Fundamentals of Risk Management

PestLe risk classification system
Table 11.3 provides an outline of the PESTLE risk classification system. PESTLE is 
an acronym that stands for political, economic, sociological, technological, legal and 
ethical risks. In some versions of the approach, the final E is used to indicate narrower 
environmental considerations. This risk classification system is most applicable to 
the analysis of hazard risks and is less easy to apply to financial, infrastructure and 
reputational risks.
The PESTLE risk classification system is often seen as most relevant to the ana-
lysis of external risks. External risk in this context is intended to refer to the external 
context that is not wholly within the control of the organization but where action can 
be taken to mitigate the risks. It is often suggested that the PESTLE risk classification 
system should be used in conjunction with an analysis of the strengths, weaknesses, 
opportunities and threats (SWOT) facing the organization. A SWOT analysis of each 
of the six PESTLE categories is recommended by the Orange Book.
The advantage of the PESTLE risk classification system is that it provides a clear 
analysis of the issues that should be addressed within the external context. The 
PESTLE approach may be most applicable in the public sector, because the external 
factors analysed by the PESTLE approach are particularly relevant.
The PESTLE analysis is a commonly used structure for risk identification purposes 
within a risk assessment workshop. PESTLE may also be considered to be a risk classi-
fication system with the emphasis on hazard risks. There are several advantages and 
disadvantages to the PESTLE approach. The advantages are as follows:
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simple framework;
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facilitates an understanding of the wider business environment;
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encourages the development of external and strategic thinking;

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