After those goals are established, an analysis is completed to evaluate how a plan can be created to produce the expected results. Conduct a Situation Analysis After the organizational goals are established, a situation analysis is conducted. A situation analysis is a review of the internal and external factors that affects a business. Internal and external analyses provide a snapshot of the environment in which the business has been operating in over a given period, usually 12 to 16 months. It identifies factors of which an organization must be aware while working toward its goals. To assist in this activity, planning tools are used. A planning tool is an instrument or document that guides a plan into action. Two common planning tools are SWOT and PEST analyses. SWOT Analysis A SWOT analysis is a planning tool used in the strategic process. A SWOT analysis is the identification of an organization’s strengths, weaknesses, opportunities, and threats. It helps identify both internal and external factors that can affect success. A SWOT analysis includes four items as follows. • Strengths are internal factors that give a company a competitive advantage. What is the business doing that is helping the company generate profits? • Weaknesses are internal factors that place a company at a disadvantage relative to competitors. What are areas in which the organization needs to improve? • Opportunities refer to favorable external conditions or trends that provide a company opportunity to generate profits. What opportunities can the company take advantage of that they may have missed in the past? • Threats are external factors, such as the competition or economy that can potentially jeopardize a company’s growth or ability to generate profits. Understanding the threats can help management refocus strategies. For example, a SWOT analysis looks at whether the business offers a wider variety, better prices, or better sizing than the competition. A SWOT analysis is presented in a format similar to the one shown in Figure 3-5. SWOT Analysis Strengths Opportunities Threats Weaknesses • Established brand • Continued demand for product • Excellent customer service • Recall of competitor's products • Promote environmentally responsible company • Higher price than competition • Online-only availability • Limited capital to expand distribution • Downturn in economy impacts demand • Potential product redesign by competitor Goodheart-Willcox Publisher Figure 3-5 A SWOT is a planning tool used to compare the strengths, weaknesses, opportunities, and threats of a business with those of competing businesses. Chapter 3 Planning 47 Copyright Goodheart-Willcox Co., Inc.