What is Pestle Analysis?

In order to flourish, the construction industry should carry out a pestle analysis so that it can make sure that it is in accordance with the political, economic, social, technological and environmental factors prevailing in the external environment. A good research of the external environment or a good pestle analysis will eventually lead the construction industry to profits.

Pestle analysis

Pestle Analysis Definition

PESTLE is an abbreviated form for political, economic, social, technological, legal and environmental. Pestle is employed and used in the construction industry and its objective is to find out how the external environment affects the industry. The external environment affects industries but there is not much that can be done to change the external environment whereas the internal environment can be changed to a certain extent. The Pestle technique is a management technique which can be used successfully and effectively in external risk identification process.

Pestle analysis defination

Construction Industry Analysis

Construction projects are distinctive in nature as each construction project is different from the other. Construction projects have the following characteristics: huge costs due to heavy investments, non-tradability of output, etc. It is crucial and important to assess the risk involved in the project. It is the external factors which are beyond the control of the company as less information is available and this is the reason construction projects are quite vulnerable and incur losses.

The following are the Various Pestle Factors or Expanded Form of the Acronym Pestle: –

Political factor

Pestle analysis political factor

The political factors which affect the construction industry are regarding the permits and documentation which have to be obtained during the various stages of construction. Political factors take into account the degree to which the government most probably may change or influence a certain industry or the economy.  For example, A new tax or duty which may result in a change of the revenue generating structure of the organisation. The government may impose these regulations on the particular industry.   

Economic Factor

Pestle analysis economic factor

Economic factor basically includes the way the economy functions and the impact it has on the working of the company. An increase in the rate of inflation of the economy may affect the manner in which the company sets the price of its products. There will also be a change in the models of supply and demand in the economy. Economic factors mainly include, economic growth, foreign exchange rates, patterns, inflation rates, etc.

Social Factor

Social factors scrutinize all the events that may affect the market and the community socially. The merits and demerits for the people residing in the place where the project is setting up or taking place is also to be considered. These include dynamics of population, global warming, career altitudes, norms, cultural expectations, etc. These factors take into consideration the social environment which is prevalent in the market and determine or measure the determinants such as demographics, cultural trends, population analytics, etc.

Technological Factor

Pestle analysis technological factor

These are related to innovations and changes in technology which may result in a change in the industry’s operations and the market either favourably or unfavourably. This is also related to the amount of technological awareness that the company possesses. As technology many a times becomes obsolete within a few months after being launched, it is crucial to consider it.

Legal Factor

This factor takes note of all legal aspects like quotas, resources, exports, imports, employment, etc. Legal factors have both sides external as well as internal. There are certain laws which may possibly change the external environment of the company and also there are a number of policies which the company keeps for itself. Legal analysis takes into account these two aspects and after that it charts out certain strategies by taking these legislations into account.

Environmental Factor

The environmental factor most commonly includes all that influences or is determined by the surrounding environment. Pestle environmental factors generally take into consideration the environment in which business is being carried out. It includes, but is not restricted to the weather, the climate, the global changes in climate, the ground conditions, environmental offsets, etc.

Pestle analysis environmental factor

Pest analysis or Pestle analysis stands for an overall analysis of the industry for example, the construction industry. Here “P” stands for political factor and it indicates the government’s role in the industry. “E” stands for economic factor and explains the position of the economy on local as well as national level. “S” stands for social factor and it includes things like changes in demographics, buying patterns, lifestyle trends, buying patterns and opinions, etc. “T” stands for technological factors and it is mainly used to assess what is the effect or result of technological changes on an industry. “L” stands for the legislations which regulate the industry or if there can be made some alterations in the legislations affect the industry. “E” stands for the various environmental concerns for the industry.

In order to increase the merits of PESTLE analysis it has to be used on a continued basis in the construction industry to enable the identification of any changes or trends which may turn into external risks that are beyond the industry’s control or may go unnoticed.

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