May 4, 2012

PM0010 [Introduction to Project Management] Set1 Q5

Q.5. Write a short note on the following:
a. SWOT Analysis as a Strategic Planning tool.
b. Net Present Value (NPV) as a Project selection criterion.

Ans:
a. SWOT Analysis as a Strategic Planning Tool
Periodic SWOT analysis facilitates the generation of ideas. It is also be used for screening of ideas. In SWOT, the following questions are answered before arriving at a decision on a strategy or project:
What is our (that is our organisation”s) strengths? How can we take advantage of them?
What weaknesses do we have? How do we minimise the effect of them?
What opportunities does this market offer us? How can we capitalise on them?
What threats exist that may impact our success? How can we deal effectively with these?


It is a process of checking the company”s internal workings, which are relatively easier to identify and control than outside factors. Conversely, examining opportunities and threats are a part of environmental analysis that is, the company must look outside of the organisation to determine opportunities and threats, over which it has lesser control.


Four SWOT concepts are:
Strength
Weakness
Opportunities
Threats


The SWOT analysis framework is summarised in figure.

                                              
                                   SWOT Analysis
Examples of each of the above four concern areas are as follows:


Strengths (S)
Strength of a company is its ability to, create new products, provide high level customer service, have a presence in multiple retail markets and enhance quality of its managers. It is also being privy to a technological edge in manufacturing a higher quality product or a cheaper product of the same quality as competitors.

General examples of Strengths are:
Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural
Favourable access to distribution networks


Weaknesses (W)
The absence of certain strength may be viewed as a weakness. For example an often cited original weakness is that when the business was started by Sunil Bharti Mittal over 15 years ago, the business has little knowledge and experience of how a cellular telephone system actually worked. So the starting business had to outsource to industry experts in the field. General examples of weaknesses i.e., the absence of certain strengths is the lack of strengths like:
Lack of patent protection
A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural resources
Lack of access to the key distribution channels


We should note that in some cases, a company may consider a factor as an S when it may actually be a W. For example, a large manufacturing capacity compared to a competitor is consider as S – but if that results in the company are being slow in reacting to changes in the strategic environment, it is a W. Hence a practical evaluation by the company is required here.


Opportunities (O)
Opportunities are external elements that prove helpful in achieving the goals set for the project. Factors of this type can be the positive observation of the  ompany by the general public, a network of vendors who are ready to work with the company to achieve success with the project, and market conditions that help to make the project attractive to the market at large, or a least a significant segment. Availability of internet has provided numerous opportunities for companies to expand their product sales.

General examples of opportunities are:
Arrival of new technologies
Loosening of regulations
Removal of international trade barriers


Threats (T)
Threats can be an individual, group, or organisation outside the company that aims to reduce the level of the company”s performance of the company. For example, Dr.Reddy”s Laboratories (DRL) started with pharmaceutical specialists, who were earlier employed with Indian Drugs & Pharmaceuticals Ltd. (IDPL). DRL overtook IDPL very quickly as a drug manufacturing company, resulting in IDPL having to close its operations. 


Threats can also come from government regulation or consumer groups.


General examples of threats are:
Shifts in consumer tastes away from the firm”s products.
Emergence of substitute products.
New regulations
Increased trade barriers.


A SWOT analysis leads to the generation of a SWOT profile which is used as the basis for goal setting, strategy formulation and implementation. Table shows the SWOT profile.

SWOT analysis is only the first step in developing and implementing an effective organisational strategy. After this analysis, the next step is to rank the strengths, weaknesses, opportunities and threats and to document the criteria for ranking. Table shows a two-by-two grid to determine the company”s strategic fit. The grid is also known as a SWOT Strategic Alternatives matrix or a TOWS Strategic Alternatives matrix.

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