Unit – 4

Strategy - Definition and Features

The word “strategy” is derived from the Greek word “stratçgos”; stratus
(meaning army) and “ago” (meaning leading/moving).
Strategy is an action that managers take to attain one or more of the
organization’s goals. Strategy can also be defined as “A general direction set for the
company and its various components to achieve a desired state in the future.
Strategy results from the detailed strategic planning process”.
A strategy is all about integrating organizational activities and utilizing and
allocating the scarce resources within the organizational environment so as to meet
the present objectives. While planning a strategy it is essential to consider that
decisions are not taken in a vacuum and that any act taken by a firm is likely to be
met by a reaction from those affected, competitors, customers, employees or
suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of
events and the need to take into consideration the likely or actual behavior of others.
Strategy is the blueprint of decisions in an organization that shows its objectives and
goals, reduces the key policies, and plans for achieving these goals, and defines the
business the company is to carry on, the type of economic and human organization it
wants to be, and the contribution it plans to make to its shareholders, customers and
society at large.
Features of Strategy
1. Strategy is Significant because it is not possible to foresee the future. Without
a perfect foresight, the firms must be ready to deal with the uncertain events
which constitute the business environment.
2. Strategy deals with long term developments rather than routine operations,
i.e. it deals with probability of innovations or new products, new methods of
productions, or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers
and competitors. Strategies dealing with employees will predict the employee
behavior.
4. Strategy is a well defined roadmap of an organization. It defines the overall
mission, vision and direction of an organization. The objective of a strategy is
to maximize an organization’s strengths and to minimize the strengths of the
competitors.
Strategy, in short, bridges the gap between “where we are” and “where we want to
be”.
Corporate Planning Process
Steps in corporate planning process:
1. Establishing corporate mission, objectives and goals.
2. Establishing Strategic Business Units
3. Assigning resources to each Strategic Business Unit
4. Planning for Business Growth.
1. Establishing Corporate Mission, Objectives and Goals:
Top management prepares statements of mission, objectives and goals that
play the role of a framework within which divisions and business units prepare their
plan. They are guiding force for the organisation and express the reasons of being in
business and what specific goals the firm is pursuing at a given point of time.
A mission statement addresses the organization’s fundamental reason for
existing and specifies the functional role that the organisation is going to adopt in its
market place. When the top management is convinced about the irrelevance of
mission, the famous management thinker Peter F Drucker recommends answering
some fundamental questions;
a. What is our business?
b. Who is the customer?
c. What is the value to the customer?
d. What will our business be?
e. What should our business be?
Apparently these questions do not seem to be complicated at all. A casual
approach to answering these questions is definitely going to be counterproductive.
In fact, these are among the toughest yet most important questions that any
corporation can answer. Creating or revising a mission statement is quite difficult
because of the many complex variables that must be examined.
The enterprise mission that provides a sense of direction with respect to
where it wants to go and what it aspires to achieve in overall business, often also
reflects much idealism. The next step is to establish a specific set of objectives, (here
objectives and goals as synonymous).
I. Objectives provide direction to stay focused on common purpose. Every
activity is directed towards the objectives and every individual contributes to
accomplish the objectives.
II. Objectives coordinate the activities and keep them on the right track. They
make behaviors in an organisation more rational and coordinated and thus
more effective.
III. Objectives serve as performance standards to compare actual results.
IV. Objectives provide a basis for motivation of employees to be result oriented
because they know towards what ends they are working.
2. Establishing Strategic Business Units:
Once the organisation mission, objectives and goals are set, they will provide
a framework for determining what kind of organisational structure and business
models are a ‘best fit’ for the organization’s marketing effects. The organisation
structure for a single product will be simple as it can be designed by management
function of geographic territory.
But in case of multi-product organisations, the structure can be very complex.
So companies prefer establishing strategic business units (SBUs). A SHU is a distinct
business unit of the business organisation in the form of a subsidiary company,
department, division or product line with a specific product-market focus and
independent authority and responsibility of the manager to take business decisions.
A strategic business unit operates like a company within a company which is
organized around a business model and cluster of offerings that share some
commonality in the form of similar production process, similar target markets or
similar investment requirements. A SBU has control over its own business model
and marketing strategy.
3. A strategic business unit has the following characteristics
a) Separate responsibility for strategic planning and profit performance and
profit influencing factors.
b) A separate set of competitors.
c) Single business or a collection of related businesses, which offer scope for
independent strategic planning form remaining organisation.
The understanding of an SBU is, therefore, a convenient starting point for
planning since the company’s strategic business units have been identified. In
practice, big companies in India work on the basis that strategic planning at SBU
level has to be agreed to by the corporate management.
4. Planning for Business Growth:
Intensive growth strategies are appropriate when current products and
current markets show the potential for sales increase. There are three main strategic
options that seem to be appropriate to accomplish intensive growth.
a. Market Penetration
b. Market Development
c. Product Development
a. Market Penetration:
It is a strategy of increasing sales of existing products in current markets. For
example, Proctor and Gamble reduced the price of its detergent Ariel in the Indian
market to increase its sale among existing and new consumers in the current market.
Depending on the product category, other approaches can be to increase advertising,
sales promotion, personal selling and increase distribution network in the current
markets.
b. Market Development:
It refers to increasing sales by introducing current products into new
markets. This strategy often involves expanding business in new geographic areas.
For example, with globalization and opening up of Indian borders for businesses,
many organisations have introduced their products in the Indian market. These
companies were marketing these products in their domestic and other markets for
quite some time.

c. Product Development:
It means increasing sales by improving current products in some way or
developing entirely new products for current markets. For example, Gillette has
modified its razor and named it Vector for Indian consumers. In auto industry,
manufacturers regularly introduce redesigned or new products.
 Strategic Management Process - Meaning, Steps and Components
The strategic management process means defining the organization’s strategy.
It is also defined as the process by which managers make a choice of a set of
strategies for the organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and
industries in which the organization is involved; appraises it’s competitors; and fixes
goals to meet all the present and future competitor’s and then reassesses each
strategy.
Strategic management process has following four steps;
Environmental Scanning
Environmental scanning refers to a process of collecting, scrutinizing and
providing information for strategic purposes. It helps in analyzing the internal and
external factors influencing an organization. After executing the environmental
analysis process, management should evaluate it on a continuous basis and strive to
improve it.
Strategy Formulation
Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational
purpose. After conducting environment scanning, managers formulate corporate,
business and functional strategies.
Strategy Implementation
Strategy implementation implies making the strategy work as intended or
putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing
decision making process, and managing human resources.
Strategy Evaluation
Strategy evaluation is the final step of strategy management process. The key
strategy evaluation activities are: appraising internal and external factors that are the
root of present strategies, measuring performance, and taking remedial / corrective
actions. Evaluation makes sure that the organizational strategy as well as it’s
implementation meets the organizational objectives.
These components are steps that are carried, in chronological order, when
creating a new strategic management plan. Present businesses that have already
created a strategic management plan will revert to these steps as per the situation’s
requirement, so as to make essential changes.

Components of Strategic Management Process

 Environmental Scanning - Internal & External Analysis of
Environment
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and forecasts of
factors that will influence organizational success. Environmental scanning refers to
possession and utilization of information about occasions, patterns, trends, and
relationships within an organization’s internal and external environment. It helps
the managers to decide the future path of the organization. Scanning must identify
the threats and opportunities existing in the environment. While strategy
formulation, an organization must take advantage of the opportunities and
minimize the threats. A threat for one organization may be an opportunity for
another.
Internal analysis of the environment is the first step of environment scanning.
Organizations should observe the internal organizational environment. This
includes employee interaction with other employees, employee interaction with
management, manager interaction with other managers, and management
interaction with shareholders, access to natural resources, brand awareness,
organizational structure, main staff, operational potential, etc. Also, discussions,
interviews, and surveys can be used to assess the internal environment. Analysis of
internal environment helps in identifying strengths and weaknesses of an
organization.
As business becomes more competitive, and there are rapid changes in the
external environment, information from external environment adds crucial elements
to the effectiveness of long-term plans. As environment is dynamic, it becomes
essential to identify competitors’ moves and actions. Organizations have also to
update the core competencies and internal environment as per external
environment. Environmental factors are infinite, hence, organization should be agile
and vigile to accept and adjust to the environmental changes. For instance -
Monitoring might indicate that an original forecast of the prices of the raw materials
that are involved in the product are no more credible, which could imply the
requirement for more focused scanning, forecasting and analysis to create a more
trustworthy prediction about the input costs. In a similar manner, there can be
changes in factors such as competitor’s activities, technology, market tastes and
preferences.
While in external analysis, three correlated environment should be studied and
analyzed;
➢ immediate / industry environment
➢ national environment
➢ broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive structure
of the organization’s industry, including the competitive position of a particular
organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics
and history of the industry is essential. It also implies evaluating the effect of
globalization on competition within the industry. Analyzing the national
environment needs an appraisal of whether the national framework helps in
achieving competitive advantage in the globalized environment. Analysis of macro-
environment includes exploring macro-economic, social, government, legal,
technological and international factors that may influence the environment. The
analysis of organization’s external environment reveals opportunities and threats for
an organization.
Strategic managers must not only recognize the present state of the
environment and their industry but also be able to predict its future positions.
SWOT Analysis - Definition, Advantages and Limitations
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.
By definition, Strengths (S) and Weaknesses (W) are considered to be internal factors
over which you have some measure of control. Also, by definition, Opportunities (O)
and Threats (T) are considered to be external factors over which you have essentially
no control.
SWOT Analysis is the most renowned tool for audit and analysis of the
overall strategic position of the business and its environment. Its key purpose is to
identify the strategies that will create a firm specific business model that will best
align an organization’s resources and capabilities to the requirements of the
environment in which the firm operates.
In other words, it is the foundation for evaluating the internal potential and
limitations and the probable/likely opportunities and threats from the external
environment. It views all positive and negative factors inside and outside the firm
that affect the success. A consistent study of the environment in which the firm
operates helps in forecasting/predicting the changing trends and also helps in
including them in the decision-making process of the organization.
An overview of the four factors (Strengths, Weaknesses, Opportunities and
Threats) is given below;
Strengths
Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained.
Strengths can be either tangible or intangible. These are what you are well-
versed in or what you have expertise in, the traits and qualities your employees
possess (individually and as a team) and the distinct features that give your
organization its consistency.
Strengths are the beneficial aspects of the organization or the capabilities of an
organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad product line, no debt,
committed employees, etc.
Weaknesses
Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses are the factors which do not meet
the standards we feel they should meet.
Weaknesses in an organization may be depreciating machinery, insufficient
research and development facilities, narrow product range, poor decision-making,
etc. Weaknesses are controllable. They must be minimized and eliminated. For
instance - to overcome obsolete machinery, new machinery can be purchased. Other
examples of organizational weaknesses are huge debts, high employee turnover,
complex decision making process, narrow product range, large wastage of raw
materials, etc.
Opportunities
Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of
conditions in its environment to plan and execute strategies that enable it to become
more profitable. Organizations can gain competitive advantage by making use of
opportunities.
Organization should be careful and recognize the opportunities and grasp
them whenever they arise. Selecting the targets, that will best serve the clients while
getting desired results is a difficult task. Opportunities may arise from market,
competition, industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great opportunity for new
firms to enter telecom sector and compete with existing firms for revenue.
Threats
Threats arise when conditions in external environment jeopardize the
reliability and profitability of the organization’s business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a
threat comes, the stability and survival can be at stake. Examples of threats are -
unrest among employees; ever changing technology; increasing competition leading
to excess capacity, price wars and reducing industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a
strong tool, but it involves a great subjective element. It is best when used as a guide,
and not as a prescription. Successful businesses build on their strengths, correct their
weakness and protect against internal weaknesses and external threats. They also
keep a watch on their overall business environment and recognize and exploit new
opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in following manner-

• It is a source of information for strategic planning.
• Builds organization’s strengths.
• Reverse its weaknesses.
• Maximize its response to opportunities.
• Overcome organization’s threats.
• It helps in identifying core competencies of the firm.
• It helps in setting of objectives for strategic planning.
• It helps in knowing past, present and future so that by using past and current
data, future plans can be chalked out.
SWOT Analysis provide information that helps in synchronizing the firm’s
resources and capabilities with the competitive environment in which the firm
operates.
 SWOT ANALYSIS FRAMEWORK

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to
view circumstances as very simple because of which the organizations might
overlook certain key strategic contact which may occur. Moreover, categorizing
aspects as strengths, weaknesses, opportunities and threats might be very subjective
as there is great degree of uncertainty in market. SWOT Analysis does stress upon
the significance of these four aspects, but it does not tell how an organization can
identify these aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of
management. These include;
✓ Price increase;
✓ Inputs/raw materials;
✓ Government legislation;
✓ Economic environment;
✓ Searching a new market for the product which is not having overseas market
due to import restrictions; etc.
Internal limitations may include;
✓ Insufficient research and development facilities;
✓ Faulty products due to poor quality control;
✓ Poor industrial relations;
✓ Lack of skilled and efficient labour etc.
Steps in Strategy Formulation Process
Strategy formulation refers to the process of choosing the most appropriate
course of action for the realization of organizational goals and objectives and thereby
achieving the organizational vision. The process of strategy formulation basically
involves six main steps. Though these steps do not follow a rigid chronological
order, however they are very rational and can be easily followed in this order.
Setting Organizations’ objectives
The key component of any strategy statement is to set the long-term objectives
of the organization. It is known that strategy is generally a medium for realization of
organizational objectives. Objectives stress the state of being there whereas Strategy
stresses upon the process of reaching there. Strategy includes both the fixation of
objectives as well the medium to be used to realize those objectives. Thus, strategy is
a wider term which believes in the manner of deployment of resources so as to
achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.
Evaluating the Organizational Environment
The next step is to evaluate the general economic and industrial environment
in which the organization operates. This includes a review of the organizations
competitive position. It is essential to conduct a qualitative and quantitative review
of an organizations existing product line. The purpose of such a review is to make
sure that the factors important for competitive success in the market can be
discovered so that the management can identify their own strengths and weaknesses
as well as their competitors’ strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to
its market or supply sources.
Setting Quantitative Targets
In this step, an organization must practically fix the quantitative target values
for some of the organizational objectives. The idea behind this is to compare with
long term customers, so as to evaluate the contribution that might be made by
various product zones or operating departments.
Aiming in context with the divisional plans - In this step, the contributions
made by each department or division or product category within the organization is
identified and accordingly strategic planning is done for each sub-unit. This requires
a careful analysis of macroeconomic trends.
Performance Analysis
Performance analysis includes discovering and analyzing the gap between the
planned or desired performance. A critical evaluation of the organizations past
performance, present condition and the desired future conditions must be done by
the organization. This critical evaluation identifies the degree of gap that persists
between the actual reality and the long-term aspirations of the organization. An
attempt is made by the organization to estimate its probable future condition if the
current trends persist.
Choice of Strategy
This is the ultimate step in Strategy Formulation. The best course of action is
actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.
Strategy Implementation - Meaning and Steps in Implementing a
Strategy
Strategy implementation is the translation of chosen strategy into
organizational action so as to achieve strategic goals and objectives. Strategy
implementation is also defined as the manner in which an organization should
develop, utilize, and amalgamate organizational structure, control systems, and
culture to follow strategies that lead to competitive advantage and a better
performance. Organizational structure allocates special value developing tasks and
roles to the employees and states how these tasks and roles can be correlated so as
maximize efficiency, quality, and customer satisfaction-the pillars of competitive
advantage. But, organizational structure is not sufficient in itself to motivate the
employees.
An organizational control system is also required. This control system equips
managers with motivational incentives for employees as well as feedback on
employees and organizational performance. Organizational culture refers to the
specialized collection of values, attitudes, norms and beliefs shared by
organizational members and groups.
Following are the main steps in implementing a strategy:
• Developing an organization having potential of carrying out strategy
successfully.
• Disbursement of abundant resources to strategy-essential activities.
• Creating strategy-encouraging policies.
• Employing best policies and programs for constant improvement.
• Linking reward structure to accomplishment of results.
• Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented.
Also, it is essential to note that strategy implementation is not possible unless there
is stability between strategy and each organizational dimension such as
organizational structure, reward structure, resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an
organization. New power relationships are predicted and achieved. New groups
(formal as well as informal) are formed whose values, attitudes, beliefs and concerns
may not be known. With the change in power and status roles, the managers and
employees may employ confrontation behaviour.
Strategy Formulation Vs Strategy Implementation
Following are the main differences between Strategy Formulation and Strategy
Implementation;
Strategy Formulation Strategy Implementation
Strategy Formulation includes planning Strategy Implementation involves all those
and decision-making involved in means related to executing the strategic
developing organization’s strategic goals plans.
and plans.
In short, Strategy Formulation is placing In short, Strategy Implementation
the Forces before the action. is managing forces during the action.
Strategy Formulation is Strategic Implementation is mainly
an Entrepreneurial Activity based on an Administrative Task based on strategic
strategic decision-making. and operational decisions.
Strategy Formulation emphasizes Strategy Implementation emphasizes
on effectiveness. on efficiency.
Strategy Formulation is a rational process. Strategy Implementation is basically
an operational process.
Strategy Formulation requires co- Strategy Implementation requires co-
ordination among few individuals. ordination among many individuals.
Strategy Formulation requires a great deal Strategy Implementation requires
of initiative and logical skills. specific motivational and leadership
traits.
Strategic Formulation precedes Strategy Strategy Implementation follows Strategy
Implementation. Formulation.

Strategy Evaluation Process and its Significance

Strategy Evaluation is as significant as strategy formulation because it throws
light on the efficiency and effectiveness of the comprehensive plans in achieving the
desired results. The managers can also assess the appropriateness of the current
strategy in today’s dynamic world with socio-economic, political and technological
innovations. Strategic Evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to co-ordinate the
task performed by managers, groups, departments etc, through control of
performance. Strategic Evaluation is significant because of various factors such as -
developing inputs for new strategic planning, the urge for feedback, appraisal and
reward, development of the strategic management process, judging the validity of
strategic choice etc.
The process of Strategy Evaluation consists of following steps-
Fixing benchmark of performance
While fixing the benchmark, strategists encounter questions such as - what
benchmarks to set, how to set them and how to express them. In order to determine
the benchmark performance to be set, it is essential to discover the special
requirements for performing the main task. The performance indicator that best
identify and express the special requirements might then be determined to be used
for evaluation. The organization can use both quantitative and qualitative criteria for
comprehensive assessment of performance. Quantitative criteria include
determination of net profit, ROI, earning per share, cost of production, rate of
employee turnover etc. Among the Qualitative factors are subjective evaluation of
factors such as - skills and competencies, risk taking potential, flexibility etc.
Measurement of performance
The standard performance is a bench mark with which the actual
performance is to be compared. The reporting and communication system help in
measuring the performance. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy evaluation
becomes easier. But various factors such as managers contribution are difficult to
measure. Similarly divisional performance is sometimes difficult to measure as
compared to individual performance. Thus, variable objectives must be created
against which measurement of performance can be done. The measurement must be
done at right time else evaluation will not meet its purpose. For measuring the
performance, financial statements like - balance sheet, profit and loss account must
be prepared on an annual basis.
Analyzing Variance
While measuring the actual performance and comparing it with standard
performance there may be variances which must be analyzed. The strategists must
mention the degree of tolerance limits between which the variance between actual
and standard performance may be accepted. The positive deviation indicates a better
performance but it is quite unusual exceeding the target always. The negative
deviation is an issue of concern because it indicates a shortfall in performance. Thus
in this case the strategists must discover the causes of deviation and must take
corrective action to overcome it.
Taking Corrective Action
Once the deviation in performance is identified, it is essential to plan for a
corrective action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors responsible
for such performance. If the strategists discover that the organizational potential
does not match with the performance requirements, then the standards must be
lowered. Another rare and drastic corrective action is reformulating the strategy
which requires going back to the process of strategic management, reframing of
plans according to new resource allocation trend and consequent means going to the
beginning point of strategic management process.

PROJET MANAGEMENT (PERT/CPM)

All of us have been involved in projects, whether they be our personal
projects or in business and industry. Examples of typical projects are for example:
Personal projects:
✓ obtain an MBA
✓ write a report
✓ plan a wedding
✓ plant a garden
✓ build a house extension
Industrial projects:
✓ construct a building
✓ provide a gas supply to an industrial estate
✓ build a motorway
✓ design a new car
Business projects:
✓ develop a new course
✓ develop a new course
✓ develop a computer system
✓ introduce a new product
✓ prepare an annual report
✓ set up a new office
Projects can be of any size and duration. They can be simple, like planning a
party, or complex like launching a space shuttle.
Generally projects are made up of:
➢ a defined beginning,
➢ multiple activities which are performed to a plan,
➢ a defined end.
Therefore a project may be defined as a means of moving from a problem to a
solution via a series of planned activities.
 ▪ A project is a means of moving from a problem to a solution via a series of
planned activities.
▪ A project has a definite beginning and end.
▪ Projects consist of several activities.

Two essential features are present in every project no matter how simple or
complicated they are. In the first place, all projects must be planned out in advance if
they are to be successfully executed. Secondly, the execution of the project must be
controlled to ensure that the desired results are achieved.
Terminology and Definitions
A project is an interrelated set of activities that has a definite starting and
ending point and results in the accomplishment of a unique, often major outcome.
"Project management" is, therefore, the planning and control of events that, together,
comprise the project. Project management aims to ensure the effective use of
resources and delivery of the project objectives on time and within cost constraints.
An activity or task is the smallest unit of work effort within the project and
consumes both time and resources which are under the control of the project
manager. A project is a sequence of activities that has a definite start and finish, an
identifiable goal and an integrated system of complex but interdependent
relationships.
A schedule allocates resources to accomplish the activities within a timeframe.
The schedule sets priorities, start times and finish times.
Project management
It is the adept use of techniques and skills (hard and soft) in planning and
controlling tasks and resources needed for the project, from both inside and outside
of organisation, to achieve results.
The purpose of project management is to achieve successful project completion with
the resources available. A successful project is one which:
✓ has been finished on time
✓ is within its cost budget
✓ performs to a technical/performance standard which satisfies the end user.
Features of projects
➢ Projects are often carried out by a team of people who have been assembled
for that specific purpose. The activities of this team may be co-ordinated by a
project manager.
➢ Project teams may consist of people from different backgrounds and different
parts of the organisation. In some cases project teams may consist of people
from different organisations.
➢ Project teams may be inter-disciplinary groups and are likely to lay outside
the normal organisation hierarchies.
➢ The project team will be responsible for delivery of the project end product to
some sponsor within or outside the organisation. The full benefit of any
project will not become available until the project has been completed.
Net work analysis:
It is refers to a number of techniques for the planning and control of complex
projects. The basis of network planning is the representation of sequential
relationships 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.
Features of Network Analysis:
Logical base of planning:
Network analysis is highly applicable at several stages of project management
right from early planning stage of selecting right option from various alternatives to
scheduling stage and operational stage.
Simple in nature:
Net work analysis is straightforward in concept and can be easily explained to
any laymen. Data calculations are simple and for large projects computers can be
used.
Improves coordination and communication:
The graphs generated out of network analysis display simply and direct way
the complex nature of various sub- divisions of project may, quickly perceive from
the graph
Wider application:
The network analysis is applied to many types of projects. Moreover, they
may be applied at several levels within a given project from a single department
working on a sub-system to multi-plant operations within corporation.
Gantt’s bar chart:
A Gantt Chart is a simple technique that can be used to attach a time scale and
sequence to a project.
A Gantt Chart is a form of horizontal bar chart and horizontal bars are drawn
against a time scale for each project activity, the length of which represents the time
taken to complete.
To construct a Gantt Chart the following steps are necessary:
1. Use the horizontal axis to represent time
2. Use the vertical axis to represent activities
3. Represent each activity by a horizontal bar of appropriate length
4. Take activity procedures into account by starting each activity bar to an
appropriate point along the time axis after its preceding activities. Normally
the start point for an activity is the earliest time that it could start after its
preceding activities had finished.
It is possible to enhance the Gantt Chart in several ways. For instance the number of
staff required to do a task can be entered into the bar on the diagram.
Gantt charts, also commonly known as milestone plans, are a low cost means
of assisting the project manager at the initial stages of scheduling. They ensure that:
1. all activities are planned for,
2. the sequence of activities is accounted for,
3. the activity time estimates are recorded; and
4. the overall project time is recorded.
They are therefore a simple, rough and ready means of planning a project and
assessing progress and are sufficient for most simple projects.
However, where projects become complex, it becomes difficult to see relationships
between activities by using a Gantt Chart.
For more complex projects Network Analysis techniques are used.
Gantt charts also provide a summary of the project as a whole and can be
used as a rough and ready means of assessing progress at the project control phase.
At any date, the project manager can draw a dateline through the Gantt chart and
see which activities are on-time, which are behind schedule and generally record
project status against plan.
Gantt charts, named after Henry L. Gantt, one of the pioneers of scientific
management, are a useful means of representing a schedule of activities comprising
a project and enable the operations manager to know exactly what activities should
be performed at a given time and, more importantly, to monitor daily progress of a
project so that corrective action may be taken when necessary.
Before PERT and CPM were developed, Gantt charts and mile stone charts
were used tools to monitor the project progress in complex projects. Gantt chart is a
bar chart, which was developed by Henry Gantt around 1900.
It is consists of two coordinate axes, one represents the time and the other jobs or
activities performed.

The above figure shows job x which contains five activities ABCDE the
different time durations activity A is an independent activity followed by activities
B, activity B is followed by activity C, activities D, E have no such sequence.
Activities C, D and E reach completion together. However the total number o day
taken for completing the job is 14 days.
Limitation of Gantt Chart:
➢ This Gantt bar charts not useful for big projects, consisting of large number of
complex activities
➢ It does not show the relationship between various operations. It is very
difficult to find the sequence of various operations on the Gantt chart or the
most probable date of completion.
➢ Does to indicate the progress of work
➢ It cannot reflect uncertainty or tolerance in the duration time estimated for
various activities
➢ It simply a scheduling technique, but not effective planning tool.
Milestone chart:
Milestone chart is an improvement over Gantt chart. It has becomes a good
line between Gantt chart and PERT and CPM network. Every task represented by a
bar in Gantt‘s bar chart, is subdivided in terms event or point in time.

In the Gantt‘s bar charts bar representing an activity is divided into certain
milestones. They are identified with a major event, and consecutively numbered
such a breakdown enhances the awareness about the inter dependencies among all
milestones.
Network analysis undergone several changes and many variants exist, which
evaluate the randomness due to imperfection in all human and physical systems.
PERT and CPM continue to be very popular, in handling the basic factors like time,
cost, resources, probabilities and combinations of all these factors.
PERT AND CPM:
The two most common and widely used project management techniques that
can be classified under the title of Network Analysis are Programme Evaluation and
review Technique (PERT) and Critical Path Method (CPM). Both were developed in
the 1950's to help managers schedule, monitor and control large and complex
projects.
CPM was first used in 1957 to assist in the development and building of
chemical plants within the DuPont corporation. Independently developed, PERT
was introduced in 1958 following research within the Special Projects Office of the
US Navy. It was initially used to plan and control the Polaris missile programme
which involved the coordination of thousands of contractors. The use of PERT in this
case was reported to have cut eighteen months off the overall time to completion.
The PERT/CPM Procedure
There are six stages common to both PERT and CPM:
➢ Define the project and specify all activities or tasks.
➢ Develop the relationships amongst activities. Decide upon precedence’s.
➢ Draw network to connect all activities.
➢ Assign time and/or costs to each activity.
➢ Calculate the longest time path through the network: this is the "critical path".
➢ Use network to plan, monitor and control the project.
 Finding the critical path (step 5) is a major in controlling a project. Activities on
the critical path represent tasks which, if performed behind schedule, will delay the
whole project. Managers can derive flexibility by identifying the non-critical
activities and replanning, rescheduling and reallocating resources such as manpower
and finances within identified boundaries.
PERT and CPM differ slightly in their terminology and in network construction.
However their objectives are the same and, furthermore, their project analysis
techniques are very similar.
The major difference is that PERT employs three time estimates for each activity.
Probabilities are attached to each of these times which, in turn, is used for computing
expected values and potential variations for activity times.
CPM, on the other hand, assumes activity times are known and fixed, so only one
time estimate is given and used for each activity.

PERT and CPM can help to answer the following questions for projects with
thousands of activities and events, both at the beginning of the project and once it is
underway:
➢ When will the project be completed?
➢ What are the critical activities (i.e.: the tasks which, if delayed, will effect time
for overall completion)?
➢ Which activities are non-critical and can run late without delaying project
completion time?
➢ What is the probability of the project being completed by a specific date?
➢ At any particular time, is the project on schedule?
➢ At any particular time, is the money spent equal to, less than or greater than
the budgeted amount?
➢ Are there enough resources left to complete the project on time?
➢ If the project is to be completed in a shorter time, what is the least cost means
to accomplish this and what are the cost consequences
PERT:
Programme evaluation and review technique (PERT) is a tool to evaluate a
given programme and review the progress made in it from time to time. A
programme is also called a project.
A project is defined as a set of activities with a specific goal occupying a
specific period. It may be a small or big project, such as construction of a college
building, roads, marriage, picnics etc.
It is concerned with estimating the time for different stages in such a
programme or a project and find out what the critical path is, which consumes a
maximum resources.
CPM:
Critical path method assumes that the time required to complete an activity
can be predicted fairly accurately, and thus, the costs involved can be quantified
once the critical path has been identified. Since time is an important factor, CPM
involves a trade-off between costs and time.
It involves determining an optimum duration for the project, that is, a
minimum duration that involves the lowest overall costs.
Application of PERT and CPM:
Construction of projects such as building, highways, houses or bridges:
Preparation of bids and proposals for large projects such as multipurpose
projects
Maintenance and planning of oil refineries, ship repairs and other such as
large operations
Development of new weapon systems and new products and services
Manufacture and assembly of large items such as aeroplanes or ships repairs
and other such as large operations
Simple projects such as home remodeling housekeeping or painting and so
on.

PERT Basic Terminology:

Event:
A event is specific instant of time which indicates the beginning or end of the
activity event is also known as a junction or node. It is represented by a circle and
the event number is written with in the circle.

Activity: Every project consists of number of job operations or tasks which are called
activity.

Classification of activities:
1. Critical activity
2. Non-Critical activity
3. Dummy activity
Critical activity:
In a network diagram critical activities are those which if consume more than
their estimated time, the project will be delayed. It is shown with thick arrow.

Non-critical activity:
Such activities have a provision of float or slack so that, even if they consume
a specified time over and above the estimated time.
Dummy activity:
When two activities start at the same instant of time like A and B the head
event are joined by dotted arrows and this is known as dummy activity.
CPM Basic terminology:
Critical Path:
Critical path is that path which consumes the maximum amount of time or
resources. It is that path which has zero slack value.
Slack:
Slack means the time taken to delay a particular event without affecting the
project completion time. If a path has zero slack that means it is the critical path.
Slack = LFT – EFT
Earliest Start Time (EST):
It is the earliest possible time at which an activity can start, and is calculated
by moving from first to last event in the network diagram.
Earliest Finish Time (EFT):
It is the earliest possible time at which an activity can finish
EFT = EST + Duration of activity
Latest Start Time (LST):
It is the latest possible time by which an activity can start without delaying
the date of completion of the project.
LST = LFT – Duration of the activity
Latest Finish Time (LFT):
It is the latest time by which the activity must be completed. So that the
scheduled date for the completion of the project may not be delayed. It is calculated
by moving backwards.
Float:
Floats in the network analysis represent the difference between the maximum
time available to finish the activity and the time required to complete it.
The basic difference between slack and float times is a slack is used with reference to
event, float is use with reference to activity.
Floats are three types:
1) Total float
2) Free float
3) Independent float
Total float:
It is the additional time which a non critical activity can consume without
increasing the project duration. However total float may affect the floats in previous
and subsequent activities.
Total float = LST – EST or LFT – EFT
Free float:
Free float refers to the time by which an activity can expand without affecting
succeeding activities.
Free float = EST of Head Event – EST of Trail Event – Activity
duration
Independent float:
This the time by which activity may be delayed or extended without affecting
the preceding or succeeding activities in any away.
Independent float = EST of Head event – LFT of Trail event – Activity
duration (OR) Total Float – Free Float

Problems:
1)A small engineering project consists of 6 activities namely ABCDE & F with
duration of 4, 6, 5, 4, 3 and 3 days respectively. Draw the network diagram and
calculate EST, LST, EFT, LFT and floats. Mark the critical path and find total project
duration.
Note:
LST = LFT – activity duration LFT = EST + activity duration
Total float = LST – EST or LFT – EFT
Free float = EST of Head Event – EST of Trail Event – Activity duration
Independent float = EST of Head event – LFT of Trail event – Activity duration
Project crashing:
In this chapter, we will discuss the concepts of direct and indirect costs, the
relationship between project time and project cost, the concept of cost slope and how
the optimum cost and optimum duration are ensured for a given projects while
crashing.
Project costs:
Costs associated with any project can be classified into two categories
a) Direct cost:
These costs are those, which are directly proportional to the number of activities
involved in the project Ex: Raw material cost

b) Indirect cost:
In direct cost are those costs that are determined per day. Some of examples
for indirect costs are supervisory personnel salary, supplies, rent, interest an
borrowings, ads, depreciation. These costs are directly proportional to the number of
days of the duration of the project. If the project duration is reduced the indirect cost
also comes down.
Normal cost (Nc):
It is the lowest cost of completing an activity in the minimum time, employing
normal means i.e. not using overtime or other special resource. Normal time (NT): It
is the minimum time required to achieve the normal cost
Crash cost (CC):
It is the least cost of completing an activity by employing all possible means
like overtime, additional machinery, proper materials etc.
Crash time (CT):
It is the absolute minimum time associated with the crash cost.
Cost Slope:
Cost Slope is the amount that has to be spent over and above the normal
direct cost for reducing the duration by one unit of time (day, week etc.).
Cost slope is defined as the additional cost for reducing one unit of time,
assuming a given rate of increase in direct cost with a decrease in one unit of time.

Crashing of Network:
After identifying the critical path, it is necessary to identify the priority to
crash the activities by calculating the cost slope.
For reducing the duration extra expenditure to be incurred, but to save resources,
organizations keep this extra expenditure at a minimum.

When the direct cost (A) decrease with an increase in time, as the project
duration increase, the indirect cost (B) like overheads, depreciation, insurance etc.
increases. The total cost (A+B) curve is a flat U-shaped curve, with implies that only
up to a particular point (O) the crashing is economical, not beyond. The time
duration, which involves the least total cost, is the optimum duration at optimum
cost. Crashing the duration of a project may not be possible beyond a particular
point.
Problems:
1) Given the following data, work out the minimum duration of the project and
corresponding cost

Solution:

Critical path is 1-2-5-6 and Duration is 28 days

Total cost is = Direct cost + Indirect cost
= (400+100+360+600+840+200+1200) + 0 = 3700/-

1-2 activity crashing by 4 days:

Critical path is 1-2-5-6 and Duration is 24 days
Total cost is = Direct cost + Indirect cost
= (3700 + (4 x 50) + 0) = 3900/-

5-6 activity crashing by 2 days:

Critical path is 1-2-5-6 and Duration is 22 days

Total cost is = Direct cost + Indirect cost
= (3900 + (2 x 100) + 0) = 4100/-

2-5 activity crashing by 2 days:

Critical path is 1-2-5-6 and Project Duration is 20 days

Total cost is = Direct cost + Indirect cost
= (4100 + (2 x 130) + 0) = 4360/-
Optimum cost = 712/-
Optimum Duration = 20 days