In business analysis, PEST analysis (political, economic, social and technological) is a framework of external macro-environmental factors used in strategic management and

market research Market research is an organized effort to gather information about target markets and customers. It involves understanding who they are and what they need. It is an important component of business strategy and a major factor in maintaining com ...

. PEST analysis was developed in 1967 by Francis Aguilar as an environmental scanning framework for businesses to understand the external conditions and relations of a business in order to assist managers in strategic planning. It has also been termed ETPS analysis. PEST analyses give an overview of the different macro-environmental factors to be considered by a business, indicating market growth or decline, business position, as well as the potential of and direction for operations.

Components

The basic PEST analysis includes four factors: political, economic, social, and technological.

Political

Political factors relate to how the

government A government is the system or group of people governing an organized community, generally a State (polity), state. In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...

s intervene in economies. Specifically, political factors comprise areas including tax policy,

labour law Labour laws (also spelled as labor laws), labour code or employment laws are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship be ...

, environmental law, trade restrictions, tariffs, and political stability. Other factors include what are considered merit goods and demerit goods by a government, and the impact of governments on

health Health has a variety of definitions, which have been used for different purposes over time. In general, it refers to physical and emotional well-being, especially that associated with normal functioning of the human body, absent of disease, p ...

education Education is the transmission of knowledge and skills and the development of character traits. Formal education occurs within a structured institutional framework, such as public schools, following a curriculum. Non-formal education als ...

, and

infrastructure Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and pri ...

of a nation.

Economic

Economic factors include

economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...

exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...

s, inflation rate, and

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

Social

Social factors include cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and safety emphasis. Trends in social factors affect the demand for a company's products and how that company operates. Through analysis of social factors, companies may adopt various management strategies to adapt to social trends.

Technological

Technological factors include R&D activity,

automation Automation describes a wide range of technologies that reduce human intervention in processes, mainly by predetermining decision criteria, subprocess relationships, and related actions, as well as embodying those predeterminations in machine ...

, technology incentives and the rate of

technological change Technological change (TC) or technological development is the overall process of invention, innovation and diffusion of innovations, diffusion of technology or business process, processes.From ''The New Palgrave Dictionary otechnical change by S. ...

. These can determine

barriers to entry In theories of Competition (economics), competition in economics, a barrier to entry, or an economic barrier to entry, is a fixed cost that must be incurred by a new entrant, regardless of production or sales activities, into a Market (economics) ...

, minimum efficient production level and influence the

outsourcing Outsourcing is a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally. Outsourcing sometimes involves transferring employees and assets from one firm to another ...

decisions. Technological shifts would also affect costs, quality, and

innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...

Variants

Many similar frameworks have been constructed, with the addition of other components such as environment and law. These include PESTLE, PMESII-PT, STEPE, STEEP, STEEPLE,Mason, L. (2018), ''Contract Administration'', Chartered Institute of Procurement & Supply, p. 116 STEER, and TELOS.

Legal and regulatory

Legal factors include discrimination law, consumer law,

antitrust law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...

employment law Labour laws (also spelled as labor laws), labour code or employment laws are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship be ...

, and health and safety law, which can affect how a company operates, its costs, and the demand for its products. Regulatory factors have also been analysed as its own pillar.

Environment

Environmental factors include ecological and environmental aspects such as weather, climate, and

climate change Present-day climate change includes both global warming—the ongoing increase in Global surface temperature, global average temperature—and its wider effects on Earth's climate system. Climate variability and change, Climate change in ...

, which may especially affect industries such as tourism, farming, and insurance. Environmental analyses often use the PESTLE framework, which allow for the evaluation of factors affecting management decisions for coastal zone and freshwater resources, development of sustainable buildings,

sustainable energy Energy system, Energy is sustainability, sustainable if it "meets the needs of the present without compromising the ability of future generations to meet their own needs." Definitions of sustainable energy usually look at its effects on the e ...

solutions, and transportation.

Demographic

Demographic factors have been considered in frameworks such as STEEPLED. Factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership, employment status, religious belief or practice, culture and tradition, living standards and income level.

Military

Military analyses have used the PMESII-PT framework, which considers political, military, economic, social, information, infrastructure, physical environment and time aspects in a military context.Walden J. (2011)
Comparison of the STEEPLE Strategy Methodology and the Department of Defense’s PMESII-PT Methodology
Supply Chain Leadership Institute, accessed 10 February 2019

Operational

The TELOS framework explores technical, economic, legal, operational, and scheduling factors.McLeod, S. (2021, June 29). "Interrelated attributes of project feasibility: Visualizing the TELOS framework." '' ournal Name'
doi:10.14293/s2199-1006.1.sor-
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Limitations

PEST analysis can be helpful to explain market changes in the past, but it is not always suitable to predict or foresee upcoming market changes. The macro-environment is highly fluid, and factors can shift unpredictably.

References

* {{Strategic planning tools Strategic management Management theory Analysis