The main issue considering power system security is how to reduce the overshoot and have better rate of damping of power system oscillations. Generally, Power System Stabilizer (PSS) are used for power system oscillation damping, but inter area oscillations are not effectively damped with PSS, so Flexible ac transmission system (FACTS) devices with supplementary controller are used for effective damping of power system oscillations. For performance analysis the results of eigenvalue analysis and Time domain simulation results are compared for results validation. The controllers such as power oscillation damper and power system stabilizer are tuned according to eigenvalue analysis by considering system stability. The main objective is to reduce the peak overshoot and settling time of inter area oscillations thereby improving power system stability. The optimal placement of phasor measurement units (PMUs) are also done through annealing optimization technique and results of annealing methods are validated using system observability index. Analysis of static synchronous compensator with power oscillation damper (STATCOM-POD) in terms of power oscillation damping is carried out for different case studies such as A three phase short circuit fault, line outage and load contingency. The proposed works are simulated on an IEEE 14 bus standard test system. The test system for the proposed work is modeled and simulated using MATLAB/PSAT. Results shows that by proper tuning of POD with FACTS controllers the power oscillations are damped faster than conventionally used PSS and by the optimal placement of PMUs, the cost of installation of PMUs can be reduced to great extent.