- Macroeconomics refers to the behavior of the economy as a whole-as opposed to microeconomics, which relates to the market interactions of individual firms and the effect of price on income and resource allocation.
- FP&A is concerned with macroeconomics because of the way changes in the economy can affect forecasts and projections for the organization and the entire industry.
PESTLE Analysis
Macroenvironment Forces
Macro Env. Metrics - Political Indicators:
The World Bank regularly publishes a survey of “Worldwide Governance Indicators”. he Bank
uses 6 performance indicators:
- Voice and accountability: the extent to which a country's citizens are able to participate in
selecting their gov.
- Political stability and absence of violence:
- Government effectiveness: quality of public service (heath, education, etc)
- Regulatory quality: ability to implement sound policies
- Rule of law: extent to which countries adhere to rule of law
- Control of corruption: public power
Economic Indicators:
- Economic indicators include measures as: Changes in GDP, household income, employment rates, levels of savings.
- Consumer Price Index (CPI): is a measure that examines the weighted average prices of a basket of consumer goods & services. It is calculated by taking price changes for each item in the basket & averaging them & used to measure Inflation.
Social Indicators
Social indicators include demographic data, which can affect consumer demand and labor supply. Demographic data include:
- Population size and growth rate
- Population distribution by age
- Geographical distribution
- Household size
- Levels of education / Health (mortality rates)
Technological Indicators
Indicators of an economy’s technological growth are both
quantitative and qualitative. They could include:
- Business investment in R&D
- Government investment in R&D (e.g., tax deductions)
- The number of patents awarded
- Strength of intellectual property rights
- High-speed Internet access
- Data security
Metrics: Legal Indicators
Organizations, especially multinationals and global organizations, may judge legal systems by:
- Whether the system is clear, transparent, accessible and fair
- Whether the system provides equal access and treatment for non-citizens and foreign businesses
- The ease with which class action suits can be filed
- Size of compensatory and punitive damages
- Criminal liability for an organization’s management
Environmental Indicators
Organizations need healthy environments-as measured by air quality, temperatures and reliable access to water. Sustainable practices could include:
- Practices to curb carbon consumption and emissions, such as carbon taxes and carbon offset markets.
- Regulations about water and land use and management
- of waste.
- Tax policies to promote renewable energy development and use.
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