The Pest

Essay by VishyUniversity, Ph.D.B+, October 2014

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PEST & PESTEL Analysis


" PEST analysis - an analysis of the political, economic, social and technological factors in the external environment of an organization, which can affect its activities and performance." [1]

" PESTEL model - a framework that categorizes and analyzes an important set of external forces (political, economic, technological, socio-cultural, ecological, and legal) that might affect a firm." [2]

What is PEST analysis?

PEST or PESTEL analysis is a simple and effective tool used in situation analysis to identify the key external (the macro environment level) forces that might affect an organization. These forces can create both opportunities and threats for the organization. Therefore, the aim of doing PEST is to find out the current factors affecting the company, what changes are going to happen in the external environment and to exploit those changes or defend against them better than competitors would do. The outcome of PEST is an understanding of the overall picture surrounding the company.

Figure 1. Macro environment forces affecting a firm (PEST including legal, environmental, ethical and demographic forces)

PEST analysis is also done to assess the potential of a new market. The general rule is that the more negative forces are affecting that market the harder it is to do business in it. The difficulties that will have to be dealt with significantly reduce profit potential and the firm can simply decide not to engage in any activity in that market.

PEST variations

PEST analysis is the most general version of all PEST variations created. It is a very dynamic tool as new components can be easily added to it in order to focus on one or another critical force affecting the company. Although following variations are more detailed analysis than simple PEST, the additional components are just the extensions...