Management Science

UNIT – IV- A - STRATEGIC MANAGEMENT

Strategy is concerned with deciding which alternative is to be adopted to accomplish the

overall objectives of the organization. Strategy is a Comprehensive long term plan.

It tries to answer three main questions:

[

 What is the present position of the firm?

 What should be the future position of the firm?
 What should be done to attain the future position?

Definition:

According to Alfred D Chandeler: “Strategy is the determination of the basic long-term goals &
objectives of an enterprise & the adoption of the course of action and the allocation of the
resources necessary for carrying out these goals”

Nature & Characteristics of Strategies:

1. Objective Oriented - Strategies are developed in order to achieve the objectives of the
organization. To formulate strategies, one has to know the objectives that are to be pursued
& also the policies that must be followed.

2. Future Oriented - Strategy is a future oriented plan. It is designed to attain future

position of the organization. Through Strategy, management studies the present position of
the organization & their aims at attaining the future position of the organization.

3. Unified, Comprehensive and Integrated - A Strategy is not Just plan. It is a unified,

Comprehensive & integrated plan. It is unified as it unifies all the parts of sections of the
organization together. It is comprehensive as it covers all the major aspects or areas of the
organization.

4. Alternatives Strategies - Organizations need to frame alternative strategies. It is not

sufficient to frame one or two strategies. Small organizations survive with one or two

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strategies due to fewer complexities in their business. However, large organizations need to
frame alternative strategies in respect of growth & survival of the organization.

5. Relates to the Environment - The internal and external environment affects the strategy
formulation & implementation. The internal environment relates to mission& objectives of
the firm, the labor management relations, and the technology used, the physical, financial
& human resources. The external environment relates Competition, Customer, Channel,
intermediaries, Government policies & other social, economic & political factors.

6. Allocation of Resources - For effective implementation of Strategy, there is a need for

proper allocation of the resources. Proper allocation of resources is required to undertake
the various activities so as to attain objectives.

7. Universal Applicability - Strategy is universally applicable. It is applicable to business

organization as well as to non-business organization. This is because every organization
needs to frame strategies for their growth & survival.

Strategic Management

According to Jauch & Glueck: “Strategic Management is a stream of decisions & actions which
leads to the development of an effective strategy or Strategies to help achieve corporate objectives
The Strategic Management process is the way in which strategists determine objectives & make
strategic decisions”

SETTING of VISION - MISSION - GOALS

VISION

Vision is a descriptive image of what the company wants to be or want to be known for.
Vision reminds us of what the goals are, without vision performance of the business is likely to be
affected.

A vision is a statement for where the organization is heading over the next five to ten years.
It is the statement that indicates mission to be accomplished by the management in distant future.

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Warren Bennis and Burt Nanus described the role of vision as follows:

“To choose a direction, a leader must first have developed a mental image of a possible and
desirable future state of organization, which we call a vision. Vision articulates a view of a
realistic/ credible, attractive future for the organization. With a vision, the leader provides an
important bridge from the present to the future of the organization.

Characteristics of an Effective Vision Statement:

1. Graphic: The vision should draw a picture that can reveal where the company is heading
and can also indicate clearly the market position.

2. Directional: It is able to provide clear direction to the managers and employees as well as
describe a forward-looking picture of the company.

3. Focused: It can specifically guide managers in decision making and allocating resources of
the company.

4. Flexible: It must be flexible enough so that with changes in the products or technology or
market, the vision itself can also be changed to keep pace with the changing situations.

5. Feasible: It should portray an expectation for the future that is achievable – not just
spelling out an expectation for the sake of telling about an expectation.

6. Desirable: It should be able to indicate; ‘why the chosen path makes good business sense’.

7. Easy to communicate: The vision must be worded in such a way that it can be
communicated easily to the stakeholders, especially the shareholders, employees, and
customers.

MISSION

All management experts unanimously agree that clarifying the mission and defining the
business is the starting point of business planning. Many organizations define the basic reason for

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their existence in terms of a mission statement. An organization’s mission includes both a

statement of organizational philosophy and purpose.

The mission can be seen as a link between performing some social function and attaining
objectives of the organization. A well-conceived mission statement defines the fundamental,
unique purpose which sets a company apart from the other firms of its type and identifies the scope
of the firm’s operation in terms of the product/ services offered and the markets served. It may also
include the firm’s philosophy about how it does the business and treats the employees.

Ex: The mission of General Motors states “ The fundamental purpose of General Motors is to
provide products and services of such quality that our customers will receive superior value, our
employees and business partners will share in our success and our stock holders will receive a
sustained, superior return on their investment.

Some management experts consider vision and mission as two different concepts. They are
of the view that a mission statement describes what the organization is now and a vision statement
describes what the organization would like to be in future. However, we would like to include the
vision concept in the mission statement. Therefore a mission statement tells who we are & what we
would like to become.

Characteristics of an Effective Mission Statement:

1) Clarity: It should be clear and easy to understand the philosophy and purpose of the
organization. It should be clear to everyone in the organization so that it acts as a guide to
action. However, it is to be noted that clear mission statement by itself does not ensure
success; it only provides a sense of purpose and direction.

2) Feasibility: It should not state impossible tasks. A mission statement should always aim
higher but not impossible goals. It should state a purpose which should be realistic and
attainable. A company should always consider its abilities and resources before making a
mission statement.

3) Current: It may become outdated after sometime. A mission statement may hold good
for a certain number of years say 10 year. Very few definition of purpose and mission of a

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business have anything like a life expectancy of thirty, let alone fifty years. It should be
modified or revised taking into consideration the change in the internal and external
environment.

4) Enduring: It should be a motivating force guiding and inspiring the individuals in the
organization for higher and better performance. For instance, mission statement of
education institution may state “higher and still higher achievements” may motivate the
individuals in the institution.

5) Distinctive: It should be unique and distinctive. It should not appear similar as

compared to the other competitors or companies. It is true that the mission statement of
most companies aim higher in terms of market share, service to the customers, quality
products & service, but the drafting of the mission statement must be done in such words
that it brings uniqueness to the mission statement.

6) Precise: It should contain few words and not a very long statement. It should sound
good and look good. It should be a very attractive statement. This does not mean that it
should contain only two to three words.

GOALS

A business owner's simplest goal is to be successful and make money. However, this isn't
enough to make your business successful. You need to set well-defined goals that measure short-
term, midterm and long-term success. You may also want to break goals into sales, marketing,
development and company employee growth.

Most businesses use the SMART model for goal setting: Specific, Measurable, Achievable,
Relevant and Timed. These are specific characteristics used in successful goal setting.

Characteristics of an SMART GOAL

1. A goal is measurable: to the extent that whether the goal is achieved can be
quantified. President Kennedy’s goal of reaching the moon by the end of the 1960s
offered very simple and clear measurability.

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2. A goal is aggressive: if achieving it presents a significant challenge to the organization.

A series of research studies have demonstrated that performance is strongest when
goals are challenging but attainable. Such goals force people to test and extend the
limits of their abilities.

3. Specificity: Strategic goals are more specific than, let's say, your role statement, but
then can't be too specific either, since you don't want too many of them in your strategic
plan.

4. Reflective: Your strategic goals need to reflect the analytical work done in the rest of
the strategic planning process. They need to be based on your best understanding of
your business environment, strengths, abilities, opportunities and so on.

Corporate Planning Process

Corporate planning is a process that is used by businesses to map out a course of action to
grow, increase profits, gain exposure, or strengthen brand identity. Corporate planning is a tool
that successful businesses use to leverage their resources more wisely than their competitors.

Need for corporate planning

A plan is not only beneficial to keep your business organized, but it can also help increase -

 Clarity & Direction

 Ensure efficiency use of resources
 Provide a way of measuring progress
 Support effective decision-making
 Coordinate activities
 Allocate responsibilities
 Motivate and guide staff

Process of Corporate Planning:

(i) Environmental Analysis and Diagnosis: The first steps (which is, in fact, the
background step), involved in corporate planning is environmental analysis and
diagnosis. (A detailed account of this step is attempted subsequently, in the discussion
about corporate planning).

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(ii) Determination of Objectives: All planning starts with a determination of the

objectives for the plan; and corporate planning is no exception to this generality. In
corporate planning, after environmental analysis and diagnosis, the planners determine
objectives for the company as a whole and for each department of it; which become the
beginning point of corporate planning.

(iii) Strategy Formulation: Strategy formulation is the core aspect of corporate

planning. Strategy is, in fact, the weapon of the planner devised for attaining objectives
of corporate planning. It is easier to set objectives; it is difficult to realize them.
Strategies facilitate the attainment of objectives.

(iv) Development of Tactical Plans: Strategies are translated into action plans called
tactical plans or operational plans. Tactical plans are necessary for implementation o f
strategies leading to the attainment of corporate planning objectives. For example, if the
strategy of a company is to develop the skills and talents of manpower for realizing
objectives; then designing of suitable training programmes would amount to making
tactical plans.

(v) Implementation of Tactical Plans: Mere paper planning is no planning; unless and
until it is put into practice. As such, tactical plans are put into a process of

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implementation, just at the right time, as decided by management. For implementation

purposes, necessary communications are made to the operating staffing; who are also
provided with necessary facilities to implement the tactical plans.

(vi) Follow-Up-Action: After the tactical plans have been put into practice; a review of
progress is done i.e. an examination of what results are following from the
implementation of the plan and what feedback action is necessary, for the betterment of
the corporate planning process.

ENVIRONMENTAL SCANNING

The purpose of the scan is the identification of opportunities and threats affecting the
business for making strategic business decisions. As a part of the environmental scanning
process, the organization collects information regarding its environment and analyzes it to
forecast the impact of changes in the environment. This eventually helps the management team
to make informed decisions.

As seen from the figure above, environmental scanning should primarily identify
opportunities and threats in the organization’s environment. Once these are identified, the
organization can create a strategy which helps in maximizing the opportunities and minimizing the
threats.

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Characteristics of Environmental Scanning

1. Continuous Process- The analysis of the environment is a continuous process rather

than being sporadic. The rapidly changing environment has to be captured
continuously to be on track.
2. Exploratory Process- Scanning is an exploratory process that keeps monitoring the
environment to bring out the possibilities and unknown dimensions of the future. It
stresses the fact that “What could happen” and not ”What will happen”.
3. Dynamic Process- Environmental scanning is not static. It is a dynamic process and
depends on changing situations.
4. Holistic View- Environmental Scanning focuses on the complete view of the
environment rather than viewing it partially

Components of Environmental Scanning

1. Internal Environmental Components- The components that lie within the

organization are internal components and changes in these affect the general
performance of the organization. Human resources, capital resources and
technological resources are some of the internal environmental components.
2. External Environmental Components: The components that fall outside the
business organization are called external environmental components. Although the
components lie outside the organization, they still affect the organizational activities.
The external components can be divided into micro environmental components, and
macro environmental components.

Importance of Environmental Scanning

 Goal Accomplishment: The objectives of an organization cannot be fulfilled unless it

adapts itself to environmental changes. One has to adjust the strategies to fit in the
changing demands of the environment.

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 Threats and Weakness Identification: For an organization to grow, it must minimize its
threats and identify its weaknesses. This is made possible with the help of environmental
scanning with which better strategies can be developed.tz
 Future Forecast: Environmental changes are often unpredictable. An organization
cannot anticipate all the future events but based on the analysis, it can make better
strategic decisions in the future. Hence, environmental analysis helps to forecast the
prospects of the business.
 Market Knowledge: Every organization must be aware of the ongoing changes in the
market. If it fails to incorporate strategic changes due to changing demands, it will not be
able to achieve its objectives.
 Focus on the Customer: Environmental scanning and analysis make an organization
sensitive to the changing needs and expectations of the customer.
 Opportunities Identification: With the analysis of the current environment, an
organization will be able to identify the possible opportunities and take necessary steps.

Strategy Formulation

Strategy formulation is the process of selecting the most appropriate and efficient ways
to realize an organization’s vision and help it realize its goals and objectives. The strategy
formulation process is a part of strategic management and involves using several analytical tools
to figure out the best way to use an organization’s resources. Strategy formulation allows an
organization to create a financial blueprint for creating profits and being sustainable in the long
haul.

The most popular way of examining a strategy formulation process is through the SWOT
analysis. SWOT is an acronym for strengths, weaknesses, opportunities and threats. It provides a
detailed and comprehensive analysis on strategy formulation and helps an organization
determine whether a particular strategy is fit to be implemented.

Levels of Strategy Formulation: There are three levels of strategy formulation, also known as
the three types of strategy formulation. These levels of strategy formulation refer to the different
ways in which strategizing can take pace at an organization:

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1. Corporate Level Strategy: This is among the most important types of strategy
formulation as it’s used to outline the precise requirement of an organization—growth,
acquisition, stability or retrenchment. This in turn shapes the nature of the work that an
organization does, the timeline it has to follow and the resources that are at its disposal.

2. Business Level Strategy: As one of the levels of strategy formulation that requires the
most research and investment of time and personnel, the business level strategy has a
specific purpose. That purpose is to answer the question—how exactly is an organization
going to compete? This takes into account an organization’s abilities to expand and retain
a competitive edge in the market. This type of strategy formulation is particularly useful
for those organizations that have several small units of business, each one of which is
considered to be a strategic business unit (SBU).

3. Functional Level Strategy: This level of strategy is concerned less with ideation and
more with logistical management and execution. The focus of this level is primarily on
growth and how daily actions, including allocation of resources, can help deliver
corporate and business level strategies for the organization to reach its business goals.

Steps Of Strategy Formulation

There are six separate steps that are recognized as part of the strategy formulation
process. Each of these steps of strategy formulation has a specific role to play, although it’s not
mandatory for the steps to follow a specific chronology to be effective. Let’s take a closer look
at all the steps of strategy formulation with a brief explanation for each.

1. Determining Organizational Objectives: The primary purpose of strategic

formulation is to set down certain objectives that an organization tries to meet. Objectives
may be ambitious or modest, but in either case, they must be spelt out with the help of a
detailed plan that shows how these objectives can be realized by the organization. When
determining organizational objectives, strategy formulation also takes care of the time
periods when particular objectives have to be met or discarded, in case they’re no longer
feasible within the scope of the industry concerned.

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2. Assessing the Organizational Environment: The second step of strategy

formulation involves assessing the industrial and economic environment in which an
organization operates. This means that competitors within an industry need to be
observed, tracked and analyzed. In addition to that, regular qualitative and quantitative
reviews of an organization’s products or services must be carried out.

3. Fixing Quantitative Targets: This step requires organizations to fix quantitative

targets that they must meet in a particular quarter or financial year. These targets provide
useful information about the long-term value of customers to an organization as well as
the performance trajectories of various product or service zones and operating
departments across an organization.

4. Divisional Plans and Contributions From Different Departments: For this step,
each department or division or product or service category present in an organization is
identified and evaluated for its performance and adherence to strategic planning. This is
done not only for the department in question but also for each of the sub-units under a
single department.

5. Performance Analysis: As part of this step, organizations are required to identify and
analyze the gap between desired performance and actual performance. This is done on the
basis of performance data, customer feedback, employee suggestions as well as a general
survey of the trends and patterns present in an organization. This step is vital to build
connections between what an organization has done in the past, how it’s faring in the
present and what it can accomplish in the future.

6. Choice of Strategy: The previous five steps of strategy formulation are supposed to
culminate in the sixth and final step of deciding the actual strategy for an organization.
To pick the best course of action, this step requires active and careful consideration of
organizational strengths and weaknesses, potential, limitations as well as the presence of
internal and external opportunities for that organization.

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SWOT ANALYSIS

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. the four factors
(Strengths, Weaknesses, Opportunities and Threats) is given below

1. 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.

2. 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 in an organization may be depreciating
machinery, insufficient research and development facilities, narrow product range, poor
decision-making, etc. 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.

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3. 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. 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.

4. Threats - Threats arise when conditions in external environment put at risk, 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

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.

Limitations of SWOT Analysis

a. Price increase;
b. Inputs/raw materials;

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c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labor; etc

4. B.PROJECT MANAGEMENT

Network A network is a graphic representation of a project’s operations and a composed

of activities and events that must be completed to reach the end objective of a project, showing
the planning sequence of time accomplishment, their dependence and inter-relationship.

Network Diagram Representation

Event- An event represents the start (beginning) or completion (end) of some activity and as
such it consume no time. It has no time duration and does not consume any resources. It is also
known as a node. An event is generally represented on the network by a circle.

Activity- An activity is a task, or item of work to be done, that consume time, effort, money or
other resources. An activity is represented by an arrow with its head indicating the sequence in
which the events are to occur. The activity can be further classified into the following three
categories

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1. Predecessor activity- An activity which must be completed before one or more other
activities start is known as predecessor activity

2. Successor activity- An activity which started immediately after one or more of other
activities are completed is known as successor activity.

3. Concurrent activity – Activities which can be accomplished concurrently are known as

concurrent activities. It may be noted that an activity can be a predecessor or a successor to
an event or it may be concurrent with one or more of other activities.

4. Dummy activity- An activity which does not consume either any resource or time is
known as dummy activity. A dummy activity is depicted by dotted line in the network
diagram.

For example, consider a situation where A and B are concurrent activities. C is dependent
on A and D is dependent on A and B both. Such a situation can be handled by using a
dummy activity as shown in the figure:

PERT and CPM are two statistical tools used to schedule and plan tasks or activities
within a project. These methods are utilized to control time, resources, output and several other
aspects of a project.

Rules for Drawing Network Diagram

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Common Errors in Drawing Networks

1. Dangling: To disconnect an activity before the completion of all activities in a network diagram
is known as dangling. As shown in the figure activities (5 – 10) and (6 – 7) are not the last
activities in the network. So the diagram is wrong and indicates the error of dangling.

2. Looping or Cycling: Looping error is also known as cycling error in a network diagram.
Drawing an endless loop in a network is known as error of looping as shown in the following
figure.

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3. Redundancy: Unnecessarily inserting the dummy activity in network logic is known as the error
of redundancy as shown in the following diagram

Program Evaluation Review Technique (PERT): It is used to plan and identify the time taken
to complete a particular activity in a project. Charts created via PERT provide a graphical
representation of each task of a project’s timeline.

Critical Path Method (CPM): It is a project modeling technique that is used for scheduling
project activities. It simply finds the maximum time required to complete a specific task. A CPM
model includes the following:

 List of all activities involved in the project.

 Dependence of each activity with one another.
 Estimated time required to complete each activity.

Advantages and Disadvantages PERT/CPM:

Advantages:

1. A PERT/CPM chart explicitly defines and makes visible dependencies (precedence

relationships) between the elements
2. PERT/CPM facilitates identification of the critical path and makes this visible,
3. PERT/CPM facilitates identification of early start, late start, and slack for each Activity
4. PERT/CPM provides for potentially reduced project duration due to better understanding
of dependencies leading to improved overlapping of activities and tasks where feasible.

PERT/CPM disadvantages:

1. There can be potentially hundreds or thousands of activities and Individual

dependency relationships.

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2. The network charts tend to be large and unwieldy requiring several pages to print and
requiring special size paper.
3. The lack of a timeframe on most PERT/CPM charts makes it harder to show status
although colors can help (e.g., specific color for completed nodes).
4. When the PERT/CPM charts become unwieldy, they are no longer used to manage
the project.

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3. Determination of floats and slack times

 Total float – The amount of time by which the completion of an activity could be delayed
beyond the earliest expected completion time without affecting the overall project duration
time.

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Mathematically

(Tf)ij = (Latest start – Earliest start) for activity ( i – j)

(Tf)ij = (Ls)ij - (Es)ij or (Tf)ij = (Lj - Dij) – Ei

 Free float – The time by which the completion of an activity can be delayed beyond the
earliest finish time without affecting the earliest start of a subsequent activity.

Mathematically

(Ff)ij = (Earliest time for event j – Earliest time for event i) – Activity time for ( i, j)

(Ff)ij = (Ej - Ei) - Dij

4. Determination of critical path

 Critical event – The events with zero slack times are called critical events. In other
words the event i is said to be critical if Ei = Li
 Critical activity – The activities with zero total float are known as critical activities. In
other words an activity is said to be critical if a delay in its start will cause a further delay
in the completion date of the entire project.
 Critical path – The sequence of critical activities in a network is called critical path. The
critical path is the longest path in the network from the starting event to ending event and
defines the minimum tie required to complete the project.

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Project Evaluation and Review Technique (PERT): The main objective in the analysis
through PERT is to find out the completion for aparticular event within specified date. The
PERT approach takes into account the uncertainties. The three time values are associated with
each activity

1. Optimistic time – It is the shortest possible time in which the activity can be
finished. It assumes that everything goes very well. This is denoted by t0.

2. Most likely time – It is the estimate of the normal time the activity would take.
This assumes normal delays. If a graph is plotted in the time of completion and
the frequency of completion in that time period, then most likely time will
represent the highest frequency of occurrence. This is denoted by tm.

3. Pessimistic time – It represents the longest time the activity could take if
everything goes wrong. As in optimistic estimate, this value may be such that only one in
hundred or one in twenty will take time longer than this value. This is
denoted by tp.

In PERT calculation, all values are used to obtain the percent expected value.

1. Expected time – It is the average time an activity will take if it were to be

repeated on large number of times and is based on the assumption that the activity
time follows Beta distribution, this is given by te = ( t0 + 4 tm + tp ) / 6

The variance for the activity is given by : σ2 = [(tp – to) / 6]

PROJECT COST ANALYSIS

A project cost analysis is a process that professionals can use to determine the value of a
project's costs and benefits, which highlights if a project is feasible. It begins with a company
determining a set price of revenue they want to generate from the project, then creating a list of
all the project expenses, combined with the benefits that a company receives from the project
once it's finished.

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After the list, the company adds together the total value of their costs and benefits, then
subtracts the total cost from the benefits, which shows if a project is profitable and meets their
set price. For example, if a project cost analysis shows that a project's materials cost is higher
than the profit that a company makes off the project, then they may decide against pursuing the
project.

1. Determine a set price: Before starting your project cost analysis, have a set budget that helps
you decide if you want to pursue a project or not. For example, you may decide to only pursue a
project if the project cost analysis shows that it will bring in $30,000 in revenue to your
company.

2. List all associated costs: To begin your project cost analysis, list all elements that have costs
associated with the project. Try including any unexpected costs, like extra materials you may
need or extra equipment that's prone to breakage.

3. Convert cost to monetary value : Next, assign a monetary value to each element that you
listed. To do this, you can communicate with suppliers for your project to understand the cost of
materials and equipment, and communicate with management about overhead costs, like labor,
rent and taxes.

4. List estimated benefits: After listing your costs, make a list of the benefits that you estimate
the project to create. To do this, look at the goals of your project and who can benefit from your
project.

5. Convert benefits to monetary value: Try to assign a monetary value to each benefit, though
keep in mind that your estimations may be off slightly since there are several factors that predict
the outcome of a project. To do this, analyze previous projects similar to the project you're
currently completing to see how their estimated benefits compared to the actual benefits.

6. Add costs together: Add the total value of your project costs together.

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7. Perform subtraction: To complete your project cost analysis, perform the necessary
subtraction that shows your project's overall profitability. Subtract the project's total costs from
the estimated benefits.

8. Compare to your decided price: Once you have completed your project cost analysis,
compare it to your set price to determine if the project is worth pursuing or not.

Benefits of project cost analysis

Here are several benefits from completing a project cost analysis:

 Minimizes financial risk: Project cost analysis shows if there's a possibility of the
project exceeding the budget and having low profitability. 
 Determines project feasibility: Using project cost analysis shows if a project is feasible
according to your budget and the project's profitability. 
 Helps prioritize projects: If you do a project cost analysis for several projects, you can
determine which projects to pursue based on which projects show the highest profitability
and lowest financial risk. 
 Get support from stakeholders: If a project cost analysis shows that a project is feasible
and profitable, it may help you to earn support from stakeholders. 

Project Crashing

Project crashing involves shortening the expected time taken for a project. This is
primarily done by adding more resources to it. You may find diverse ways to add resources to a
project depending on what is causing the delay or taking a lot of time. This needs to be done
within the constraints of budget and quality, and must be approved and supported by important
stakeholders.

Reasons for Project Crashing

 The reason for the need to crash a project need not be about something going wrong with
the project itself.

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 Sometimes it is also an external factor that changes the estimated delivery time or brings
a need for faster completion.
 If there is a heavy penalty for failing to meet a project completion deadline, then the
increased cost of crashing could be justified to an extent.
 A bonus for faster completion can also similarly be a reason for crashing a project.
 If there is an external change where a competitor is working on a similar project, the cost
of not speeding up the project would lead to the loss of a competitive edge.
 In case there is an activity that delays a host of other activities, crashing that activity
could bring benefits across the project.
 if there are new people or an idle workforce available that was not previously
anticipated, the project plan can be changed to use this additional workforce to bring
down the time for completion.

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