In order to make decisions and put your forecasts together, you need to understand the fast-changing external environment your business operates in. A PEST analysis is a tool to help you understand that wider context which might impact on the detailed numbers you are putting together.
Periods of change
PEST stands for political, economic, sociological and technological factors external to your company but potentially affecting it.
Brainstorm the PEST factors in turn according to the specific situation you are analysing and record them on a PEST Worksheet.
Alongside this, in the same worksheet, identify and record the information you want to collect that applies to the factors you brainstorm, then you can draw conclusions for your business budgeting based on the information you have collected.
Data/information for the PEST analysis can be obtained from sources of current events and projected future trends such as: (1) newspapers, periodicals, current books; (2) trade organisations; (3) government agencies; (4) industry analysts; and (5) financial analysts.
The six sections of the summary sheet (analysis factors, how factors may affect the business, timeframe, type, impact and importance codes) create a framework you can use to review any strategies you have in place or to work out a new direction, product or plan for your business. There’s no need for long explanations on the summary sheet, so for each factor simply enter: a timeframe of 0-6 months, 6-12 months or 12-24 months; a type: positive, negative or unknown; an impact: increasing, unchanged, decreasing or unknown; and an importance: critical, important, unimportant or unknown.