PESTEL analysis is a strategic planning tool used to evaluate the impact of external factors on a project. It involves an organization's careful consideration of the external environment before starting a new project. PESTEL analysis stands for "Political, Economic, Social, Technological, Environment and Legal analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management.
The model is a part of the external analysis when conducting a strategic study or research and gives an overview of the different macro-environmental factors that the project must take into consideration. It is a useful strategic tool for understanding the external environment where the project will be implemented.
Elements of the PESTEL analysis:
- Political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include the type of goods and services which the government does not want to be provided by the project. Other factors include the political forces that exist in the project area and the level of democracy, participation, and other human rights.
- Economic factors include economic growth, interest rates, exchange rates, and the inflation rate. These factors have major impacts on how projects operate and make decisions. Exchange rates affect the management of a project by increasing the cost of the goods and services.
- Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, education levels, work attitudes, crime levels, safety. Projects may change various management strategies to adapt to these social trends.
- Technological factors include technological aspects such as access to the internet, communications, education, technical support, and the rate of technological change. They can determine the type of technology the project can use.
- Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as ecotourism and farming. Furthermore, growing awareness of the potential impacts of climate change is affecting how organizations operate and the services they offer.
- Legal. Factors include changes in legislations, industry regulations, licenses and permits, contractual laws, employment and consumer protection laws, discrimination law and health and safety law. These factors can have an effect on the costs to implement a project.
The PESTEL analysis is an important part of the project design process that helps identify the factors that need to be taken into consideration for the project to be successful.
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