In the macro-environment, new risk factors are constantly appearing but they are difficult to identify by the managers of the business as well as by bankers. As the major changes or developments in the macro-environment are usually outside the business’ control, it’s essential that the managers of the business are able to anticipate the impact of these changes on either the business itself or on its market before they actually happen, so as to be able to adjust the business’ products or processes accordingly. In this presentation we consider the analysis of the macro-environment through the use of the PESTEL framework.

1. Analysing business risks:
Macro-environment
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2. In the macro-environment, new risk
factors are constantly appearing and
they are much more difficult to
identify, both for the managers of the
business as well as for bankers.

3. The major changes
or developments in
the macro-
environment are
usually outside the
business’ control.

4. It’s essential that the
managers of the
business are able to
anticipate the impact
of these changes on either the
business itself or on its market before
they actually happen, so as to be
able to adjust the business’ products
or processes accordingly.

5. As part of our credit risk assessment we
must ensure that the management of the
business is aware of possible changes in
its macro-environment

6. Failure to do so may
result in the business
losing any competitive
advantage that it might
have had and
compromising its very
existence.

7. Note that when the
business is operating
across-borders and
revenues and cash
flows come from
foreign sources you
would need to
consider these factors
in those countries as
well as in your home
country.

8. The acronym PESTEL is used to describe
the components of the business’ macro-
environment. Each of these components
comprises a number of
factors that can positively
or negatively affect
businesses of
all sizes……….

9. ……although it should be noted that
most businesses and/or industries
will not be affected by all the factors
simultaneously or to the same
degree as others.

10. The idea is to consider each of these
factors in turn and the changes that are
taking place in these environments and to
determine whether, and to what extent,
the business that we are assessing will
be affected by the changes.

11. PESTEL
Political
Economic
Social
Technological
Ecological
Legal

12. Political; In this
environment we
consider political, but
not legislative, issues.
We are not only
concerned with local
and foreign
governmental activity
here…..

13. …..but also the
activities of
organisations
(such as NGO’s)
and special-
interest groups
and the
pressure they
bring to bear on
government
policy.

14. We should also consider the government’s
general policies, plans and attitudes
towards economic development in the
country over the medium to long-term.

15. Also, consider the
possibility of
elections and the
possible outcome,
whether peaceful
and whether a
political transition
may take place.

16. Economic; This
environment, perhaps
more than any of the
others, is the one that
most influences
business decisions,
especially in developing
economies that are
prone to sudden and
significant economic
shocks from external
sources.

17. Businesses can be affected directly by some
economic changes (e.g. interest rate
changes on a business that borrows
significant amounts) or indirectly (e.g.
interest rate changes affecting the
disposable income of the consumer).

18. Social; In this environment
we consider the business’
broader market, i.e. its
customers and their changing
attitudes and values and the
general trends that affect the
way the market buys products
and services.

19. Technology; The way in which
technology has become more
influential in all our lives is well known.
However, how has it influenced the
way in which businesses connect with
their customers?

20. Obviously, the rise of
the Internet has
changed the way many
businesses deliver their
products to the end-
user and, indeed, there
are many businesses
that only now exist
because of the
presence of an enabling
technology like the
Internet.

21. In this technological
environment we should
also consider the impact
that the possible changes
in technology will have
directly on the business –
perhaps in the way it
manufactures its
products……

22. …….and in the level of
competition that it might
encounter from
businesses that were
not in the same market
in the recent past.

23. Ecological; There are
two aspects to this
environment. Firstly,
the ecological issues
have to be considered
and, of course, not
all businesses are
affected by these
concerns.

24. In this part of the
analysis we should
consider the ecological
impact of the business’
operations,
remembering that
negative public
perceptions can have a
significant impact on a
business’ reputation
and, ultimately, its level
of sales.

25. Secondly, there are some issues regarding
the way in which the business treats its
physical environment – not in an
ecological sense – but in the way in which,
for example, it plans its operations so that
disturbance and noise are minimised.

26. Legal; This
environment is similar to
the political environment
which we discussed
earlier but analysis is
restricted to only
legislative issues,
especially focusing
on the effect that up-
coming legislation may
have on the business.

27. This would include both
changes to existing
legislation and
completely new
legislation. Mostly,
changes in this
environment would
have a direct impact on
the business.

28. I do hope that you enjoyed this presentation.
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