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IAI Actuarial Core Principles · Business Management · Strategy, competitive advantage, strategic decision process and PEST analysis

A health insurer in Pune finds that PEST analysis lists many external trends, yet the board cannot decide what to do. The Chief Strategy Officer says the list is only the starting point. Which step most appropriately turns the PEST analysis into input for strategic decisions?

The firm should judge which external factors are most probable and most impactful, then decide how to respond to the resulting opportunities and threats. PEST lists factors but does not prioritise them. Dropping uncontrollable factors or copying competitors misses the purpose of the analysis.

  1. AAssess which factors are most likely to occur and have the greatest impact on the firm, and consider how to respondCorrect
  2. BRemove all factors outside the firm's control from the list
  3. CRank the factors alphabetically by category so that each is reviewed equally
  4. DAdopt the strategies of the largest competitor for each factor listed
  5. Concentrate only on political factors since regulation outweighs the rest

Explanation

PEST is descriptive; its value arises from judging likelihood and impact of each factor and linking these to opportunities and threats and responses. Removing uncontrollable factors discards the very purpose of the analysis, and copying competitors or ignoring other categories is not justified.

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