Assist buesiness in assessing their internal and external aspects.
1. STEEPLE
is a way of analyzing the external macro environment of a business, which refers to the external
factors that are beyond the control of the business itself.
Businesses will need to identify:
• Which factors are more relevant under each heading (which will vary from business to business)
• How important each factor (heading) is — managers must decide which are more relevant and
most signi cant
STEEPLE analysis willneed to be reviewed regularly as the extarnal environment changes.
Social —> factos linked to the population size and structure: demographic, ages, culture ,
…………. ……… habits and trends…
Technological —> factors referring to changes in what is produced or how it’s produced through
……………………..innovation: e-commerce, unemployment due to technology, social networking,
……………………..AI, security…
Economic —> factors such as national income (GDP), in ation, labour costs, interest and
………………. .exchange rates…
Environmental —> issues linked to the natural environment: global warming, environmental
……………………..restrictions, suply chain management
Political —> factors linked to government policy: political stability, policies, tax regulation,
……………………..global trade agreements/restrictions
Legal/law —> laws can a ect many areas of the business: employement law, common law,
…………………… local labour law, health and safety regulations…
Ethical. —> aspects of business behaviour that may be regarde as right or wrong:
…………………….decisions regarding ethical sourcing, tax avoidance, supplier’s treatment of
…………………….employees
Evaluation:
A business can consider the possible changes in external factors in the future and from this
identify relevant opportunities and threats which can be used in a SWOT analysis.
Helps manager categorize factors and organize their analysis. STEEPLE is an important part of
strategic planning.
Factors imporant to consider:
• Its value depends on whether relevant factors are identi ed. It is important to e ectively scan
the environment.
• Not all factors will be anticipated —> for example: a sudden earthquake.
• Managers need to assess the relative signi cance of any future change. It is di cult to do -
something that may appear insigni cant can end up having major opportunities and threats.
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, 2. DECISION TREES
A mathematical model which can be used by managers to help them make the right decision. It
analyses and estimates the possible outcomes of di erent courses of action and works out the
likelihood of the occurring based on a qualitative understanding of risk.
current situation and two possible projects, with its failure and success (and the corresponding
percentages: these must equal 100) You must add the amount of money gained from multiplying
the percentage of success and failure with the money generated, together, and subtract the
money invested, to obtain the nal amount of gains.
EXERCISE - EXAM PRACTICE
Rana El Matarawi runs a textile company and is considering developing and launching a new
product range at an estimated cost of $25.000. She has decided to use a decision tree with a 70%
probability of the new product range being a commercial success. If so, this should lead to an
additional 50.000 in sales revenue. The probability of failure is 30% which would lead to additional
sales of only 5.000$
A) De ne the term decision tree:
A decision tree is a tool used by companies or individuals that allows them to asses the
di erent choices they have when trying to decide a di erent plan or choice for their
company.
A decision tree is a visual tool which can be used by managers to make the right or best
decision based on quantitative factors. It enables managers to analyze and make estimates
about the possible outcomes of di erent courses of action and work out the likelihood of
these occurring based on a quantitative understanding of risks.
B) Calculate the expected value of the new product range for Rana:
• Expected outcome of success: 0.7 x 50.000 = 35.000$
• Expected outcome of failure: 0.3 x 5000 = 1.500$
• Total outcome: 35.000 + 1.500 = 36.500$
• Pro t: 36.500 - 25.000 = 11.500$
50.000 35.000
S
0.7
New
Prod. + = 36.500 - 25.00 = +11.500$ —>
F
0.3 expected net value (EV)
5.000
1.500
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