When planning a project, often, project managers look inward for internal factors that are likely to impact its success. From resources to budget to organizational structure to project stakeholders and more.
But, other external factors can have a profound impact on projects and the organization at large. Identifying these macro-economic factors enables you to build a risk management plan around those issues.
A commonly used analytical tool for evaluating external macro-economic factors is PEST Analysis.
In this article, we explain what the PEST analysis is, the factors to analyze, its pros and cons, as well as how you can use it in your projects.
What is a PEST Analysis?
A PEST analysis is a framework organizations use to evaluate the immediate and future impact of macro-economic factors. The process involves project managers and senior executives considering the external environment before starting a project.
The framework is an acronym for four key macro-economic factors:
Political
Economic
Social
Technological
PEST analysis was first introduced by Harvard professor Francis J. Aguilar in 1967. The professor presented the political, economic, social, and technical factors as significant influences on the business environment.
With the help of a thorough PEST analysis, a business can establish how these factors will affect its activities and performance in the long term. Understanding these factors can help your business prepare and deal with them. On the other hand, the lack of this knowledge could cripple your projects before they even begin.
PEST Analysis Factors
Let’s take a deeper look at each of the PEST factors.
P: Political
Political factors relate to government regulations, legal aspects, and how they affect the economy or a particular industry. These factors could includethe government at any level: local state, provincial, territorial, or national/federal.
You may encounter political factors such as stability, tax policies, trade regulation, human rights, elections, safety regulations, spending, and employment laws.
E: Economic
Economic factors are anything that can affect the economy’s performance.
These factors can include inflation, interest rates, currency valuation, GDP growth, unemployment rate, and policies, credit availability, and the business cycle followed in the country.
S: Social
Social factors refer to the socio-economic environment and elements such as customer demographics, norms, cultural limitations, education, and lifestyle attitude. These factors help a business understand how their customer needs are shaped and what influences them to make a purchase.
Social factors include population, age distribution, wealth distribution, marriages/divorces, life expectancy, lifestyles, crime, and education.
T: Technology
Technology factors include technological innovations and how they can positively or negatively impact the introduction of a product or service into a marketplace.
Technology factors include emerging technologies, access to new technology, automation, web infrastructure, research and development, intellectual property regulation, and technology awareness.
PESTLE Analysis: An Extension of PEST Analysis
In addition to the above factors, organizations can choose to expand their analysis further and run a PESTLE analysis—an extension of PEST with two additional macroeconomic factors: Legal and Environment.
L: Legal
Legal factors refer to the specific laws related to how citizens interact, current and impending legislation that affects your industry, and how local government relates to the national government.
Primary technology factors you might consider include consumer protection, health and safety, discrimination, employment laws, copyrights/patents, education, and data protection.
E: Environmental
Environmental factors include weather, geography, climate, natural resources, environmental policies, transportation, natural disasters, pollution, insurance, recycling, and energy usage.
Why PEST Analysis is Useful in Project Management
There are a few good reasons why you should consider using PEST analysis for your project management.
- It’s simple and easy to use.
- Allows you to analyze how your strategy fits into the broader environment so that you can make strategic business decisions systematically.
- Provides an overview of all the critical external factors influencing your organization.
- Gives you insight into threats and opportunities for business and projects. This way, you can address threats and take advantage of opportunities.
- Enables project managers to anticipate risks and take action to avoid or minimize their effect.
Disadvantages of PEST Analysis
While there are plenty of great reasons to put PEST to use, there are a few cons to keep in mind too:
- It can take time and effort to go through all data to complete the analysis.
- Society is ever-changing, making it challenging to anticipate factors that may affect your organization in the future.
- Collecting large amounts of information may lead to paralysis by analysis.
- PEST analysis only covers the external environment and excludes the organization itself and the industry in which it works.
How to Use PEST Analysis in Project Management
When you start a new project, you want to complete it on time and within budget. To do so, you need to understand how the project and organization fit within an existing business environment. A PEST analysis provides an exact list of external factors to consider, exposing opportunities and threats.
To carry out a PEST analysis, the project team brainstorms during the project planning phase to generate as many factors that could fall either in threats or opportunities.
Next, the team filters the factors proposed during the brainstorming session and remains with those relevant to the project. Once the team has a shortlist of factors that could negatively or positively impact the project, they should rate the impact of each factor.
The team then allocates a value between 1-5 to denote how likely each factor will affect the project. Finally, create a risk management plan to guide you on how to mitigate the risk or explore the opportunity.
Mission Control—a robust project management tool—has a risk log feature that lets you keep track of all the factors and uncertainties that can negatively impact your project. This log will be an excellent foundation for creating your risk management plan.
Once you’re done with your PEST analysis, you can use Mission Control to successfully plan, execute, and manage your projects.
Contact us today for a demo of how Mission Control can help your organization plan and manage its projects better.
