UNIT – IV STRATEGIC MANAGEMENT
UNIT – IV
STRATEGIC MANAGEMENT
Introduction:
Strategic management
provides better guide lines to entire organization on the crucial point of
“what is it we are trying to do and to achieve”?
Strategic
management is what managers do to develop the organization’s strategies.
Strategic management involves all four of the basic, management functions –
planning, organizing, leading, and controlling. Strategic management is
important for organizations as it has a significant impact on how well an
organization performs. Strategic management is an ongoing process that
evaluates and controls the business and the industries in which the company is
involved assesses its competitors and sets goals and strategies to meet all its
existing potential competitors.
Strategy:
The
strategy is the central to understanding the strategic management. The word
strategy is originated from the Greek
word, “strategic” which means to
lead; “generalship” and which
described the role of general in the command of the army. This word is mainly drawn from armed forces.
Meaning
of Strategy
Strategy
is the determination of basic long term goals and objectives of an
organization. It is the central understanding of the strategic management
process. Strategy allocates the
necessary resources for implementing course of action. It develops the company
from its present position to the desired future position. Enterprise knows its
strengths and weaknesses compared those of its competitors.
Definition:
According
to Alfred D. Chandler defines
strategy as, "the determination of the basic long-term goals and
objectives of an enterprise and the adoption of the Courses of action and the
allocation of resources necessary for carrying out these goals."
According
to Arthur Sharplin, "strategy
is a plan or course of action which is of vital pervasive or continuing
importance to the organization as a whole."
CRITERIA
FOR EFFECTIVE STRATEGY:
Although
each strategic situation is unique, there are some common criteria that tend to
explain an effective strategy. Criteria for effective strategy include:
Clear,
decisive objectives: All efforts should be
directed towards clearly understood, decisive and attainable overall goals. All
goals need not be written Down or numerically precise but they must be
understood and be decisive.
Maintaining
the initiative:
The strategy preserves freedom of action and enhances commitment. It
sets the pace and determines the course of events rather than reaching to them.
Concentration:
The strategy concentrates superior power at the place and time likely to be
decisive. The strategy must define precisely what will make the enterprise
superior in power, best in critical dimensions in relation to its competitors.
A distinctive competency yields greater success with fewer resources.
Flexibility:
The strategy must be purposefully being built in resources, buffers and
dimensions for flexibility. Reserved capabilities, planned maneuverability and
repositioning allow one to use minimum resource while keeping competitors at a
relative disadvantage.
Coordinated
and committed leadership: The strategy should
provide responsible, committed leadership for each of its major goals. Care
should be taken in selecting the leaders in such a way that their own interest
and values match with the requirements of their roles. Commitment but not
acceptance is the basic requirement.
Surprise:
The strategy should make use of speed, secrecy and intelligence to attack
exposed or unprepared competitors at an unexpected time. Thus surprise and
correct time are important.
Security:
The organization should secure or develop resources required, securely maintain
all vital operating points for the enterprise, an effective intelligence system
to prevent the effects of surprises by the competitors.
Need for strategy:
®
To have rules to guide
the search for new opportunities both inside and outside the firm.
®
To take high quality
project decisions.
®
To have and develop internal ability to
anticipate change.
®
To develop measures to
judge whether a particular opportunity is a rare one (or) whether much better
ones are likely to develop in future.
Elements / components of
strategy:
Strategy
mainly considers four components.
Objective
(what an organization wants to achieve at end)
Goals (what
an organization wants to achieve with in a given period.)
Vision
(ways to achieve organization objectives)
Mission (fundamental existence / purpose
of an organization)
MISSION
The
mission statement is an explicit written statement of what an organization
whishes to achieve in the employees at levels to put forth their best in their
individuals and collective efforts in the organization.
Company mission:
The
mission of a company is having fundamental, unique purpose that is setting it
apart from other companies of its type and identifies the scope of its
operations in product and market terms.
Mission statement defines the
aspirations, values, roles, growth, goals, survival and profitability of a
company.
Definition:
“Mission
is the purpose (or) fundamental reason for the organization organization’s
purpose of existence. When strategies raise certain fundamental questions
related to business such as:
®
What is our business?
®
Why are we in the
business?
®
What will it be after
five years?
Then,
the need of the mission statements arises. The survival of an organization
mainly depends on its needs, for satisfying the needs of the society.
Elements of a mission
statement: A mission statement contains
following elements.
i)
purpose ii) strategic scope iii)
standards and behaviors iv) strategy and
values.
Characteristics of an
effective mission statement:A mission statement
should incorporate the basic business purpose and the reason for its existence
by rendering some valuable functions for the society. An effective mission
statement should posses the following characteristics.
Ø
It
should be clear enough to trigger action: A
clear statement mission facilities understanding among the employees. This in
turn leads to action.
Ex: NASA’s
mission in 21st century is to know more about mars.
Ø
It
should be flexible: No mission statement can
ever be rigid & hard. It should be flexible. If the company finds that the
mission is achieved (or) the present mission does not hold relevance any more,
(or) it is not economical to pursue the mission, further it is freely to modify
its mission.
Ø It should be measurable
in terms of specific targets:Organisations must
establish specific targets so that the performance can be exactly measured.
Ø It should be motivating:By
determine a clear mission statement which is easily understand by each and
every employee that means that mission statement perfectly pinpoints the what
they have to do in the organisation without getting any confusion it deals to
employee motivation.
Ø It should be precise:The
mission statement has to detail address about the organisation’s activities,
vision, goals, and objectives.
Ø
Mission
should be distinctive:A mission statement made
the distinct than the other companies.
Ø
Mission
focuses on customer needs and utilities, not products:
A mission statement
should define the broad scope of activities with in which the company will
operate competitively. It may specify the details of the range industries,
products, and their markets. However, all these must build around the customer
needs and utilities.
Ø
It
should be focus limited number of goals:The
mission statement has to priorities its preferences and put forward what it
wants to achieve in the year to come.
Mission statements of some Indian companies:
Reliance industries
– “speed and innovation is a way of life”
Hero Honda motors
– “we hero Honda constantly innovative products and processes”.
L&T
– “L&T shall be innovative and attaining global benchmarks”.
VISION
Vision
is the starting point of articulating organizations hierarchy of goals and
objectives. A vision statement is a vivid idealized of a desired outcome that
inspires, energizes and helps firm to create a mental picture of its target.
The
vision statement seeks to answer the basic question, “What do we want to
become”?
Definition:
A
company vision is sinuous with the company’s mission. This means that alternative
name for the company’s mission is vision. – Robinson.
Vision
is the art f seeing things invisible.
Examples of vision
statement:Motorola – “Total customer
satisfaction”. Mc Donald’s – “To be
world’s best quick service restaurant”. The
canon – “Beat Xerox” Disneyland
– “To be the happiest place on earth”.
Vision
statement may also contain slogan a diagram, or a picture – whatever grabs
attention.
Components of vision:
The
vision statement consists of two elements. They are as follows
Core ideology:it
means the long lasting character of a firm as it passes through the changing
circumstances like competition, technology (or) management style. Generally
core ideology resets on the core values and purposes. By values, we mean the
beliefs, business principles, and practices that are incorporated into the way
the company operates and the behavior of the organizational personnel. The typical value statement consists of –
ethics, trust, customer focus, team work.
Envisioned future:it
is consistent long term goal and description of what is would be like to
achieve that goal.
Characteristics of an
effective vision:
Strategic
vision must convey something definite about how the organisations leaders
intend to beyond where it is today. A good vision always needs to beyond a
company reach. The following are the characteristics of effective vision
statement.
Focused: Is
specific enough to provide managers with guidance in making decisions and
allocating resources.
Graphic: paints
a picture of the kind of company that management is trying to create and the
market position the company is striving to carve itself.
Directional:says
something about the company’s journey or destination and signals the kind of
business and strategic changes that will be forthcoming.
Flexible:vision
is a path it should change according to the situations.
Feasible:what
the company can reasonably expect to achieve in due time.
Desirable:appeals
to the long term interest to the shareholders, employees and customers.
Easy to communicate:it
is able to explain in short time and it is a simple memorable slogan.
Benefits of vision:
ü It
provides competitive advantage through efficiency and innovativeness.
ü It
gives direction and sense of purpose.
ü Encourage
and builds confidence- a good vision is inspiring.
ü Builds
loyalty through investment (ownership).
ü Promotes
laser like focus.
ü Alerts
stakeholders to need change.
Differences between mission and vision
|
MISSION |
VISION |
|
Mission is defined as a “purpose or
reason for the organizations existence” |
Vision is defined as a, “description of
something can organization, a corporate culture, a business, a technology, an
activity in future”. |
|
Mission is the strategic intent |
It is the first and core step in
strategic intent. |
|
Mission statements are formulated on the
basis of vision decided by entrepreneur. |
A vision is like a dream which is
derived from the actions. |
|
Mission statement an organization’s
philosophy, identity, character and images are reflected. |
Vision statement, goals, objectives,
strategies, policies and programmes can be developed. |
GOALS
The
term goal signifies general statement of direction in line with the mission. It
may be well be qualitative in nature. A company’s goal describes the desired
future position the company wants to reach. The selection of goal is based on
the defined mission of the company. Goals are the overall objectives of a
department or organization.
Definition:goal
is defined as what an organization wants to achieve during (or) by the end of a
given period of time.
Any
goal is said to be effective it should be consist of following elements:
Specificenough
for focus and feedback.
Meaningfulenough
to engage participants.
Accepted
by the participants.
Realisticbut
challenging.
Time
framed means it should be complete in given time.
Significance:
It helps to define
organization in its environment: By stating the
goals, the company can attract people who identity with these goals to work for
them. A non government organization announces its mission as ‘to empower women’
and goal as ‘to educate the tribal women about the self-employed opportunities
during next five years’.
It helps in coordinating
decisions:Goals help the managers to coordinate
resources and the efforts of the employees under their command effectively.
Goals are more tangible
targets:Goals are capable of being measured. At
times, the mission statement may look abstract one should be innovative in the
goal- setting process.
It facilitates performed
appraisal:The performance of both the organization
and the individuals in it can be evaluated by considering whether the goals
have been achieved or not.
STRATEGIC MANAGEMENT:
Introduction:Strategic management is the process of management of strategic
decision-making, implementation and control. It is not a complete meaning of
strategic management as it fails to cover many important aspects of Strategic
management.
Definition:According
to Samuel C. Certo and J. Paul Peter,
“Strategic management is a continuous, iterative, cross-functional process
aimed at keeping an organization as a whole appropriately matched to its
environment.”
Schellenberger and
Bosenan define the term strategic management as,
“the continuous process of effectively relating the organization’s objectives
and resources to the opportunities in the environment.”
STEPS IN STRATEGIC MANAGEMENT
(OR) STRATEGIC MANAGEMENT PROCESS
1. Identifying or defining business mission, purpose and
objectives: Identifying or defining
an organization’s existing mission, purpose and objectives is the logical
starting point as they lay foundation for strategic management. Every
organization has a mission, purpose and objectives, even if these elements are
not consciously designed, written and communicated. These elements relate to
organization with the society and states that it has to achieve for itself and
to the society.
2. Environmental analysis: Environmental factors-
both internal environment and external environment- are analyzed to: (1)
identify changes in the environment, (2) identify present and future threats
and opportunities, and (3) assess critically its own strengths and weaknesses.
Organizational environment encompasses all factors both inside and outside the
organization that can influence the organization positively and negatively.
Environmental factors may help in building a sustainable competitive advantage.
Managers must understand the purpose of environmental analysis and recognize
the multiple organizational environments in which they operate.
3. Revise organizational direction: A thorough analysis of organization's environment pinpoints its
strengths, weaknesses, opportunities and threats (SWOT). This can often help
management to reaffirm or revise its organizational direction.
4. Strategic alternatives and choice: Many alternative strategies are formulated based on possible
options and in the light of organizational analysis and environmental
appraisal. Alternative strategies will be ranked based on SWOT analysis. The
best strategy out of the alternatives will be chosen. The steps from
identification of business mission, purpose and objectives of alternative
strategies and choice can be grouped into the broad step of strategy
formulation.
5. Strategy Implementation: The fifth step of strategic management process is the implementation
of strategy. The logically developed strategy is to be put into action. The
organization cannot reap the benefits of strategic management, unless the
strategy is effectively implemented. The managers should have clear vision and
idea about the competitor's strategy, organization's culture, handling change,
skills of the managers-in-charge of implementation and the like. The progress
from the stage of identification of business mission, purpose and objectives to
the stage of achieving desired performance must overcome many obstacles.
6. Strategic Evaluation and Control: The final step of strategic management process is strategic
evaluation and control. It focuses on monitoring and evaluating the strategic
management process in order to improve it and ensure that it functions
properly. The managers must understand the process of strategic control and the
role of strategic audit to perform the task of control successfully.
BENEFITS
OF STRATEGIC MANAGEMENT
Several corporations & institutions
have been using strategic management. Organizations reap several benefits from
effective strategic management. The benefits of strategic include:
v Strategic
management helps an organization to be proactive rather than reactive in
shaping its future.
v It
helps the organization not only to respond to its relevant environment, but
also to initiate and influence its environment and thereby exert control over
its density.
v It
helps organizations to make effective strategies trough the use of a more
systematic, logic and rational approach to strategic choice.
v It
helps the organizations to achieve understanding & commitment from all
managers & employers. Managers & employers become creative &
innovative when they understand & commit to the company's strategic
management. This process results in employee empowerment. Empowerment is the
act of strengthening an individual's sense of effectiveness.
v It
encourages the organizations to decentralize the management process involving
lower level managers and employees.
CORPORATE PLANNING
The
corporate plans provide a rational approach to achieve corporate goals. Through
corporate planning, uncertain events can be turned to relatively less
uncertain, less certain events to more certain. Corporate planning is an
intellectually demanding process; it sets the background for a viable course of
action based on the organizational goals, skills and resources.
DEFINITION:Corporate
planning can be defined as the process of formulating the corporate mission,
scanning the business environment, evolving strategies, creating necessary
infrastructure, and assigning resources to achieve the given mission.
Corporate
planning has a company-wide and comprehensive perspective. It is not just a
long term planning where, usually, there is a selective focus like that on a
department of the organization. Strategic
planning, if done for the entire organization, can also be called corporate
planning.
ELEMENTS OF CORPORATE
PLANNING PROCESS
The vital components of the corporate
planning process. The elements of the corporate planning process can be
described as below:
(a)
Identifying corporate mission
(b)
Formulating strategic objectives
(c)
Appraising internal and external
environment
(d)
Developing and evaluating alternative
strategies
(e)
Selecting the best strategy
(f)
Establish strategic business units
(g)
Fix targets and allot resources to
each SBU
(h)
Developing operating plans
(i)
Monitoring the performance
(j)
Revising the plans, where necessary.
a)
Identify corporate mission: Identify what the organization wants to be
achieve, to start with. For this purpose, it is necessary that all concerned
parties understand the overall purpose of the organization and the methods of
attaining them. It is also desirable that they agree on the corporate policies
of the organization.
b) Formulate strategic objectives: By preparing statements of mission, policy,
strategy, and goals, the top management establishes the frame work with in
which its divisions or departments prepare their plans. It is essential that
the members of the organization agree on these given strategic objectives. The
goals should be very specific in terms of profits, market share, and employee
retention and soon. The strategic objectives thus formulated reinforce the
commitment of the members of the organization to achieve corporate goals.
c) Appraise internal and external environment: To evolve alternative strategies to achieve
these goals, a detailed appraisal of both the internal and external environment
is carried out. The appraisal of internal environment reveals the strengths and
weaknesses of the firm. The appraisal of the external environment reveals the
opportunities and threats for the firm. An analysis of strengths, weaknesses,
opportunities, and threats, popularly called SWOT analysis, is an essential
exercise every firm has to carry out to evolve an appropriate strategy to achieve
the given goal.
d)Develop and evaluate alternative strategies: There could be some alternative strategies to
pursue a given goal. If the goal is to expand the business, the following could
be the three alternatives:
· Adding new products to the existing product
line
· Finding new markets, apart from the present
market territories
· Manufacturing within the organization, the
components, which were earlier procured from outside?
Similarly, if the
goal is to attain stability, the alternative strategies could be maintaining
the following:
· The existing range of products
· The existing markets
· The functions presently being carried out
To
arrive at a feasible strategy, it is necessary to identify the possible
alternative strategies.
e) Select
the best strategy: For the
firm to be more successful, it is necessary to focus its strategies around its
strengths and opportunities. It is a prerequisite that the members of the team
or organization agree on a strategic plan. Such a plan, which has been generally
agreed upon, is normally considered as the best strategy. Such strategies
ensure a better degree of participation and involvement of its members in the
process of achieving the goals.
f) Establish
strategic business units: It is
more strategic to define a business unit in terms of customer groups, needs,
and/or technology and set up the business unit accordingly. This is not
followed many a time. Most of the companies define their businesses in terms of
products. For instance, if a company defines its business as electronic
typewriting machines, it may have to change such a product-based definition
when the technology changes. In due course, when the technology changes, the
company may prefer to switch over to personal computers. A business must be viewed
as a customer-satisfying process, not as a goods-producing process.
g) Fix
targets and allot resources to each SBU: The purpose of identifying the company’s strategic business units
is to develop separate strategies and assign appropriate funding. The top
management knows that its portfolio has certain old, established, relatively
new, and brand new products.It cannot rely just on opinions; it needs to
classify its businesses by profit potential by using analytical tools.
The major factors indicating market attraction are: overall market
size, rate of annual increase in the market size, profit margin, and degree of
competition, technological standards, rate of inflation, energy needs, impact
on environmental issues, and others. These factors affect the decision-making
at the macro level. Management should visualize what each SBU should become in
the next 3 to 5 years, given the current strategy. In this process, it is
necessary to identify the specific stage for each of its products and services
in their product life cycle and analyze this in relation to the competitor
strategies, new technologies, economic events, and the like.
The
management also has to critically evaluate, from time to time, their
portfolio-the list of products and services they have to offer through each
SBU.Resources should be allocated based on market growth rate and relative
market share of each SBU. Here,
resources mean executive talent, money, and time. The resources have to be
assigned in line with the strategy. If the strategy is to expand, then the
resources should be adequate enough to reinforce the strategy. Where the
resources are not adequate, they fail to give the necessary force to the
strategy and the strategy remains a tiger on paper.
h) Developing operation plan: The operating plans explain how the long-term
goals of the organization can be met. The corporate plans reveal how much the
projected sales and revenues are. Most often, the management would like to have
performed better than these projections. Where the top management finds a
significant gap between the targeted sales and actual sales, it can either
develop the existing business or acquire a new one to fill the gap.
i) Monitor performance: The results of the operating plans should be
well monitored from time to time. In the case of poor or low performance, check
up with the members of the team to find out their practical problems and sort
these out. Also, it is essential to verify whether there are any gaps in
formulating the operating plans.
j) Revise the operating plans, where necessary: It is necessary to revise the operational
plans particularly when the firm does not perform as well as expected. The
operating plans can be revised in terms of focus, resources, or time frame. In case
of any organizational bottlenecks, suitable changes can be initiated to the
organization structure itself. This would ensure adequate authority or freedom
for the members of the team and enable them to achieve the targets.
ENVIRONMENTAL SCANNING:
The process of environmental scanning has been far from being
systematic except with regard to information relating to current developments.
Environmental scanning requires information relating to current developments.
Environmental scanning is also called as “environmental
analysis”.
Definition:
“Environmental scanning is the process
by which strategies monitor the environmental factors to determine
opportunities for and threats to their firms. Environmental diagnosis consists
of managerial decisions made by assessing the significance of the data of the
environmental decisions made by assessing the significance of the data of the
environmental analysis”.
“Environmental scanning is the process
of monitoring the organizational environment to identify both present and
future threats and opportunities that may influence the firm’s ability to reach
its goals.
Key Sources of Information for Environmental Scanning:Once strategists have selected key environmental variables, the
next step is to select key sources of environmental information for scanning.
The sources of information include:
·
The economic
and business daily newspapers like The Economic Times, Business Standard,
Business Line, and Financial Express.
·
Journals and
periodicals like Business India, Business World, Business Today, Update,
Fortune India. Annual reports of various companies, publications of
professional organizational like Federation of Indian Chamber of Commerce and
Industry.
·
Government
publications like Economic Survey, Guidelines to India Bulletins, ICICI
Portfolio Studies, Business Intelligence and Data, The State of Nation Report,
Quarterly Survey of Industries, Indian Trade Journal, Yojana etc.
PROCESS OF
ENVIRONMENTAL SCANNING:
Why Environmental scanning:
The following examples
summarize the purpose of environmental scanning.
i) The
banks and business enterprises in the public sector are being disinvested by
the government.
ii) Computers have wiped out the market for type writers and electronic type writer
Environmental
analysis:
It refers to the process of analyzing the environment
component-wise or sector wise to provide a basis for further diagnosis. It
inter-relates the formation of objectives, generation of alternative
strategies, and other related issues.
Environmental
Diagnosis:
It comprises the managerial decisions based on the perceived
opportunities and threats of the firm. In effect, it helps to determine the
nature of the implementing task, to take advantage of opportunity or
effectively manage a threat. The environmental diagnosis is performed by
completing the both internal and external environments.
ü External
environmental analysis:
The external environment has a
profound effect on the business operations irrespective of the nature of the
business. The business has to monitor the key forces both in the micro and
macro environment. the forces in the micro environment may be customers,
competitors, and others. The forces in the macro environment may be
demographic, economic, technological, socio-cultural and political. All these
factors affect the business both in short run and long run. These factors can
be grouped in to three parts of the environment.
- General
environment
- Industry
environment
- International
environment
General
(National) Environment:The purpose
of general (national) environmental analysis is to predict the state of the
future, which will shape the organization’s environment. The predict serves three important purposes.
(a) It enables the firm to
review and revise (if necessary) the mission and objectives concerning how it
wishes to interact with future events.
(b) It identifies the
fundamental requirements for success in future.
(c) It permits the firm to formulate
strategy to accomplish the goals within the constraints of the fundamental
requirements for success.
The national environment
consists of,
i)
Economic Environment: Economic environment refers to all those economic factors which
have a bearing on the functioning of a business. Economic environment and
business are mutually interdependent. In fact, the dependence of the business
on the economic environment is more. The important economic factors that
constitute the economic environment are; Growth strategy, Economic system,
Economic planning, Industry, Agriculture, Infrastructure, Population, Per
capita and national income.
ii)
Political Environment:The political system prevailing in a country dictates policies and
controls of business. The democratic political system promotes and encourages
business while the authoritarian political system controls the business very
much. A stable, honest, and efficient political system is a primary and
essential factor for economic development in general and business growth in
particular.
iii)
Technological environment:This affects the flow and development of alternative raw
materials, the life cycles of products and services.
iv)
Socio-cultural environment:These factor the economy society, and the business climate.
Role of the
strategist:
The job of the strategist
starts with the diagnosis of the data analysed. The quality of diagnosis
depends upon the following factors.
- The
personal capabilities and
business insights of the strategies(such as his experience, motivation,
ability to lead groups, perception of opportunities and threats.)
- Functional
resources of the strategist (such as resource constraint and degree
of freedom)
- Working environment
(which include pressure for achievement of results)
ü
Industry environment:
It is an important component
of the overall environmental analysis. Industry refers to group of firms
carrying on similar activity. It has three sectors: customers, competitors,
suppliers.
Customers:It is necessary to identify the profile of buyers, in terms of
their needs and preferences based on the basic demographic factors such as age,
income, size of the households and consumption patterns.
Suppliers:Strategist also must determine the availability and cost of supply
conditions including raw materials, energy, prevailing technology, money, and
labour. The suppliers can influence the firm and its strategy particularly the
firm is outsourcing. Its logistic requirement.
Competition:The exit or entry of competitors, the emerging substitutes, and
major strategic changes by competitors are some of the important factors to be
analyzed and diagnosed.
ü
International Environment:internal analysis and diagnosis is a process of analyzing and
diagnosing the firm’s internal strengths and weaknesses. By identifying
strength and weaknesses, the firm can strategically exploit the available
opportunities, overcome threats and correct weaknesses placing itself at a
competitive advantage
Conducting internal analysis and diagnosing:To conduct internal analysis and diagnosis, identify first the
internal strengths and weaknesses. The internal strengths and weaknesses may
include the following: Marketing factors, research and development, engineering
design and development, production management, managerial personnel, accounting
and financial policies and procedures. By analyzing the each element the
strategist able to develop functional area profile
For
instance, the profile of research and development listed below:
§
Financial resources – budget
to conduct basic research, to develop new products and processes, improve
existing processes, and so on.
§
Infrastructural facilities –in
terms of state – of – the – art technologies.
§
Human resources – hoe many scientist and
engineers are required, presently available, turn over of key personnel.
§
Organizational systems – systems
to monitor technological developments from time to time.
§
Technological capabilities – how
capable the firm is in terms of number of patents, new products, sales
contribution from new products, so on.
Evaluation:In this step the firm by
considering the different factors of each functional areas, to know the
strengths & weaknesses of the entire functional areas of the firm, it tries
to find out the answers for following questions:(i)
what does the firm do well? (ii) Do
these competencies count?
(iii) What are the areas of the
poor performance? (iv) Do these
areas really matter?
The ultimate result of such a
detailed internal analysis is to build a strategic advantage profile. The
strategic advantage profile is a tool used to evaluate systematically the
enterprise’s internal factors. The competitive strengths and weaknesses for
each internal area such as marketing, R&D, and others have been identified
as follows:
|
Internal area |
Competitive strength or weaknesses |
|
Marketing |
+ product line is extensive + service is excellent -channels of distribution
are weak. |
|
Research and development |
+ 4 patents, -2 scientists
left, |
|
Finance |
+ internally generated
resources |
|
Operations |
+ Plenty of raw materials, -outdated
machinery. |
|
Corporate resources |
0 the company is just three
years old, + the size of the company is
more than average, -poor union and management
relations. |
(+) indicates strengths, (-) indicates weaknesses, (0) indicates neutral.
Strategic advantage profile
With this advantage profile the internal analysis is completed and
the firm knows what are its strengths and weaknesses, opportunities and
threats.
Finally by knowing the SWOT of the firm the environmental analysis
is completed based on that the firm can prepare required strategies to grab the
opportunities and to overcome the weaknesses
SWOT ANALYSIS:
Introduction: Organizational analysis requires data and information about the
internal environment. SWOT analysis refines this information by applying a
general framework for understanding and managing the environment under which a
company operates. SWOT analysis was developed in the middle of the 1960’s.
SWOT analysis strands for strengths, weaknesses, opportunities,
and threats.
Definition:
SWOT analysis
is defined as the rational and overall evaluation of a company’s strengths,
weaknesses, opportunities, and threats which are likely to affect the strategic
choices significantly.
Internal environment
(strengths & weaknesses):
The
internal environment of the organisation will cover the organizational position
with respect to different functional areas like production, finance, marketing,
R&D etc. it is necessary to analyze own strengths and weaknesses. It mainly
concentrates on the organizational sales volume, market share, profitability
and employee competencies.
Strength:strengths
are the internal capabilities of the organization when compared to the
competitors in the market. The strength of an organization provides competitive
advantages such as good customer service, high quality product, etc.
Weakness: weaknessis
the limitation, faults, defects in the organization that will keep it from
achieving its objectives. The weakness may due to the financial resource,
technical knowledge, etc.
External
environment (opportunity and threat):
The
external environment will do necessary scanning of the business environment to
identify any threat and opportunities posed on the company, its products or
services. More especially this will include the industry performance,
competitive activities and a review of the growth and decline of the user industry.
Opportunities:opportunities
are those favorable conditions in a firm’s environment which help the firm
strengths its position. These are the external factors and forces in the
business environment that provide scope for the organization to grow and
increase its market share and profitability.
Threats: threat is the any
unfavorable situation in the organization environment that may directly damage
the organization’s strategy. The threat may be problem or constraints anything
may cause problem to the organization. These are the factors that can hide the
organization to achieve its goals.
Based
on the degree of threat and its
impact on business, the business can be of the following four types:
Ideal business: a
business is said to be the ideal one when it has a large number of major
opportunities and a minimal number of major threats.
Speculative business: a
business is said to be speculative one when it has a large number of both
opportunities and threats of major magnitude.
Mature business: a
business is said to be mature one when it has a lower number of opportunities
and threats of major magnitude.
Troubled business: a
business is said to be troubled one when it has a lower number of opportunities
and a high number of threats.
Significance:
SWOT analysis
provides four alternative strategies to deal with the factors in the external
and the internal environment. They are:
The threat- weakness (TW)
strategy: this attempt to minimize the both
weaknesses and threats. As a part of this strategy, the firm may have to add
new product base or the range of services by taking over the competitors
business. The government of India has been disinvesting from most of the public
sector units in recent years through this strategy. It is able to minimize its
threats & weaknesses of public sector are minimized.
The opportunity –
weaknesses (OW) strategy: here, the weaknesses are
minimized while the opportunities are minimized. As a part of this strategy,
the firm can overcome its weaknesses by developing necessary competencies among
the workforce by investing moderately in the latest technology, and thus
offering products of the best quality to its customers.
The strength – threat
(ST) strategy: the strategy enables the firm to
address the threats through its strengths. The focus is to maximize the
strengths and minimize the weaknesses. In this strategy the firm can seek long
term and low invest loans to minimize the cost of its operations.
The strength –
opportunity (SO) strategy: in this strategy the firm
considers expanding in to new markets with the existing products and services.
This is the most preferred strategy. Here, the firm can take advantage of the
available opportunities through its present strengths.
STRATEGY
FORMULATION AND IMPLEMENTATION:
After preparation of the strategy then we take the steps for its
implementation both actions are plays a crucial role to get the results of the
strategy.
Strategy
formulation:Strategy formulation is the process through which
management develops an organisation’s strategic mission, derives specific
objectives to implement.
Strategy
implementation:Strategy implementation and execution means that
translating a decision in to action is essentially an administrative task.
The strategy
formulation and implementation includes the following stages:
Identification
of mission and objectives:
For formulating a strategy first the
company has to clearly analyse its mission statement and what are its
objectives according to that it frames a strategy.
Environmental
scanning:
After
analyzing the mission statement the strategist has to analyse the environment
of the company. For doing this activity he has to know about in which type of
environmental situations present the firm is operates its business activities,
what are the various factors like international, industrial, general environmental
factors influences the environment of the firm. By this analysis he knows the
SWOT of the organization.
Generic
strategy alternatives:
Generic
strategy alternatives refer to the strategy alternatives in broader terms.
After the nature of business of the firm is defined, the next task is focus on
the type of strategic alternative, in general, the firm should pursue. The
strategist seeks to identify the right alternative through questions such as:
§ Should
we get out of this business entirely?
§ Should
we try to expand?
For
any firm mainly four generic strategic alternatives are available thy are: i) to expand, ii)
to wind up or retrench, iii) to
stabilize, iv) to combine its
operations pertaining to is products, markets, or functions.
Considering
strategy variations:
Strategy
variation is a global phenomenon. When the firm finds that it is not possible
to fill up a gap in the market with the existing strategy, it may consider a
change in the focus of the strategy. There can be a no. of variations of the
generic strategy alternatives. For instance, if strategy is to expand, then the
alternatives are internal expansion or external expansion. Internal expansion
can be achieved through any of the following approaches:
§ Penetrate
existing markets
§ Add
new markets
§ Add
new products, and so on.
Similarly,
the external expansion can be achieved through mergers or acquisitions, if the
firm is to attain stability, then the alternatives could be internal or
external stability.
Selection
of best alternative:
The
best alternative is the one that can improve the performance. The selection of
the right alternative is depend upon the
§ Particular
configuration of the objectives
§ Environmental
threat and opportunity
§ Strategic
advantage profile
§ The
generic strategy itself.
Strategic
Choice:
Here the exact strategy is chosen.
Strategic choice involves the decision to select from among the alternatives;
the best strategy which effectively contributes to the business objectives. The
spade work to be undertaken before making a strategic choice consists of
§
Identifying the few viable alternative
course of action
§
Considering the parameters for selection
of best alternative
§
Evaluating each alternative on its own
merits and in relation to other alternative
§
Making the final choice
§
Keeping the next best alternative as stand by
The following are the questions in terms
of which environmental and internal conditions are analyzed:
· What
are the main business objectives?
· Does
the selected strategy contribute to these objectives?
· What is
the business definition – is it product based, market based, or function-
based?
· Will it
be achieved in the future?
These questions help us to examine the
performance gap between the expected and the ideal outcomes in relation to the
alternatives under consideration.
®
If the gap is negligible or narrow stability strategy
is best. Stability strategy focuses on “doing in the best way what we do”
®
If the gap is large or significant, the alternatives
are either to expand or with draw from the under related areas.
In this way different factors influences
the decision maker by analyzing the all these questions and choices he has to
take one best alternative course of action.
Allocation of resources
and development of organizational structure:
The
process of strategy implementation calls for an integrated set of choices and
activities. These include allocating resources, organizing, assigning appropriate
authority to the key managers, setting policies and developing procedures.
A
good strategy with effective implementation has a higher probability of
success. The resource allocation decisions such as, which department is
sanctioned how much amount of money and resources, in the name of budget, and
so on. Set the operative strategy of the firm.
Formulation
of policies, plans, programmes and administration:
The
resources allocated are said to be well utilized only when they are well
monitored. For this purpose it is essential
§ To
develop policies and plans
§ To
assign or reassign leaders task and decisions to support the chosen
strategy.
§ To
provide a conductive environment in the organization through proper
administration to achieve the given objectives.
The
implementation of plans and policies is designed in accordance with the
strategy chosen. The firm creates plans and policies to guide the managerial
performance, and these make the chosen strategies work.
The
implementation of the strategy becomes easy when the organization
·
Plan for career
development of its personnel at all levels
·
Applies organizational
development concepts in its normal functioning
·
Ensure that the
strategist is capable, experienced, and versatile enough to match the strategy
demands.
Evaluation
and control:
It
is the last phase in the strategic management process. It is at this high stage
that the success of the programmes can be assessed. There should be a built-in
mechanism to examine the deviations and initiate corrections as and when
required. This assures that the chosen strategies will be implemented properly.
Timely measurement of performance and the effectiveness of the implementation
of the strategy.
GENERIC
STRATEGIC ALTERNATIVES:
Generic strategy alternatives refer to the strategy alternatives in broader terms. The alternative helps to the firm to take right step for their improvement. Selection of the proper suitable alternative brings profits to the organization. The generic strategy alternat
.
 |
n Expansion strategy:
It can be adopted in the case of highly
competitive and volatile industries, particularly, if they are in the
introduction stage of product / service life cycle. Expansion strategy is of
following types.
Internal
Growth:Internal growth is a achieved through
increasing the firms production capacity, employees and sales. Some firms
prefer this strategy to the strategy of external growth as internal growth
preserves their efficiency, quality and image unlike in external growth.
Concentration
Strategies:Firms pursue concentration strategies
to grow while remaining relatively simple. The efforts of the firm are
concentrated on a limited combination of customer groups, customer functions,
alternative technologies and products.
Horizontal
Integration:Many companies expand by creating
other firms in their same line of business. The reasons for engaging in this
process of horizontal integration are:
- To increase the market share
- To reduce the cost of operation per
unit of business through the large scale economies
- To get greater leverage to deal with
the customers and suppliers
- To promote the products and services
more efficiently to audience
conglomerate
diversification:Horizontal integration strategy aims
at related diversification. In other words, diversification occurs, when the
existing firm creates another business unit in the same industry. But, firms
may also expand through unrelated or conglomerate diversification.
In other words, firms create new business
units that are unrelated to its original business. Example: Gujarat Gas ltd..,
created another business unit i.e Gujarat finance company ltd.
Vertical
Integration:Another growth strategy is vertical
integration, in which new products and services. Which are complimentary to the
existing product or service lines are added. Vertical integration is
characterized by the extension of the company’s business definition in three
possible directions from the existing business viz.;Backward Integration, Forward Integration, Both backward and Forward Integration.
Backward
vertical integration: Backward vertical
integration occurs when the firms acquire or create the company that supplies
the firm the raw materials or components and other inputs.
Forward
vertical integration:Forward vertical
integration occurs when the firm acquire or create the company that purchases
it products and services.
n Retrenchment strategies:
It is the obvious choice when the firm is
not doing well in terms of sales and revenue and finds greater returns
elsewhere, or the products / services is in the finishing stage of the product
life cycle. Retrenchment strategies are following types:
Turnaround
strategy:Improving internal efficiency can be done
by adopting turnaround strategy. The main aim of turnaround strategy is to
transform the organization into a learner and more effective business.
Indicators
of Turnaround strategy: Adoption of turnaround
strategy is necessarily during the adverse conditions of the firm. Especially
the indicators include:
- Incurring losses continuously.
- Declining demand for product and
services.
- Increasing cash outflows and
declining cash inflows.
- Declining sales and market share.
Captive
company strategy: In this captive market stage the firm
acts as learner it learns things from the surrounding environment like a newly
established firm.
n Combination strategy:
Combination strategy is the best strategy
when the firm finds that its product wise performance is not even, or all its
products differ in their future potential. These are following types:
Merger
strategy:Many
firms prefer to grow through mergers. Combination of two or more firms is known
as a merger. When the firms of similar objectives and similar strategies
combine into one firm, such combinations are called as “mergers”.
A
merger is a combination of two or more businesses in which one acquires the
assets and liabilities of the other in exchange for stock or cash or both.
Companies are dissolved and assets and liabilities are combined and new stock
issued. Mergers can take place within
one nation or across nations.
Types
of Mergers:Mergers can be classified in to the following types:
Horizontal
Merger:Horizontal
mergers are a combinations of firms engaged in the same business.
Vertical
Mergers:Vertical
mergers are combination of different firms engaged in activities complimentary
to each other like supply of raw material, production of goods and marketing.
For example,
combination of a firm engaged in mining of iron ore, and iron and steel
company.
Concentric
Mergers:Concentric
mergers are combination of a firms related to each other in terms of customer
groups or customer functions or alternative technologies. For example, combination
of firms producing televisions, washing machines, and kitchen appliances.
Conglomerate
Mergers:These
are the combination of firms unrelated to each other in terms of customer
groups, customer functions, and alternative technologies. For example, combination
of publishing company and an automobile company.
Takeovers
or Acquisitions Strategy:Sometimes firms want to grow through the
strategy of takeover or acquisition. Takeover is defined as, “the attempt of
the firm to acquire ownership or control over another firm against the wishes
of the latter’s management”.
But
in practice, takeovers can be hostile or friendly. Takeover strategy is
currently the most popular strategy in India, particularly after the economic
liberalization.
Joint
Ventures:Joint
ventures are partnerships in which two or more firms carryout a specific
project or corporate in a selected area of business. Joint ventures can be
temporarily, disbanding after the project is finished. Even a successful joint
venture may not last forever. Not does the collapse for specific and time-bound
objectives which, once achieved leave little reason for the alliance to be
continued.
PROJECT MANAGEMENT
Introduction:
This
project management is extremely interesting and important for two reasons. One,
it is so simple that it can be applied in our day-to-day life to plan our
schedules, review our plans, monitor the progress, and control the performance.
Project managers of construction works or software assignments, for instance,
these techniques immensely useful.
CONCEPT OF PROJECT
MANAGEMENT:
Project:A
project can be defined as collection of inter – related tasks (or) activities
which must be completed in a specified time according to a specified order on
sequence and requires resources such as money, material, man- power,
facilities, space etc. (or)A project
is defined as a set of activities with a specific goal occupying a specific
period of time.
Ex: it
may be small / big project like construction of college building, lying of a
road.
Characteristics of a
project:
Project
is a one- time effort non- repetitive in nature.
It
has a definite start and definite end point.
Concept of project:
A project is an
investment made on a package of inter-related time – bound activities. Every
product has two phases. i)Preparation & construction
ii)Its
operation.
PROJECT
CYCLE:
A project cycle passes
through a life cycle that may vary with the size and complexity of the project.
Typically a project will pass through the following phases.
v The concept phase:
In this the organization
realizes that a project may be needed for he organization is requested to
propose a plan to perform a project for some customers.
v Initial planning /
feasibility phase:
In this phase, the project manager plans the project to a level of detail, sufficient for initiate scheduling
v Organization phase:
The detailed project
definition such as the work breakdown structure (WBS) is examined. A WBS is a
document similar to the bill of material and divides the total work in to major
packages to be accomplished.
v Execution phase:
In this phase the various
activities planned are completed as per the schedule, utilizing the allotted
resources.
v Termination:
The project is terminated
(or) disbanded after completion. The personnel who were working in the project
are assigned back to their regular jobs (or) to other jobs in the organization
(or) to other project in this phase.
PROJECT
CYCLE
In addition to these phases we must
considered three elements they are as follows:
®
Operatio
Operations are the activities (or) job,
which must be performed to meet the project objectives.
®
Resources:
It can be classified under man power,
methods, material, machine and time. Time and cost estimates are associated
with the methods of performance.
®
Restraints:
It refers to the externally imposed conditions
(or) restraints, like supply of materials, machines, and designs by outside
agencies.
Project
Management:
Def:Project
management can be defined as successful completion of project on time with in
the budgeted cost as per the technical specifications to satisfy the end –
users.
Project management is the organizing and managing of resource in such a
way that these resources deliver all the work required to complete a project
with in defined scope, time and cost constraints.
Project management has certain major administrative issues such as:
§
Executive
responsibilities
§
Project selection.
§
Project manager
selection.
§
Organizational structure.
§
Manage with in functional
unit.
§
Assign a coordinator.
§
Use a matrix organization
with a project leader.
Key
Success Factors of Project Management:
®
Top – down commitment.
®
Having a capable project
manager.
®
Having time to plan.
®
Good communications.
NETWORK ANALYSIS
Network:It
is a graphical representation of projects operations from starting to
completion. it is composed of activities. (Or)
This is the combination of activities, dummy activities, and events in a
logical sequence, according to the rules for drawing networks.
Network analysis:
Network
analysis refers to number of techniques for the planning and control of complex
projects. “The basis of network planning is the representation of sequential
relationship between activities by means of a network of lines and circles”.
® The
idea is to link the various activities in such a way that the overall time
spent on the project is kept to a minimum.
®
Network analysis (or)
network scheduling is a technique used for planning and scheduling large
projects in the fields of construction, maintenance, fabrication, purchase,
computer system installation, research and development designs etc.,
® Network
analysis helps in designing, planning, coordinating, controlling and decision
making in order to accomplish the project economically in the minimum available
time with the limited available resources.
Objectives of Network Analysis:
·
Develops powerful
coordinating tool for planning, scheduling, & controlling of projects.
·
Effective utilization of
resources.
·
Minimization of idle
resources.
·
Minimization of
production delays.
·
Provides a comprehensive
idea of the project.
Applications of network
analysis:
ü The
construction of buildings, bridges, factories, highways, stadiums, irrigation
projects etc.
ü Budget
and auditing procedures.
ü Installation
of large computers and machinery.
ü Advertisement
programmes and for launching a new product.
ü Research
and development
ü Preparing
inventory plans.
ü Organization
of big public work, conferences etc.,
Advantages of network
analysis:
They
provide a logical picture of the layout & sequence of a complex project.
They
help to identify the activities and events which are critical to the entire
project.
They
provide a basis for working out times, cost and resources involved in the
project.
Terminology
/ terms used in network analysis:
Activity: An
activity is a task / job of work, which takes time and resources for
accomplishment.
Ex:providing electrical
connections, digging of land etc. It is represented by
The head of the arrow indicates where the task ends. And the tail of
the arrow indicates where the task begins.
The activities are mainly
following types they are as follows:
·
Predecessor
activity: An activity that must be occur / completed
immediately before anther activity can began is called Predecessor activity.
·
Successor activity:An
activity that must be occur / required to be performed after the performance of
another activity is called successor activity.
Ex: A B C
A – is the predecessor
activity of the B; C is the successor activity of the B.
·
Dummy
activity:An activity that consumes no time (zero
time duration) but shows predence between events. These activities don’t
consume time or resources.
(OR)
In network analysis when two / more
activities in a project have the same head and tail events, dummy activity is
introduced. The head events (or) tail events are joined by dotted line arrow
and this is known as “dummy activity”.It
is represented by dotted arrow
Use
of dummy activity:
®
Maintain an undue
numbering system for different activities.
®
Keep the logical sequence
of activities and their inter- relationship correct.
Event:
An event is a point in time during a
project that signifies the starting or completion of an activity. Activity
starting and finishing points are events. Event consumes neither nor resources.
It is represented by circle in the network. ‘Event’
Predecessor Event: The
event that occurs before another event is predecessor event to that event.
Successor
Event: The event that follows another event is
called successor event to that event.
Event
i Event j
EE LE EE LE
Predecessor
event
Successor event
EE =
Earliest time of the event.
LE = Latest time of the event.
Critical
Activity: A critical activity is an activity that if
delayed, affects the completion of entire project. An activity o critical path
will be critical activity. An activity for total float is zero is a critical
activity.
Critical
path: the
longest time path through a network is called the critical path. It is the
longest path in the network which consumes maximum resources and maximum time.
It is denoted by heavy (double) line.
Activity
duration: In CPM, this means the best estimate of
the time to complete an activity. In PERT, the expected time (or) average time
(or) average to complete an activity.
Float
(or) Slack: The amount of time for that an
activity (or) group of activities can slip without causing a delay in the
completion of the project. It is also known as “float”. It is used in PERT. Float is the difference between time
available for completing an activity and the time necessary to complete the
same. (or)
Float
/ Slack mean spare time or a margin of extra time over and above its duration
which a non critical activity can consume without delaying the project.
There
are three types of floats:
®
|
®
|
®
|
Note:
If float and slack values
are negative (-) at any activity that value taken as zero “0”.
Network
analysis techniques:
As a tool for project
management planning and control the network based methods are used.
CPM
– Critical Path Model.
PERT
– Project / Programme Evaluation and Review Technique.
CPM
– CRITICAL PATH MODEL:
The E.I du Pont de Nemours Company
(USA) in the year 1958 while working on a chemical plant employed a technique
called CPM to schedule and control the project and experienced a good amount of
saving.
CPM is an activity oriented
approach. In CPM only one time estimate is used. It is easy to use and
maintain. CPM is employed in projects where overall costs are of primary
importance. The critical path analysis is an important tool in production
planning and scheduling. This is suitable for the construction of civil and
mechanical projects and for how best to reduce the time required to perform
routine production, maintenance and construction and minimize the direct and
indirect expenses.
CPM is suitable for application
like construction, maintenance, civil projects (bridges, dams, buildings, power
plants) etc.
CPM method applicable to both
small and large projects. CPM is a technique, used for planning and controlling
of logical sequence of operations for accomplishment of a project.
Objectives
of CPM:
To
find difficulties and obstacles in the course of production process.
To
assign time for each operation.
To
ascertain starting and finishing time of the work.
To
find the critical path and the minimum duration time for the project as a
whole.
In
some situations CPM is effectively
used they are as follows:
®
In production planning.
®
Location of and delivery
from a warehouse.
®
Road systems and traffic
schedules.
®
Communication network.
Advantages of CPM:
The
application of CPM leads to the following advantages:
*
It provides an analytical
approach to the achievement of project objectives, which are defined clearly.
*
It identifies most
critical elements and pays more attention to these activities.
*
It assists in avoiding
waste of time, energy and money on unimportant activities.
*
It provides a standard
method for communicating project plans, schedules and cost.
PROGRAMME EVALUATION AND
REVIEW TECHNIQUE (PERT):
PERT was first introduced in 1957 it
was developed by U.S Navy department. PERT is a technique used for scheduling
and controlling the projects. PERT is a time –event network analysis technique
designed to watch to how the parts of a programme fit together during the
passage of time and events.
PERT is a tool to evaluate a given
programme and review the progress made in time to time. It is commonly employed
for conducting the initial review of a project. PERT anticipates potential
areas of problem which may disturb program objectives. Because timely action
can be taken to prevent their occurrence.
PERT is mainly concerns
with events and it is thus event oriented system. In PERT time estimates are
used calculate expected activity time. Because of uncertainty in activity
timings, PERT considered as probabilistic model. Dummy activities are required
in PERT.
Time
estimates of PERT: In
PERT three time estimates are used to calculate they are as follows:
· Optimistic time (to): the
time for completing an activity if all goes well / under ideal conditions used
in PERT.
·
Pessimistic
time (tp): It is the time which an activity will
take to complete if every thing goes wrong, used in PERT.
·
Most
likely time (tm): The time taken for
completing an activity,under normal conditions. This is the consensus best
estimate, PERT. It lies between the optimistic time and pessimistic time.
· Expected time (Te): Expected
time or average time (Te) for an activity to calculate by combining
statistically all the three time estimates to, tp, and tm.
Formula:
·
Variance:It
is a measure of the dispersion. Larger the variance, greater will be the
uncertainty.
 |
Formula:
Applications
of PERT:
®
Research and development.
®
Marketing programmes and
advertising programmes.
®
Defense projects.
®
Installation of
machinery.
®
Construction programmes.
®
Instituting inventory
control.
Advantages
of PERT:
It
forces managers and subordinate managers to make a plan for production because
time event analysis is quite impossible without planning and seeing how the
piece fit together.
PERT encourages management control by
exception. It concentrates attention on critical elements that may need
correction.
It provides graphic display of activities and
identifies critical activities and slack activities.
It
enables forward-working control as a delay will affect the succeeding events
and possibly the whole project. The production manger can somehow make up the
time by shortening that of some other event.
The
network system with its sub-systems creates a pressure for action at the right
spot and level and at the time.
PERT can be effectively used for rescheduling
the activities.
Limitations of PERT:
It is a
time-consuming and expensive technique.
It is
based on beta distribution and the assumption of beta distribution may not
always be true.
PERT is
not suitable when programme is not precise and a reasonable estimate of time
schedule is not possible.
It is
not useful for routine planning of recurring events such as mass production
because once a repetitive sequence worked out; elaborate and continuing control
is not required.
The
expected time and the corresponding variance are only estimated values.
Important activities may be omitted or the
precedence relationships may not be correct.
Differences
between CPM and PERT:
|
PERT |
CPM |
|
A probabilistic model with uncertainty
activity duration. |
A
deterministic model with well-known activity. |
|
Approach is event-oriented. |
Approach
is activity-oriented. |
|
Uses words like network diagram, event and
slack. |
Employs words like arrow diagram, nodes and
floats. |
|
Dummy
activities are used to represent proper sequencing. |
Dummy
activities are not necessary for usage. The arrow diagram thus becomes
slightly simpler. |
|
Does
not democrat between critical and non-critical activities. |
Marks critical activities. |
|
Find
application in all those projects where resources are always made available
as and when required. |
Find application in all those projects where
overall costs are of primary importance. |
|
Suitable
especially in defense projects and research and development where the
activity times cannot be readily predicated. |
Suitable
for problem in industrial settings plant maintenance, civil constructions
projects. |
|
It has three- times estimates i.e..,
Optimistic time(to), Most Likely time (TM) , and Pessimistic Time (TP) |
It has one-time estimate. |
|
It is a control device. |
It is
a planning device. |
Probability
of Completing the Project:
By
using probability of distribution the probability of completing the project by
schedule time is given as:
Normal
deviate (Z) =
Here Z
= Normal deviate.
s
= Standard deviation of the entire network.
TL = Given estimate time of the project.
TE = Expected time of the project.
Steps involved indetermining
the probability:
®
Determine the standard
deviation for each activity.
2
6
®
Determine variance
6
®
Determine the square root
of the sum of variances. This gives the standard deviation for entire project.
(i.e. calculate the standard deviation for critical path by using the standard
deviation for each activity.)
®
By applying the Normal
deviate formula we get probability of completing the project within the given
time.
Note: We
get the value of the normal deviate. This should not be within a range of + /
- 3 sigma limits.
®
To arrive the % of
probability of completing the project within the given time, the value of the
normal deviate has to be converted in to the value of probability by using the
table of normal distribution function table. Thus, the probability completing
the project is determined.
Normal
distribution Function Table:
|
Normal Deviate
(Z) |
Probability (%) |
Normal Deviate
(Z) |
Probability (%) |
|
0 |
50.0 |
-0 |
50.0 |
|
0.2 |
57.9 |
-0.2 |
42.1 |
|
0.4 |
65.5 |
-0.4 |
34.5 |
|
0.6 |
72.6 |
-0.6 |
27.4 |
|
0.8 |
78.8 |
-0.8 |
21.2 |
|
1.0 |
84.1 |
-1.0 |
15.9 |
|
1.2 |
88.5 |
-1.2 |
11.5 |
|
1.4 |
91.9 |
-1.4 |
8.1 |
|
1.6 |
94.5 |
-1.6 |
5.5 |
|
1.8 |
96.4 |
-1.8 |
3.6 |
|
2.0 |
97.7 |
-2.0 |
2.3 |
|
2.2 |
98.8 |
-2.2 |
1.4 |
|
2.4 |
99.2 |
-2.4 |
0.8 |
|
2.6 |
99.5 |
-2.6 |
0.5 |
|
2.8 |
99.7 |
-2.8 |
0.3 |
|
3.0 |
99.9 |
-3.0 |
0.1 |
PROJECT
CRASHING:
In PERT / CPM network techniques,
time is related to cost and the objective is to develop optimum time – cost
relationship. The ultimate objective
of the network techniques is not only to bring improvement in planning
scheduling and controlling of the project but also to assess possibility of arriving at a feasible desirable time – cost
relationship.
The policy of any organization
is to reduce the target time so that time saved can be utilized for additional
product or otherwise.
The overall project
duration can be minimized by reducing the duration of only the critical
activities of the project network. To reduce the schedule time, non – critical
activities can be considered as potential point of resources for diverting to
critical activities.
The duration of the project can
be shortened by systematic analysis of critical path activities, crashing cost
and corresponding cost effect of indirect costs.
Formula:Cost Slope
= Crash Cost – Normal Cost
Normal Time – Crash Time
Increase
Cost = Crash Cost – Normal Cost.
Decrease
in Time = Normal Time – Crash Time.
Terms in Crashing:
Normal cost:It
is lowest cost of completing an activity in the minimum time, employing normal
means i.e. not using over time or other special resources. Or the expenditure incurred on normal resources for completing any
activity in normal time is known as normal cost.
Normal cost:
It is the minimum time required to achieve the normal cost. Normal time is
associated with the normal resources of the organization to perform the
activity.
Crash cost: It
is the least cost of completing an activity by employing all possible means
like overtime, additional machinery, proper materials, etc. Orthe total expenditure incurred on
additional resources for crashing the time is known as “crash cost”.
Crash time: Crash
time is the minimum possible time in which an activity can be completed by
employing extra resources. Crash time is the time beyondwhich the activity
cannot be shortened by any amount of increase in resources.
Cost Slope:The
term cost slope is defined as the “increase in the cost of the activity per
unit decrease in the time.
Mathematically the time – cost relationship can be represented
as:
Cost Slope = Crash Cost –
Normal Cost
Normal Time – Crash Time
PROJECT
COSTS:
The total project cost is
the sum of direct and indirect costs. Indirect cost consists of overheads,
depreciation, insurance, supervisory cost etc.
Direct
costs: costs, like manpower, material, etc
incurred for project execution. This cost is directly proportional to the
quality of resources involved during a period. Direct costs are more in crash
time.
Indirect
costs:Cost consists of overheads, depreciation,
insurance, supervisor’s salaries, rent, and establishment charges etc. these
costs are directly proportionate to the duration of the project.
1.What is meant by
strategy?
Strategy
refers to determination of the basic long-term goals and objectives of an
enterprise and the adoption of the Courses of action and the allocation of
resources necessary for carrying out these goals."
2.Define
Mission?
Mission is the purpose (or) fundamental
reason for the organization organization’s purpose of existence.
3.Write the Characteristics of an effective mission
statement?.
Ø
It should be clear enough
to trigger action
Ø It
should be flexible
Ø It
should be measurable in terms of specific targets
Ø
It should be motivating
4. Define
Mission?
A
vision statement is a vivid idealized of a desired outcome that inspires,
energizes and helps firm to create a mental picture of its target.The vision
statement seeks to answer the basic question, “What do we want to become”?
5.Define goal?
Goal
is defined as what an organization wants to achieve during (or) by the end of a
given period of time.
6.What is meant by Strategic Management?
Strategic management is the
process of management of strategic decision-making, implementation and control.
It is not a complete meaning of strategic management as it fails to cover many
important aspects of Strategic management. Strategic
management is a continuous, iterative, cross-functional process aimed at
keeping an organization as a whole appropriately matched to its environment.
7. write about corporate planning?
Corporate
planning can be defined as the process of formulating the corporate mission,
scanning the business environment, evolving strategies, creating necessary
infrastructure, and assigning resources to achieve the given mission.
8.What is Environmental
Scanning?
Environmental scanning is the process by which strategies monitor the environmental
factors to determine opportunities for and threats to their firms.
Environmental diagnosis consists of managerial decisions made by assessing the
significance of the data of the environmental decisions made by assessing the
significance of the data of the environmental analysis”.
9.Define SWOT?
SWOT
analysis is defined as the rational and
overall evaluation of a company’s strengths, weaknesses, opportunities, and
threats which are likely to affect the strategic choices significantly.
10. Define Project?
A
project can be defined as collection of inter – related tasks (or) activities
which must be completed in a specified time according to a specified order on
sequence and requires resources such as money, material, man- power,
facilities, space etc. (or)A project
is defined as a set of activities with a specific goal occupying a specific
period of time.
11. What is meant by
Network analysis?
Network analysis refers to number of
techniques for the planning and control of complex projects. “The basis of network
planning is the representation of sequential relationship between activities by
means of a network of lines and circles”.
12. Write the Objectives
of Network Analysis?
· It
Develops powerful coordinating tool for planning, scheduling, & controlling
of projects.
·
Effective utilization of
resources.
·
Minimization of idle
resources.
·
Minimization of
production delays.
· Provides
a comprehensive idea of the project.
13.
Define Float/ Slack?
The amount of time for
that an activity (or) group of activities can slip without causing a delay in
the completion of the project. It is also known as “float”. It is used in PERT. Float is the difference between time
available for completing an activity and the time necessary to complete the
same.
14. What is meant by
PERT?
PERT
is a tool to evaluate a given programme and review the progress made in time to
time. It is commonly employed for conducting the initial review of a project.
PERT anticipates potential areas of problem which may disturb program
objectives. Because timely action can be taken to prevent their occurrence.
15.Define CPM?
CPM is an activity
oriented approach. In CPM only one time estimate is used. It is easy to use and
maintain. CPM is employed in projects where overall costs are of primary
importance. The critical path analysis is an important tool in production
planning and scheduling. This is suitable for the construction of civil and
mechanical projects and for how best to reduce the time required to perform
routine production, maintenance and construction and minimize the direct and
indirect expenses. CPM is suitable for application like construction,
maintenance, civil projects (bridges, dams, buildings, power plants) etc.
16.Write the terms about Optimistic time,Pessimistic
time?
Optimistic time (to): the
time for completing an activity if all goes well / under ideal conditions used
in PERT.
Pessimistic time (tp): It
is the time which an activity will take to complete if every thing goes wrong,
used in PERT.
17.Define
Most likely time , Expected time?
Most likely time (tm):
The time taken for completing an activity, under normal conditions. This is the
consensus best estimate, PERT. It lies between the optimistic time and
pessimistic time.
Expected time (Te):
Expected time or average time (Te) for an activity to calculate by combining
statistically all the three time estimates to, tp, and tm.
18.Define
Cost Slope?
The term cost slope is
defined as the “increase in the cost of the activity per unit decrease in the
time.
Mathematically the time – cost relationship can be represented
as:
Cost Slope = Crash Cost –
Normal Cost
Normal
Time – Crash Time
19.DefineProject
Crashing?
In PERT / CPM network techniques, time is
related to cost and the objective is to develop optimum time – cost
relationship. The ultimate objective
of the network techniques is not only to bring improvement in planning
scheduling and controlling of the project but also to assess possibility of arriving at a feasible desirable time – cost
relationship.
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