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

An Indian pension fund manager used a PEST analysis three years ago and has not updated it. Meanwhile, interest rates, regulation and digital adoption have moved significantly. A director criticises the exercise. Which criticism of PEST is most valid in this situation?

The valid criticism is that PEST is a static snapshot that must be refreshed regularly, and merely listing factors does not rank their importance or show how they interact. It is an external tool, includes economic factors, and does not produce numerical profit forecasts.

  1. APEST ignores economic factors, so it is incomplete
  2. BPEST is a static snapshot; it must be refreshed regularly, and listing factors does not itself rank their importance or interactionsCorrect
  3. CPEST can only be used by firms that have a monopoly
  4. DPEST measures the firm's internal resources and so cannot capture the outside world
  5. PEST gives a numerical forecast of profit, which has proved inaccurate

Explanation

PEST lists external factors at a point in time; it does not by itself prioritise them or show their interactions, and the environment changes, so it needs regular updating. The other options misstate what PEST covers: it includes economic factors, is external, and gives no profit forecast.

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