A PEST analysis looks at the external environment of an organization.
What is a PEST analysis and what is it used for?
A PEST analysis looks at the external environment of an organization. PEST stands for: political, economic, social and technological factors. This analysis is really important for an organization because here an organization looks at factors that they have no control over but still trying to achieve their goals.
Political factor basically tell the organization that up to what extent government involvement can affect the business economy. The factor includes labour law, tax, change management and restrictions. Political controls are not in the control of organization they are unpredictable. For example, if the government increases the minimum wage. The costs for employees go up. Then the organization owner will either increase prices or higher fewer employees so can pay more to the employees. Though, if prices are raised there will be few customers buying the product. So most of the business will find a way to operate with fewer workers or reduce the work hours for the employees.
Economic factor includes the exchange rates, economic growth. For example, exchange rates affect the cost of importing raw material and machinery and also it can affect the competiveness of businesses. If the exchange rates are gone down in the country this can affect the organization. If an organization has imported or exported goods. Inflation also affects the organization. For example, if an individual’s monthly income doubles this will allow the individual to afford more stuff. But what if everyone’s income also doubles. The individual will no longer be able to buy more stuff. Because every one else also earns double the amount .so people will be earning more money but chasing the same amount of goods. So, if there is an overall increase in the price of goods then an individual should earn more money than the previous year to avoid becoming poor.
Social factor includes the cultural factors and some other factors such as: standard of living, level of education, gender differences, and religious factors. These factors influence people to be aware of the product.
Factors will include productivity of machinery, Research, development facilities, maturity of technology, and higher range of capacity. These factors have influence on the quality, quantity and the cost. For example if an advanced machinery is used in an organization to make product it will make more product than the organization which has the old machinery.so the quantity of the products will be more and the quality of the products will be outstanding.
According to the PEST analysis the business organization can identify which factors are they being affected from .so they can be full aware and be up-to-date. PEST analysis is one of the comprehensive ways to study the effect of various factors and then utilize them for opportunities and by defending against the threats.