Environmental analysis involves listing external factors, reviewing them for opportunities or threats, and preparing an impact report with an action plan. Factors include political, environmental, social, and technological changes, and the report should prioritize opportunities and threats with associated costs and plans.
Carrying out an environmental analysis is done by listing all the possible external factors that could affect the company, reviewing these factors to find opportunities or threats and preparing an impact report with an action plan. An environmental analysis examines political, environmental, social, and technological changes or events that a company cannot control. Their potential impacts on the business should be examined to see if the changes or events are potential opportunities or threats. The company should then develop a strategy for exploiting the opportunities or an action plan for overcoming or avoiding potential threats.
Listing all possible external factors is the first step in performing an environmental analysis. These factors are classified as political, environmental, social and technological. Examples of external factors include pending government legislation, tightening environmental protection regulations, shifting demographics, and the release of new inventions. For example, the introduction of DVD players gradually made VCRs obsolete. VCR manufacturers who quickly adapted to this new technology were able to capitalize on the opportunity to become the market leader.
Reviewing each external factor in the list should be done alongside to separate the opportunities from the threats or to see if a particular factor possesses both qualities. Opportunities are ongoing external events or situations that a business can use to reposition, grow, or build a brand. If a technological advance has been announced in an industry, the company can see if adopting that technology offers an opportunity to create a competitive advantage within its industry. Threats are an obstacle or trend that can lead to a loss of market share or profits. For example, if government legislation is about to be passed that will require the company to invest in expensive equipment, this falls into the threat category.
Preparing an impact report is the final step in performing an environmental review. This impact report separates external factors into opportunities and threats categories and then lists them in order of importance. Opportunities should include how the business will benefit from the opportunity, the associated costs, and what would happen if no action is taken. For each factor listed as a threat, he should discuss why it is a threat, the possible harm if no action is taken, and a plan to avoid or reduce its effects on the business. This section of the environmental review should also discuss the likelihood of each event occurring and note any time restrictions for taking action.
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