It is a process of identifying the relevant factors that have direct or indirect impact on effective and efficient functioning of business.

In other words, Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the factors might present. These evaluations are later translated into the decision- making process. The analysis helps align strategies with the firm’s environment.

Process of environmental analysis:

Environment analysis is managerial decision-making based on the assessment of opportunities and threats in the environment. The steps in environmental analysis are:

  1. Scanning: It involves information gathering for assessing the nature of the environment in terms of uncertainly, complexity and dynamics. It includes:
    1. Identifies early signs of future environmental changes. They are indicated by trends and events.
    2. Detects changes already underway. They are happening.
  2. Monitoring: It involves tracking environmental trends and events. It is auditing of environment. The likely impact of environmental influences on business performance is identified.
  3. Forecasting: This step forecast what is likely to happen. It lay out of path for anticipate changes. This step provides:
    1. Key forces at work in the environment.  They can be political-legal, economic, social, cultural, and technological.  
    2. Understanding of the nature of key influences and drivers of change.
    3. Projection of future alternatives paths available.
  4. Assessment: This step identifies key opportunities and threats. The competitive position of business analyzed in terms of how the organization stands in relation to other organizations competing for some resource of customers.
    1. Opportunities are a favorable condition which creates risks and weakens the competitive position.
    2. Threat is an unfavorable condition which strengths, organization’ s competitive position of the organization.