Limitations of a PEST Analysis Written by: Sidharth Thakur • Edited by: Ginny Edwards Published Dec 26, 2010 • Related Guides: Strategy If you’re planning to use PEST analysis during strategy planning – it’s important that you understand the limitations of a Pest Analysis before relying completely on its results. Here’s a list of some of the limitations which can cloud the results of a PEST analysis. PEST, or what is also known as PESTLE, is a strategic management tool used to study and analyze how Political, Economic, Social, Technological, Legal and Environmental factors affect a business or a project. This strategic planning tool is quite an effective way of scanning the operating environment of a project; however, in this article we’ll talk about the limitations of a PEST analysis rather than its advantages.
Limitations of a PEST Analysis 1. The external external factors factors considered considered during during PEST PEST analysis analysis are dynamic dynamic and and they change change at a very fast pace. At times, these changes may occur in less than a day’s time, thus making it tricky to predict why and how these factors may affect the present or future of the project. On many occasions, environmental changes that may have an adverse effect on the project may not be noticeable during their initial stages. All that indicates that a certain amount of uncertainty still remains even after carrying out a detailed PESTLE analysis, which to some extent defeats the prime purpose of this analysis – cutting down the uncertainty.
click to enlarge Its simple presentation can also be considered a limitation. For PEST analysis, the usual procedure proced ure is to prese present nt a simple simple list list of the environmental factors that can affect the project. Unless the attributing factors are critically examined in terms of the degree of impact, the findings of the analysis don’t seem to be of much value. 3. Collecting Collecting enormous enormous amounts amounts of relevant relevant data data from the right right sources sources becomes becomes a bit of a problem, problem, especially especially since since most most of the pertinent pertinent data must must be collected collected from from external external agencies. This makes PEST analysis not only time consuming but costly as well. Also, getting the latest data and keeping the analysis updated with it becomes a problem.
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4. The lack of easily available updated information, as mentioned in the point above, leads to one more problem – making too many assumptions. Oftentimes, the factors mentioned in the analysis are based more on assumptions and less on actual facts. An analysis based on unfounded assumptions can lead to planning disasters. So, it’s important to device some method to cross-verify whether the factors mentioned in the PEST analysis are not merely based on tenuous assumptions. 5. A proper PEST analysis requires a lot of information to be collected. But when handling too much information, the users tend to get confused and lose sight of what factors are more critical. This ambiguity in prioritizing the affecting factors can put the entire planning on the wrong track. 6. PEST analysis is insufficient for the purpose of strategic planning, since it scans only the external environment while completely ignoring the internal environment and the competitive scenario. Nonetheless, there sure are ways to overcome this limitation. For PEST analysis to make some worthwhile contributions towards strategic planning it must be in conjunction with other tools like SWOT analysis to get a more realistic overall picture. PEST does offer a viable technique for carrying out an environmental scan for a project, however, its effectiveness depends on the accuracy of the data collected, timely updates to accommodate changes and the use of additional tools that can trim down the limitations of a PEST analysis to some extent. his factsheet was last updated in November 2010. What is PESTLE analysis?
PESTLE stands for - Political, Economic, Sociological, Technological, Legal, Environmental. The term PESTLE has been used regularly in the last 10 years and its true history is difficult to establish. Various other similar acronyms have been used including ETPS, STEP, PEST, and STEEPLE. The term PESTLE is particularly popular on HR and introductory marketing courses in the UK. PESTLE analysis is in effect an audit of an organisation's environmental influences with the purpose of using this information to guide strategic decision-making. The assumption is that if the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes. To help make decisions and to plan for future events, organisations need to understand the wider ‘meso-economic’ and ‘macro-economic’ environments in which they operate. (The mesoeconomic environment is the one in which we operate and have limited influence or impact, the macro-environment includes all factors that influence an organisation but are out of its direct control). An organisation on its own cannot affect these factors, nor can these factors directly affect the profitability of an organisation. But by understanding these environments, it is possible to take the advantage to maximise the opportunities and minimise the threats to the organisation. Conducting a strategic analysis entails scanning these economic environments to detect and understand the broad, long term trends.
A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the environment in which an organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation. A PESTLE analysis is often used as a generic 'orientation' tool, finding out where an organisation or product is in the context of what is happening outside that will at some point affect what is happening inside an organisation. The six elements form a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea. Login or register for a free account to continue reading this factsheet and to learn abou
