepts posted there are good in "principle," in "practice" more needs to be in place to keep the project on track.
First there needs to be a set of clearly defined assessments of physical percent complete. Along with that some means of assessing the increasing maturity of the products or services produced by the project. And of course some type of "exit criteria" for each Unit of Work produced by the efforts of the project team. Finally, a means of identifying, handling, and reporting the risks to the progress of the project.
In the absence of this information, there is no raw material available to assess the exceptions. Only when the Plan, Schedule, Risks, and Measurement processes are in place, can the exceptions be determined. Having the Project Manager track and reviews but does not intervene only works if the "control boundaries" are defined in units of measure meaningful to the stakeholders.
As well the statement that "Management By Exception" is a relatively new concept is likely not correct, unless "new" means defined in the last 100 years. MBE is the basis of military command and control for small unit engagement. It was applied in the aerospace business in the late 70's.
