PESTLE risks (external factors) that can contribute positively and negatively to a company’s success and so a good understanding of them is of great importance.
These different external factors are often classified as either political, economic, social, technological or environmental and ethical (PESTLE).
Political risks can include changes in government, regulations, or trade policies. Economic or ethical risks would describe changes in inflation, interest rates and child labour issues respectively.
Social risks speak for themselves but can include changes in demographics, consumer preferences, or social values. Technological risks can include new technologies that disrupt existing business models or new regulations on the use of certain technologies.
We’ll give some more examples of the final L (legal) and E (environmental) below. It is important for businesses to identify and assess their PESTLE risks so that they can develop strategies to mitigate them.
Examples of PESTLE Risks
Here are some examples of how PESTLE risks can impact businesses:
- Political risk: A government could change its regulations on a particular industry, which could make it more difficult or expensive for businesses in that industry to operate.
- Economic risk: A recession could lead to a decrease in consumer spending, which could hurt a business’s sales.
- Social risk: A change in demographics, such as an aging population, could lead to a decrease in demand for certain products or services.
- Technological risk: A new technology could disrupt an existing business model, such as the rise of e-commerce disrupting the traditional retail industry.
- Legal risk: A new law could require businesses to make changes to their products or services, which could be expensive and disruptive.
- Environmental risk: Climate change could lead to more extreme weather events, which could damage a business’s property or disrupt its operations.
Businesses can mitigate PESTLE risks by developing strategies to address them. For example, a business could diversify its supply chain to reduce its exposure to political or economic risks. Or a business could invest in research and development to stay ahead of the curve on technological changes.
It is important to note that PESTLE risks are constantly changing and so businesses should regularly review their risk assessments and update their strategies accordingly. Over the last few years organisations have had to contend with Brexit, the pandemic, the cost-of-living crisis, extreme weather events and Russia’s invasion of Ukraine to name a few. These difficult circumstances have increased the need to practice risk management effectively and improve risk culture within organisations.
If you’d like to know how JCAD’s risk management software can help you manage these PESTLE risks, please visit www.jcad.co.uk.