It is part of an external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors to be taken into consideration. It is a strategic tool for understanding market growth or decline, business position, potential and direction for operations.
Variants that build on the PEST framework include:
The basic PEST analysis includes four factors:
Expanding the analysis to PESTLE or PESTEL adds:
Other factors for the various offshoots include:
More factors discussed in the SPELIT Power Matrix include:
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 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.
The PEST factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and threats in a SWOT analysis. A graphical method for PEST analysis called "PESTLEWeb" was developed at Henley Business School in the UK; research showed that PESTLEWeb diagrams are considered by users to be more logical, rational, and convincing than traditional PEST analysis.