PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning

Environmental scanning

Environmental scanning is one component of the global environmental analysis. Environmental monitoring, environmental forecasting and environmental assessment complete the global environmental analysis. Environmental scanning refers to the macro environment.The global environment refers to the...

 component of strategic management

Strategic management

Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...

. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom. The model has recently been further extended to STEEPLE and STEEPLED, adding Ethics and demographic

Demographics

Demographics are the most recent statistical characteristics of a population. These types of data are used widely in sociology , public policy, and marketing. Commonly examined demographics include gender, race, age, disabilities, mobility, home ownership, employment status, and even location...

 factors. It is a part of the external analysis when conducting a strategic analysis or doing market research

Market research

Market research is any organized effort to gather information about markets or customers. It is a very important component of business strategy...

, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.
The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

Composition

• Political factors are how and to what degree a government
  Government
  Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
  
   intervenes in the economy. Specifically, political factors include areas such as tax policy
  Tax policy
  Tax policy is the government's approach to taxation, both from the practical and normative side of the question.-Philosophy:Policymakers debate the nature of the tax structure they plan to implement and how they might affect individuals and businesses .The reason for such foitution effect]],...
  
  , labour law
  Labour law
  Labour law is the body of laws, administrative rulings, and precedents which address the legal rights of, and restrictions on, working people and their organizations. As such, it mediates many aspects of the relationship between trade unions, employers and employees...
  
  , environmental law
  Environmental law
  Environmental law is a complex and interlocking body of treaties, conventions, statutes, regulations, and common law that operates to regulate the interaction of humanity and the natural environment, toward the purpose of reducing the impacts of human activity...
  
  , trade restriction
  Trade restriction
  A trade restriction is an artificial restriction on the trade of goods between two countries. It is the result of protectionism. However, the term is not uncontroversial since what one part may see as a trade restriction another may see as a way to protect consumers from inferior, harmful or...
  
  s, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit good
  Merit good
  The concept of a merit good introduced in economics by Richard Musgrave is a commodity which is judged that an individual or society should have on the basis of some concept of need, rather than ability and willingness to pay...
  
  s) and those that the government does not want to be provided (demerit good
  Demerit good
  In economics, a demerit good is a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves. It is over-consumed if left to market forces. Examples of demerit goods include tobacco,...
  
  s or merit bads). Furthermore, governments have great influence on the health
  Health
  Health is the level of functional or metabolic efficiency of a living being. In humans, it is the general condition of a person's mind, body and spirit, usually meaning to be free from illness, injury or pain...
  
  , education
  Education
  Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
  
  , and infrastructure
  Infrastructure
  Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
  
   of a nation.

• Economic factors include economic growth
  Economic growth
  In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
  
  , interest rate
  Interest rate
  An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
  
  s, exchange rate
  Exchange rate
  In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
  
  s and the inflation rate
  Inflation rate
  In economics, the inflation rate is a measure of inflation, the rate of increase of a price index . It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal.The inflation rate is used to calculate the real interest...
  
  . These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital
  Cost of capital
  The cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds , or, from an investor's point of view "the shareholder's required return on a portfolio of all the company's existing securities"...
  
   and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

• Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

• Technological factors include technological aspects such as R&D activity, automation
  Automation
  Automation is the use of control systems and information technologies to reduce the need for human work in the production of goods and services. In the scope of industrialization, automation is a step beyond mechanization...
  
  , technology incentives and the rate of technological change
  Technological change
  Technological change is a term that is used to describe the overall process of invention, innovation and diffusion of technology or processes. The term is synonymous with technological development, technological achievement, and technological progress...
  
  . They can determine barriers to entry, minimum efficient production level and influence outsourcing
  Outsourcing
  Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
  
   decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation
  Innovation
  Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
  
  .

• Environmental factors include ecological and environmental aspects such as weather, climate, and climate change
  Climate change
  Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average...
  
  , which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.

• Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law
  Health and safety law
  Health and safety law is a body of law that protects the health, safety and welfare of the general public and certain defined sectors of the population such as employees...
  
  . These factors can affect how a company operates, its costs, and the demand for its products.

Applicability of the Factors

The model's factors will vary in importance to a given company based on its industry and the goods it produces. For example, consumer and B2B

Business-to-business

Business-to-business describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer...

 companies tend to be more affected by the social factors, while a global defense contractor would tend to be more affected by political factors. Additionally, factors that are more likely to change in the future or more relevant to a given company will carry greater importance. For example, a company which has borrowed heavily will need to focus more on the economic factors (especially interest rates).

Furthermore, conglomerate companies who produce a wide range of products (such as Sony, Disney, or BP) may find it more useful to analyze one department of its company at a time with the PESTEL model, thus focusing on the specific factors relevant to that one department. A company may also wish to divide factors into geographical relevance, such as local, national, and global (also known as LONGPESTEL).

Use of PEST analysis with other models

The PEST factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a SWOT analysis

SWOT analysis

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture...

.

External links

• PEST analysis method and examples, Businessballs.com
• PESTLE analysis factsheet, Chartered Institute of Personnel and Development (CIPD)