How to Perform a PEST Analysis in 5 Easy Steps

While industry factors have a significant impact on the performance of a company, there are a number of external factors that also play an important role in how successful a business can be. So, how do you determine what role those factors are playing in your business? This is where PEST analysis comes in and allows you to take a look at four external factors, which are political, economic, social and technological, thus giving it the name “PEST.” The tool is used by several organizations as it is effective in projecting the growth of a company in terms of its revenue, profitability and corporate success.

So, how to perform a PEST analysis? Read on, as in the following paragraphs we will show you how.

Step #1 Understand PEST Factors

For a business to perform a proper PEST analysis, first it’s important you understand each factor and its scope:

Political

This analyzes how legal issues and government regulations affect the probability of a business being successful and profitable. Issues which need to be considered include political stability, employment laws, safety regulations and trade regulations.

Economic

This factor focuses on the economic aspects to determine whether or not they can play a role in the success of a business. Issues such as economic growth, unemployment policies, and business cycle of the country, as well as economic, interest and inflation rates need to be taken into consideration.

Social

This examines the cultural and demographic aspects to determine whether the business can compete in the market. This factor will help assess consumer needs as well as the things which compel them to make a purchase. Age distribution, lifestyle changes, population growth, demographics, environmental, health and educational consciousness are some important issues which need to be considered.

Technological

This factor analyzes the factors which affect the means it can bring its product or service to the market. The technology available can either make it easy or tough to improve the production level or enter the industry. Therefore, things such as government expenditure on technology, technological advancements, and lifecycle of technology available, as well as the role of internet and the changes to it (if any) need to be considered.

Step #2: Gather Relevant Data

Next, you need to gather as much as relevant data you can about the external environment of the business. You can find most of the information on the internet. It’s a fast, easy and affordable way, but you can also carry out your own research.

Step #3: Identify Opportunities

Once you have gathered all the information necessary, the next step is to evaluate it and identify any opportunities these changes can bring to you. For example, could it open up new markets, help you develop new products, or make processes more efficient?

Step #4: Identify Threats

Other than identifying the opportunities these changes can bring, it’s also important to determine whether they are undermining your business. This would allow you to prevent problems, or at least reduce their intensity. For example, if a decline in a part of your market is imminent could you open up your business in other areas?

Step# 5: Take Action

Now that you have identified the opportunities, it’s time to take advantage of them by including them in your business plan. Similarly, if there are significant risks, take appropriate steps and measures to eliminate or manage them.

So, follow the aforementioned steps and you will be able to perform a proper PEST analysis of your business with ease.

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