A project does not exist in a vacuum but is always dependent on various internal and external factors that can threaten its successful completion. Project managers need to take into account factors such as the political, social and economic environment which can affect a project’s outcome. Understanding the external forces that have an effect on the project means that project managers can make more strategic decisions and steer the project into the right direction.
The PESTLE analysis
PESTLE is an acronym for the various factors which surround a project’s environment:
The analysis is also known as PESTEL or PEST, depending on how many environmental factors are included. This method takes a big picture or birds view approach, which means that it looks at the project in a wider context and takes into account how changes in the project’s environment affect the project. This enables project teams to anticipate changes and include these changes into their planning instead of being surprised by them.
The elements of PESTLE
Political factors you have to consider:
- Tax policies and other government policies
- Trade reforms
Example: If you’re working on an international project which spans across several countries, you will have to keep in mind that different countries have different rules and regulations. Some countries have stricter regulations than others, especially when it comes to health and safety issues.
Economical factors you have to consider:
- Budget availability
- Import and export taxes
- Interest rates
- Economic growth or recession
- Inflation rate
- Exchange rate
- Minimum wage
Example: If your supplier is located in another country and the exchange rate between the two countries changes, it means that your costs might increase. If the exchange rate is in your favor, you could save money on supplies.
Social factors you have to consider:
- Cultural norms and expectations
- Population demographics (age, gender, mobility etc.)
- Population’s general attitude towards certain issues (health, environment, etc.)
Example: If you are planning on building an additional landing strip for an airport, you have to take the local population, who will be affected by the construction, into account. Because in order to build it, the people living there will have to relocate and people living close to the airfield will have to expect increased noise from the arriving and departing airplanes. You have to devise a strategy to address these concerns.
Technological factors you have to consider:
- New technologies that replace older technologies
- Technical constraints
- Research and development
Example: A new technology or a technological shift could speed up your project’s progress, which also means that you could decrease your project costs.
Legal factors you have to consider:
- Employment law
- Health and safety laws
- Regulatory frameworks
Example: Before you can start a construction project, you will have to get a building permit and have to make sure that the construction plan is in accordance to regulations.
Environmental factors you have to consider:
- Climate and weather conditions
- Geographical location
- Natural disasters
Example: A great example of taking environmental factors into account is the construction of Macchu Picchu, which was built 7,000 feet above sea level on a mountain ridge in the Peruvian Andes. The geographical location alone makes for an extremely difficult construction, but the climate was just as challenging because of heavy rainfall as well as the danger of earthquakes. Because the Incas knew of these environmental obstacles, they could adapt to them: They built the buildings as terraces which perfectly adapt to the steep incline of the mountain and used locally mined stones that fit together perfectly and are sturdy even without mortar.
Conducting a PESTLE analysis
The steps of a PESTLE analysis are very similar to that of a risk analysis:
The project manager and the project team should get together in a meeting or a workshop setting to come up with all the possible (and impossible) factors that could affect the project. This step is very important because the more threats and opportunities you identify, the better you can plan your project.
Sort and prioritize
The next step is to sort the factors you have identified into the different PESTLE categories and then sort them by relevance, i.e. importance. Which factors will have the biggest or the least impact on the project?
Now determine which factors have the highest probability of occurring. You should not just concentrate on factors that have a high probability, but should also make plans for threats that have a low probability of occurring. This ensures that you are ready for any possible scenario (see Scenario Planning).
Create action plan
Now that you have completed steps 1-3, you can create an action plan that takes all the factors into account. The action plan should include measures to eliminate or mitigate threats that could cause your project to go off track.