I do not think that the consideration of formal exams helps in assessing the abilities of candidates, outweighing the drawbacks. Formal exams gives a picture of many factors of about a student like consistency and knowledge, but it is the skills and milestones that better describes a student’s abilities.
Taking about the advantages, formal exams will act as a standard on which a students performance can be measured. It also gives an idea of the subjects, the student has good knowledge in, and how consistent he/she has been in it. For example, when assessing a student’s application for a masters degree in the field of economics, his/her previous performance in subjects like mathematics and social studies plays a vital role. In case of good grades, he/she can be considered as a good fit and thus the university can accept the application.
However, there are many cases where the ability of applying the skills have mattered more than the grades obtained in formal exams. Formal exams may not exactly depict the candidate, as it is not just about the grades but the skill of adapting and managing the issues faced in daily life which give a better picture of the student’s abilites. For example, Mark Zukerburg was a university dropout, but he was successfull in building one of the largest social media company of the world. In this journey, his grades did not matter, as it was the skills of idea execution, scaling, building and managing the team marked his success.
I do believe that a student should be assessed based on his/her portfolio of skills and projects they have been involved in, along with minimal weightage given to the formal education, rather than just focusing on the grades aspect. Potential cannot be measured through grades, but can be meased by the works the student have been involved in.