OVERALL CONTROL CRITERIA

Most of the control techniques are designed to regulate specific aspects like costs, profits, etc. Such piecemeal control measures are not sufficient for a business enterprise. Control of overall peormance is required to judge the total effectiveness of an organisation. Such control evaluates management's total efforts. Moreover, control of overall performance helps to overcome weaknesses of partial control measures. According to George R. Terry, "Controlling overall performance is advantageous that it encourages a manager to see the forest not simply the trees. The overall point of view is encouraged." Control of overall performance is all the more important in the case of large enterprises which have several autonomous units located in different parts of the country.
Some of the important tools of controlling overall performance are as follows: (i) Budget summaries which are a resume of all individual budgets and which
present an overall picture of the enterprise. (it) Written and comparative reports from different departments. (iii)Inter-firm comparisons. (iv) Internal audit which involves continuous examination of operations by the
managers of the enterprise. (v) Ratio analysis indicating trends in the profitability, liquidity and solvency
of business as a whole. (vi) Value analysis used to judge relationship between cost and function of any
product, material or service. (vii) Control through key result areas, e.g., market position, productivity, product leadership, executive development, etc.
28.8. RETURN ON INVESTMENT CONTROL
Profitability is an important measure of the efficiency of a business enterprise. Profit in relation to the size of investment is popularly known as return on investment (ROI). This approach has been an important part of the control system of Du Pont Company of the U.S.A. since 1919. Since its successful application in Du Pont, several companies have adopted it as the key measure of their control system.
As a control standard, ROI recognises the fundamental fact that capital is a critical factor in business and economic progress. The ROI control system can be seen from Fig. 28.2. The rate of return is calculated by dividing net profit by total investment. Under the Du Pont system, investment consists of total fixed and current assets without subtracting liabilities and reserves. The argument given is that such deduction would lead to fluctuations in operating investments because liabilities and reserves fluctuate. Such fluctuations will distort the rate of return and make it meaningless. In many companies, investment is taken after deducting depreciation on the plea that depreciation write-offs are reinvested in business.