PEST is an acronym for:
P – Political;
E – Economic;
S – Social; and
T – Technological.
All external factors that commonly effect business activities and performance.
Political – Government regulations and legal issues affect a company’s ability to be profitable and successful and this factor looks at how that can happen.
Economic – This factor examines thee outside economic issues that can play a role in a company’s success. Items to consider include inflation, interest rates, economic growth, unemployment etc.
Social – The Social factor analyzes the demographic and cultural aspects of the company’s market. Items to consider include demographics, population growth, age distribution etc.
Technological – Technology issues affect how an organization delivers its product or service to the marketplace. Items to consider include current technology, role of the internet, technology changes etc.
A PEST Analysis scans only the external environment while the internal environment is completely ignored. For the PEST Analysis to be worthwhile it should be used in conjunction with a SWOT Analysis – Strengths, Weaknesses, Opportunities and Threats.
Why is a PEST Analysis important?
Because these can influence marketing and relationships that a company has worked hard to develop. Knowing ahead of time that a change may occurring will help making better business decisions.
A PEST Analysis guides us to identify effective strategies for setting priorities, allocating resources, planning for time and development roadmap, and formulating control mechanisms. With this analysis, a business owner can identify potential opportunities and threats associated with their strategies and figure out ways to take advantage of them and/or avoid them totally.
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