Macro Environmental Analysis

A macro-environmental audit examines a wide range of environmental issues that may affect the organization. Macro environmental analysis will include economic factors, political/legal issues, social/cultural issues and technological developments. This is commonly referred to as a PEST (Political, Economic, Social and Technological) analysis, although some authors use the alternative abbreviation STEP analysis. The objective of this analysis is to identify critical issues in the external environment that may affect the organization.

Political/legal issues

> Tax policy

> Monopoly controls

> Environmental protection measures

> Employment Act

> Environment Act

> Foreign Trade Agreements

> Stability of government systems

A number of political organizations should be considered when looking at the influence in this field of auditing. The structure of a federal political system defines the centers of political influence. A state with a federal political structure will be different from a unitary political system. The UK has a Parliament for Scotland and an Assembly for Wales. There are also many decision-making areas that are still the responsibility of the Westminster Parliament. At the same place there is also a growing range of decisions, both political and legal, within the framework of the European Union. Political pressure groups such as Greenpeace can also influence the political agenda. This is why considering this area of the environment requires a broader approach than just the domestic national government or legal process.

Economic factors

> Interest rate

> Inflation rate

> Money supply

> Business cycle

> Unemployment

> GNP trends

Financial factors need to be viewed from a wider perspective than the domestic economy of the organization. In a global economy, domestic economic conditions are greatly influenced by events in other regions of the world. Economics deals with the allocation of resources. Hence conservation of natural resources, cost of pollution, energy consumption and the entire field of natural resource management should be considered under this heading.

Social/Cultural Issues

> Age profile

> social mobility

> Lifestyle changes

> Family structure

> Level of education

> Work behavior

> Leisure activities

> Distribution of income

> Patterns of Ownership

> Attitudes and values

Demographic changes are important and can be used as key indicators in certain sectors such as health care and education. Also other critical areas such as social/cultural values and beliefs which are central to changes in consumer behavior are harder to predict and may be subject to more dramatic changes.

Technological development

> Emphasis on government research

> Technology transfer rates

> Material

> Developing technical processes

There is a big risk in using a particular technology to define an industry. In a situation where technology is advancing rapidly, it is important to understand the basic customer needs that an organization's technology currently serves. Identifying new technologies that can meet customer needs more fully or economically is an important part of this area of analysis.

The central role of this PEST analysis is to identify the key factors that cause environmental change. The objective is then to establish how these key factors will affect the industry and the organization in particular.