The SWOT Analysis – an acronym standing for Strengths, Weaknesses, Opportunities, and Threats – assesses a company’s competition in the desired field or market. This analysis serves as an excellent tool for decision-making, either for personal use or from a business standpoint.
The purpose of a SWOT analysis, from a business point-of-view, is to organize a proper business strategy around the internal and external factors that affect one’s business. Existing or older businesses may use a SWOT analysis to predict or proactively adapt to the environmental changes pertaining to their business. New or starting businesses may use this analysis to plan ahead before their actual business plans to assess potential road bumps or advantages they can use.
When mapping out a business strategy with a SWOT analysis, you first look at the four elements in your company: Strengths, Weaknesses, Opportunities, and Threats. Strength and Weaknesses are considered internal factors that might affect a company. These are characteristics, rather than physical elements surrounding the business, such as profitability or shortages. The Opportunities and Threats are considered external factors. These are the physical elements such as network or competition.
With the SWOT Analysis you can:
SWOT shows the leaders of a company how realistic their situation is. With the simple grid system, people can visualize and organize their thoughts. This list may be pages long, but with the SWOT Analysis, you can easily distribute and interpret the information easily.
You can do this method on a computer, piece of paper, or dry-erase board. And it’s free – straight from your mind.
In comparison to many other types of business analysis, SWOT may not be as ideal because:
The SWOT analysis only has four factors, compared to other types of analysis which have seven or eight different factors. The method is useful with analyzing an idea or small maintenance in business planning. But you may need other methods to be paired with this analysis in order to get a full, detailed plan.
When updating a plan or making a new decision, you have to consider all four factors in the SWOT analysis that might alter your previous factors. We recommend updating your SWOT analysis at the end of every financial year to project future losses, or when you don’t meet your goals.
In any decision-making process, the data collected must be reliable and un-biased. It is easy to misinterpret or over-represent your own strengths and opportunities versus weaknesses and threats when not done in a group setting.
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