In this blog, I begin a short series with what I hope will be helpful posts that delve into some popular strategic thinking frameworks, designed to help decision-making. Project managers are often faced with the challenge of many opinions and insufficient facts. In this first blog, I will dig into the PESTEL Analysis Framework to understand how it can help your project team.
My readers know that risk management is one of my pet peeves. Embrace it, engage with it, but don’t get consumed by it. Your organization, if it has any size, likely has people in it who are trained in risk management, as well as other strategic thinking frameworks. One of those is the PESTEL framework, which I believe offers a quick and easy framework for identifying risks that are facing your project. The problem is that you could get bogged down with any of these tools trying to think through every risk that faces your project. And never get the project finished.
I recommend you time-block the conversations, delegate some exploratory thinking to members of the team, and draw on the other resources in your organization. You might try a little AI too.
What is PESTEL analysis?
Francis Aguilar, an American scholar and professor at Harvard Business School, developed the PEST analysis framework in 1967. He believed that scanning the environment for significant influences helped leaders make better decisions. PEST analysis later expanded to the PESTEL analysis framework.
One helpful description of PESTEL analysis comes from the Washington State University Library.[i]
A PESTEL analysis is a framework or tool used by marketers to analyze and monitor the macro-environmental (external marketing environment) factors that have an impact on an organization, company, or industry. It examines the Political, Economic, Social, Technological, Environmental, and Legal factors in the external environment. A PESTEL analysis is used to identify threats and weaknesses which are used in a SWOT analysis.
Political factors include government policies, leadership, and change; foreign trade policies; internal political issues and trends; tax policy; regulation and de-regulation trends.
Economic factors include current and projected economic growth; inflation and interest rates; job growth and unemployment; labor costs; impact of globalization; disposable income of consumers and businesses; likely changes in the economic environment.
Social factors include demographics (age, gender, race, family size); consumer attitudes, opinions, and buying patterns; population growth rate and employment patterns; socio-cultural changes; ethnic and religious trends; living standards.
Technological factors affect marketing in (1) new ways of producing goods and services; (2) new ways of distributing goods and services; (3) new ways of communicating with target markets.
Environmental factors are important due to the increasing scarcity of raw materials; pollution targets; doing business as an ethical and sustainable company; carbon footprint targets.
Legal factors include health and safety; equal opportunities; advertising standards; consumer rights and laws; product labeling and product safety.
How does PESTEL analysis relate to project risk management?
In some people’s minds, it likely doesn’t. Most people think of it as an external environment analysis tool. But from my perspective, risk management needs to include an analysis of the external environment. Projects often fail because of events that they didn’t foresee; for example, a hurricane (which can be forecast, unlike tornadoes), a staffing change or reduction, a new competitor announcement, or an economic downturn.
What PESTEL analysis can do for you is to help you scan for risks which you should document in your risk register and manage appropriately. If you are not familiar with risk management, check out this blog on the secret sauce of risk management. In my experience it is not effective to just throw open a question to the team about any new risks that we haven’t thought about. The PESTEL analysis gives you very specific factors to ask about.
PESTEL Analysis allows your to dive deeper into risks that might negatively impact your project. Don’t let your project fail because of an event that could have been forecasted! #riskmanagement #projectmanagement #pestel #smartprojex
How can project teams most effectively use PESTEL analysis?
While PESTEL analysis was originally developed to analyze the exterior environment in which a business sits, the categories can also be viewed in the internal environment of the organization.
Consider these questions from the perspective of the project team, organized according to the six different categories. Keep in mind that there is overlap in these categories.
Are there power struggles in your organization, or on your project team? Are you collaborating with people who have very different political views, either on your team or with other significant stakeholders?
Is the project moving along within the budget constraints that were identified? Are the people functioning as money managers doing their jobs effectively? Do you see any global monetary policy or instability concerns that could impact your team, collaboration partners, or stakeholders?
Is the team getting along well? Are there workplace culture issues, health concerns, racial unrest, discrimination allegations, or problems with people not wanting to come to work?
Are technology problems in the organization, or with other people who are working on the project (such as independent contractors) impeding the team’s ability to move forward effectively? Are there planned technology downtimes that need to be communicated or factored into the schedule? Is someone in the organization charged with keeping tech tools updated? Is support for any of the tech tools that your organization uses getting ready to be discontinued?
Is your project likely to upset environmental activists? Is your company hiding bad news about what impact the project is likely to have on our environment? Are there weather factors that might significantly impact your ability to successfully complete the project?
Do you have a solid contract management process? Is your company facing legal actions that could impact your project? Is anyone on your team involved in legal matters that could adversely impact their ability to perform? Does your organization work with unions, or other entities that could raise a legal concern that might impact your project?
How can other areas of the organization use the framework to help project teams?
Project managers and sponsors should engage with others in the organization who are tasked with risk management, market and competitive analysis, and strategic planning. There are likely people in your organization who are charged with periodically doing a SWOT analysis or something similar. Talk to these people and make sure they are aware that you are focused on making sure the project is completed successfully.
Project risks can come from anywhere and it is the responsibility of the project team to identify and manage the risk environment.
If you want more tips and tricks, try reading my book, Herding Smart Cats: Project Management Reimagined.