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PEST analysis is the shorter, condensed version of PESTLE analysis. It’s a tool used by organizations to understand the influence of external factors to a business.
But what does PEST stand for? And why use it over its counterpart, PESTLE? This comprehensive PEST analysis definition addresses these questions and more.
What is PEST analysis?
PEST stands for political, economical, sociocultural, and technological. A PEST analysis examines these four factors and their potential effects in relation to the subject of your analysis.
It is used for businesses, organizations, products, ideas, and general concepts. But as a tool for business analysts, it’s primarily used within business and organizations.
PEST is also the shorter form of PESTLE (or PESTEL) analysis. Two categories — legal and environmental, or the ‘LE’/’EL’ — have been removed. PEST focuses on four categories of factors only.
Why do PEST rather than PESTLE analysis?
It’s about choice.
PESTLE examines the same four categories — political, economical, sociocultural, and technological — with added legal and environmental factors.
Legal factors include legislation, often designed to offer assistance to the people. This is different than political factors (the ‘P’ in PEST) which are laws or bills presented by the government and often designed to assist the law maker.
Environmental factors are issues occurring, both locally and globally, often related to the physical world, like air pollution or global warming.
Both of these factors are important, but they’re not necessarily vital for your analysis.
If you’re doing an analysis about eco-friendliness within an industry, tackling on legal factors and environmental factors is a no-brainer. But for other businesses, the importance may be minimal. Which is why some choose to do a PEST analysis over PESTLE analysis.
Both are relevant: PESTLE analysis provides a greater, overall analysis, while PEST provides a more comprehensive analysis, focussing on four key criteria, relevant to any business or product.
When to do PEST analysis?
PEST analysis identifies opportunities and threats within an environment. The analysis is a strategic planning tool that, in its raw form, serves as a brainstorming session to understand changes happening via external factors.
When polished, it serves as a data-driven, researched analysis used by team leaders, managers, marketing departments, and presented to stakeholders.
PEST analysis is used whenever a change is occurring. Whether it’s within internal organizations, products, business expansions or other relevant organizational shifts. It allows the ability to mitigate and assess risks before they torpedo the business, as any change or shift opens itself to risks. The risks may do minimal or major damage.
PEST analysis helps to identify risk impact and allows for planning to adhere to damage if it’s impossible to avoid. The completed analysis will be kept and compared when a new analysis is finished — weeks, months or even years later.
PEST analysis is a strategic tool that helps businesses understand the impact of outside factors. These factors can’t be influenced, but they can be managed. But only if they are understood, and that’s where PEST comes in.
This type of analysis requires time, research, and when applicable — data. It can be helpful to assess competitors and prepare risk assessments. While PEST is an analysis of it’s own, it works well with others — such as SWOT analysis.