Environment Model in Business Analysis

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  • 0:02 The Environmental Model
  • 1:00 Checking for …
  • 1:54 Relevant …
  • 3:08 Analysis of Risks
  • 4:15 Lesson Summary
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Lesson Transcript
Instructor: Allison Tanner

Allison has a Masters of Arts in Political Science

How does the environment in which your business operates affect the operations of your business? This lesson describes the environmental model and its importance to the business analysis process.

The Environmental Model

Imagine that you've been running a highly successful bike rental company, 'Speedy's Rentals', in the heart of New York for the past 10 years. Now imagine that you've never worried about competitors or changes to small business tax law. Will you stay successful? Probably not!

In order for your company to remain successful, it's essential that you evaluate your environment. The environmental model in business analysis focuses on environmental factors that may impact your business. This includes things like tax law or changes in competition. Speedy's business environment is any environmental factor that directly influences bike rentals and your ability to rent bikes.

There are three primary things you will do when testing the environment your company operates in:

  • Look for and identify environmental influences
  • Determine which factors are relevant to your business
  • Identify how these environmental factors might affect your operations

Checking for Environmental Factors

Although Speedy's is well established, it is still susceptible to environmental changes just like any other company. There are many kinds of environmental factors, and each one will influence your company in its own way. Consider that changes in tax law will affect Speedy's differently than an increase in competition. Because of this, you will want to identify several environmental factors and then determine which ones are most relevant to your company.

  • What tax laws apply to your business?
  • Are you importing or exporting? If so, are there tariffs?
  • What is the political environment? How can the government affect your business?
  • What's happening with your competition? Are they growing? Shrinking?
  • What technology changes may affect your business?
  • Are weather or physical environmental changes affecting your business?

Knowing the various environmental factors can help you when you begin to identify the factors relevant to your company.

Relevant Environmental Factors

Once you have identified environmental factors, you can now begin to apply them to your business.

It's important to keep in mind that similar environmental factors may be affecting all local businesses, but how these factors affect Speedy's will be different from how they affect your neighbor's grocery store. Because of this, you need to identify which environmental factors are relevant to your company and to what extent.

Consider that the grocery store imports food and may be affected by political changes that influence tariffs and the cost of importing and exporting goods. In contrast, Speedy's is more concerned about taxation on services and the purchase of required insurance.

Relevant factors for Speedy's might include:

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