PEST Analysis

PEST analysis is a framework that categorizes macro-environmental influences such as political, economic, social and technological forces often used in the environmental scope of strategic planning. Two additional factors are also occasionally added to the analysis, environmental and legal, to make a broader PESTEL analysis, but these factors are not required to be separated into individual categorical analysis as they can easily be amalgamated within the other categories.

The goal of PEST analysis is to examine the overall impact of each of these categories (and the potential or real correlation with each other) on the business. The results are often used either to take advantage of potential opportunities and/or to make contingency plans for opposing threats when preparing business and strategic plans.

Global, national and local economic conditions all contribute and affect how easy or difficult it is for a business to be successful, grow and be profitable as all of the conditions affect capital availability, cost, and demand as well as influence and impact supply and labor. The four perspectives, which give a logical structure, provide a clear presentation for further discussion and proactive decision-making. In writing a good PEST, the subject should be a clear definition of the market being addressed, which may include issues such as:

  • the company within its market
  • the product the company sells and its place in the market
  • the brand in relation to its market
  • a local business unit
  • a strategic option, such as entering a new market or launching a new product
  • potential acquisition
  • potential partnership
  • investment opportunity

For a PEST analysis to succeed, it's critical to define scope so that the people contributing to the analysis and those interpreting the results from PEST analysis are able to understand the resulting implications.

PEST analysis diagram

How SmartDraw Can Help Creating a PEST Analysis

A PEST analysis can be an invaluable asset to your business, helping you identify the Political, Economic, Social, and Technological factors in the market so your company may build a sound strategic management plan. The PEST acronym is sometimes reworked as STEP, and Smartdraw provides a template for a STEP diagram as well. Smartdraw is so easy to use, you can bring it to your next workshop or brainstorming session, and, as a group, create a professional-looking PEST graphic that has the input of all your contributors, all in real-time.

Once your PEST analysis is complete and you are more knowledgeable about your current market, you can easily move on to perform a SWOT analysis (also included in SmartDraw), determining the Strengths, Weaknesses, Opportunities, and Threats to your business. While a PEST analysis looks at the market in general, SWOT analysis looks specifically at your business, both from the inside and outside, allowing you to see how well you are positioned in the market.

PEST analysis templates