PEST analysis: what it is and how to do it

In brief

PEST analysis describes a company's environment in four areas: political and legal, economic, social and technological. It shows how changes outside the company will affect demand, costs and risk. It works best before entering a new market and as a starting point for competitor analysis.

What factors does PEST analysis cover?

Politics and law

Regulations, taxes, customs duties, public programmes, regulatory stability.

Economy

GDP, inflation, exchange rates, interest rates, energy prices.

Society

Demographics, the labour market, buying habits, customer attitudes.

Technology

Automation, new materials, digitalisation, patents.

How to do a PEST analysis step by step

Step 1 Define the market and the time horizon, for example Poland, 3 years.

Step 2 Collect data for each area from Statistics Poland, Eurostat and legislation.

Step 3 Assess each factor: how strongly it affects the company and how likely it is.

Step 4 Choose the 3–5 factors that will change your business the most.

Example

In the steel structures market, PEST analysis shows that the market depends most on energy prices (E) and delays in public investment (P). These explain why orders fluctuate from quarter to quarter.

Where to find data for each area

Politics and law

Poland's Internet System of Legal Acts (ISAP), draft legislation on the Government Legislation Centre website, EU law in EUR-Lex, public and grant programmes.

Economy

Statistics Poland (GDP, sold production, prices), the National Bank of Poland (interest rates, exchange rates, inflation projections), Eurostat for EU comparisons.

Society

Statistics Poland (demographics, the labour market, household budgets), opinion polls, industry reports on customer behaviour.

Technology

The Patent Office of the Republic of Poland and patent databases, industry publications, technology suppliers' offers, research programmes.

Environment (in PESTEL)

EU climate requirements, CO₂ emission allowance prices, ESG reporting obligations.

PEST analysis template

The simplest template is a table with five columns. For each factor, enter:

area: P, E, S or T,

the factor and its data source, with a date,

direction of change: opportunity or threat,

strength of impact on the company on a scale of 1–5,

probability within the analysis horizon on a scale of 1–5.

Multiplying strength by probability helps rank the factors. The ones with the highest score go into the strategy.

The most common mistakes in PEST analysis

A list of generalities such as “inflation is rising” with no explanation of what it means for the company's demand and costs.

Data with no sources and no dates.

Mixing the environment with the company's own characteristics. Strengths and weaknesses belong in SWOT, not in PEST.

An analysis done once and put away. Factors need updating when regulations or the economic climate change.

Frequently asked questions

How does PEST differ from SWOT?

PEST describes only the external environment. SWOT combines it with the strengths and weaknesses of the company itself.

What is PESTEL?

It is an extended version of PEST in which environmental and legal factors are separate areas.

How long does a PEST analysis take?

A few days if you do it yourself. In an in-depth market analysis it is one of the chapters of the report.

When is it worth doing a PEST analysis?

Before entering a new market, when writing a strategy or business plan, and in a grant application that needs to describe the project's environment.

Does PEST analysis make sense for a small company?

Yes. A shorter list of factors and a single market are enough. What matters is to note, for each factor, what it means for the company.