What Is A PEST Analysis?

Dear M & M: I just heard the term what is a PEST Analysis? – Jan

Dear Jan: PEST is an external scan of factors that could affect your business. It stands for Political, Economic, Social and Technological forces. Many people think they are beyond your control. Why bother? Even though they are perceived as threats by looking into them you will be able to possibly find opportunities and or solution to mitigate the perceived risks. While many are country specific you will find differing geographical conditions or various markets will all have varying degrees of influence on your organization. The first part of a PEST is political risks.

Political risks can be from legislative wage or health benefit regulations to the possibility of a complete military takeover. One has to consider the political risk or involvement by the government in your business. Regulations from product labeling, licensing and how intellectual property is regulated are included in this category.  If engaging in International trade rules and regulations are country specific.  Do not assume laws in the U.S. have any influence or similarity to other countries. The next part of a PEST analysis is economic and deals with the economy. How is the economy preforming in your proposed market area?

Is there high unemployment, inflation, decreasing sales, high labor costs, high interest rates or other economic factors influencing your market?  Does the economy in your region affect you and in what way? Moving on to the third letter in a PEST analysis, it is all about social concerns in a society or social influences their might be present. Some businesses are more prone to having social needs being considered or factored into their analysis. I am certain most everyone needs to understand environmental, wildlife and water issues affecting this region on any project they are considering.

One needs to also understand the entrepreneurial spirit and social causes like environmental issues and society influences and just how active and strong the players are involved in your area. Finally, the last part is taking a look at Technology. Are there recent or upcoming disruptive changes happening in your industry? Are there any new products or changes in the marketplace in regards to any changing technology? Even though it may be difficult to forecast with accuracy changing factors, trends or conditions in your industry or marketplace taking some time out to explore and understand some external factors that could affect you is very important in planning to mitigate to enable one to deal more effectively with any possible problems.

Amazon and online shopping is a trend that will continue to change shopping habits and how people will buy. Understanding and knowing about trends, technology and change will enable one to take counteractive measures to compete. Although we cannot control most outside influences we find doing a PEST analysis. We can develop solutions to mitigate perceived threats and problems discovered in doing a PEST analysis.



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