PEST - Risk analytical tool

PEST - Risk analytical tool : PEST - Risk analytical tool Prepared by: Dr. H. Kwame Afaglo(PhD, BSc) 2009

PEST – Risk analytical tool : PEST – Risk analytical tool PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business. A PEST analysis is a business measurement tool. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organizational unit.

PEST – Risk analytical tool : PEST – Risk analytical tool PEST analysis headings are a framework for reviewing a situation, and can also, like SWOT analyses , and Porter’s Five Forces model, be used to review a strategy or position, direction of a company, a marketing proposition, or idea. Completing a PEST analysis is very simple, and is a good subject for workshop sessions. PEST analysis also works well in brainstorming meetings. Use PEST analysis for business and strategic planning, marketing planning, business and product development and research reports.

PEST – Risk analytical tool : PEST – Risk analytical tool You can also use PEST analysis exercises for team building games. PEST analysis is similar to SWOT analysis - it's simple, quick, and uses four key perspectives. As PEST factors are essentially external, completing a PEST analysis is helpful prior to completing a SWOT analysis (a SWOT analysis - Strengths, Weaknesses, Opportunities, Threats - is based broadly on half internal and half external factors).

PEST – Risk analytical tool : PEST – Risk analytical tool The PEST model, like most very good simple concepts, has prompted several variations on the theme. For example, the PEST acronym is sometimes shown as STEP, which obviously represents the same factors. Stick with PEST - nearly everyone else does. More confusingly (and some would say unnecessarily) PEST is also extended to seven or even more factors, by adding Ecological (or Environmental), Legislative (or Legal), and Industry Analysis, which produces the PESTELI model.

PEST – Risk analytical tool : PEST – Risk analytical tool Other variations on the theme include STEEP and PESTLE, which allow for a dedicated Ethical section. STEEPLED is another interpretation which includes pretty well everything except the kitchen sink: Political, Economic, Social and Technological - plus Ecological or Environmental, Ethical, Demographic and Legal. It's a matter of personal choice, but for most situations the original PEST analysis model arguably covers all of the 'additional' factors within the original four main sections.

PEST – Risk analytical tool : PEST – Risk analytical tool For example Ecological or Environmental factors can be positioned under any or all of the four main PEST headings, depending on their effect. Legislative factors would normally be covered under the Political heading since they will generally be politically motivated. Demographics usually are an aspect of the larger Social issue. Industry Analysis is effectively covered under the Economic heading.

PEST – Risk analytical tool : PEST – Risk analytical tool Ethical considerations would typically be included in the Social and/or Political areas, depending on the perspective and the effect. Thus we can often see these 'additional' factors as 'sub-items' or perspectives within the four main sections. Keeping to four fundamental perspectives also imposes a discipline of considering strategic context and effect. Many potential 'additional' factors (ethical, legislative, environmental for example) will commonly be contributory causes which act on one or some of the main four headings, rather than be big strategic factors in their own right.

PEST – Risk analytical tool : PEST – Risk analytical tool The shape and simplicity of a four-part model is also somehow more strategically appealing and easier to manipulate and convey. Ultimately you must use what version works best for you, and importantly for others who need to understand you, which is another good reason perhaps for sticking with PEST, because everyone knows it, and you'll not need to spend half the presentation explaining the meaning of STEEPLED or some other quirky interpretation.

PEST – Risk analytical tool : PEST – Risk analytical tool A PEST analysis most commonly measures a market; a SWOT analysis measures a business unit, a proposition or idea. Generally speaking a SWOT analysis measures a business unit or proposition, whereas a PEST analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words. PEST analysis uses four perspectives, which give a logical structure, in this case organized by the PEST format, that helps understanding, presentation, discussion and decision-making.

PEST – Risk analytical tool : PEST – Risk analytical tool PEST analysis can be used for marketing and business development assessment and decision-making, and the PEST template encourages proactive thinking, rather than relying on habitual or instinctive reactions. Here the PEST analysis template is presented as a grid, comprising four sections, one for each of the PEST headings: Political, Economic, Social and Technological.

PEST – Risk analytical tool : PEST – Risk analytical tool Like SWOT analysis, it is important to clearly identify the subject of a PEST analysis, because a PEST analysis is four-way perspective in relation to a particular business unit or proposition - if you blur the focus you will produce a blurred picture - so be clear about the market that you use PEST to analyse.

PEST – Risk analytical tool : PEST – Risk analytical tool A market is defined by what is addressing it, be it a product, company, brand, business unit, proposition, idea, etc, so be clear about how you define the market being analysed, particularly if you use PEST analysis in workshops, team exercises or as a delegated task. The PEST subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:

PEST – Risk analytical tool : PEST – Risk analytical tool a company looking at its market a product looking at its market a brand in relation to its market a local business unit a strategic option, such as entering a new market or launching a new product a potential acquisition a potential partnership an investment opportunity

PEST – Risk analytical tool : PEST – Risk analytical tool Be sure to describe the subject for the PEST analysis clearly so that people contributing to the analysis, and those seeing the finished PEST analysis, properly understand the purpose of the PEST assessment and implications. The analysis can be converted into a more scientific measurement by scoring the items in each of the sections. There is an established good or bad reference points - these are for you to decide.

PEST – Risk analytical tool : PEST – Risk analytical tool Scoring is particularly beneficial if more than one market is being analysed, for the purpose of comparing which market or opportunity holds most potential and/or obstacles. This is useful when considering business development and investment options, ie, whether to develop market A or B; whether to concentrate on local distribution or export; whether to acquire company X or company Y, etc. If helpful when comparing more than one different market analysis, scoring can also be weighted according to the more or less significant factors.

PEST – Risk analytical tool : PEST – Risk analytical tool Political ecological/environmental issues current legislation home market future legislation International legislation regulatory bodies and processes government policies government term and change trading policies funding, grants and initiatives home market lobbying/pressure groups international pressure groups wars and conflict

PEST – Risk analytical tool : PEST – Risk analytical tool Economic home economy situation home economy trends overseas economies and trends general taxation issues taxation specific to product/services seasonality/weather issues market and trade cycles specific industry factors market routes and distribution trends customer/end-user drivers interest and exchange rates international trade/monetary issues

PEST – Risk analytical tool : PEST – Risk analytical tool Social lifestyle trends demographics consumer attitudes and opinions media views law changes affecting social factors brand, company, technology image consumer buying patterns fashion and role models major events and influences buying access and trends ethnic/religious factors advertising and publicity ethical issues

PEST – Risk analytical tool : PEST – Risk analytical tool Technological competing technology development research funding associated/dependent technologies replacement technology/solutions maturity of technology manufacturing maturity and capacity information and communications consumer buying mechanisms/technology technology legislation innovation potential technology access, licensing, patents intellectual property issues global communications

PEST – Risk analytical tool : PEST – Risk analytical tool PEST becomes more useful and relevant the larger and more complex the business or proposition, but even for a very small local businesses a PEST analysis can still throw up one or two very significant issues that might otherwise be missed. The four quadrants in PEST vary in significance depending on the type of business, eg., social factors are more obviously relevant to consumer businesses or a B2B business close to the consumer-end of the supply chain,

PEST – Risk analytical tool : PEST – Risk analytical tool whereas political factors are more obviously relevant to a global munitions supplier or aerosol propellant manufacturer. All businesses benefit from a SWOT analysis, and all businesses benefit from completing a SWOT analysis of their main competitors, which interestingly can then provide some feed back into the economic aspects of the PEST analysis.

PEST – Risk analytical tool : PEST – Risk analytical tool Reference Chapman, A. (1995) pest market analysis tool Available from http://www.businessballs.com/pestanalysisfreetemplate.htm [Accessed on 15 July, 2009] Wikipedia Encyclopaedia, Available from http://en.wikipedia.org/wiki/PEST_analysis [Accessed on 15 July 2009]

PEST – Risk analytical tool : PEST – Risk analytical tool Thank you.