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
The external factors considered during PEST analysis are dynamic and they 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.
Its simple presentation can also be considered a limitation. For PEST analysis, the usual procedure is to present a simple 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.
Collecting enormous amounts of relevant data from the right sources becomes a bit of a problem, especially since most of the pertinent data must be collected from 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.
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.
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.
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.
Image by: Sidharth Thakur
This post is part of the series: PEST or PESTLE Analysis
Here’s a series of articles on PEST analysis - an environmental scanning tool used during strategic planning.