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PEST Analysis

~ By Duncan Haughey

PEST analysis on a blackboard with colour sticky notes and white chalk handwriting

PEST is a strategic planning tool used to evaluate the impact political, economic, social, and technological factors might have on a project. It involves an organisation considering the external environment before starting a project.

The PEST analysis is an important part of the project planning process:

  • Political factors include areas such as tax policy, employment laws, environmental regulation, trade restrictions and tariffs and political stability.
  • Economic factors are economic growth, interest rates, exchange rates and inflation rate.
  • Social factors often look at the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.
  • Technological factors look at elements such as R&D activity, automation, technology incentives and the rate of technological change.

Use the following grid to record each factor:

State Project Objective:
PoliticalEconomic
Political stabilityState of the economy
Tax lawInterest rates
Employment lawExchange rates
Trade restrictions and tariffsInflation rate
Environmental regulationsTaxation
SocialTechnological
Role of men and women in societyRate of technological change
Division of wealth in societyAutomation
Health and safetyInnovation
Population growth rateRecent technological developments

Advantages of PEST

  • Straightforward and only costs time to do.
  • Provides an understanding of the wider business environment.
  • Encourages the development of strategic thinking.
  • May raise awareness of threats to a project.
  • Can help an organisation to anticipate future difficulties and take action to avoid or minimise their effect.
  • Can help an organisation to identify and exploit opportunities.

Disadvantages of PEST

  • Usually, a simple list and not critically presented.
  • The rapid pace of change in society makes it increasingly difficult to anticipate developments that may affect an organisation in the future.
  • Collecting large amounts of information may make it difficult to see the wood for the trees and lead to 'paralysis by analysis'.
  • Basing the analysis on assumptions that may prove to be unfounded.
  • PEST analysis only covers the external environment and the results need considering alongside other factors, such as the organisation itself, competitors and the industry in which it is working.

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