By Duncan Haughey | minute read
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:|
|Political stability||State of the economy|
|Tax law||Interest rates|
|Employment law||Exchange rates|
|Trade restrictions and tariffs||Inflation rate|
|Role of men and women in society||Rate of technological change|
|Division of wealth in society||Automation|
|Health and safety||Innovation|
|Population growth rate||Recent 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.