external assessment

1. THE EXTERNAL ASSESSMENT
SUBMITTED :-
HIMANSHU TIWARI
SHIVANGI TYAGI

2. EXTERNAL AUDIT
• The identification & evaluation of those trends &
events that are beyond the control of an
organization is called external audit.
• external audit is bit difficult to do so as it cover a lot
amount of factors to analyzed.
• The external audit points out the important
opportunities & threats that comes in front of the
organization and therefore the management of the
organization should develop proper strategies to
avail those opportunities and to reduce of avoid the
effects of threats.

3. The Nature of an External Audit
• External audit is to highlight a number of external
opportunities that can be availed by the organization
along with the threats that need to be avoided by the
organization.
• It audit does not take into account all the possible
factors that affect the business organization but
rather only important factors are focused that need
proper actions.
• The organization may shows offensive or defensive
behavior through developing strategies that can get
benefit from the external opportunities while
reducing the effects of external threats.

4. Key External Forces
Key External Forces in the External Audit are :-
• Economic Forces
• Social, Demographic, Cultural & Environmental
Forces
• Political, Legal & Governmental Forces
• Technological Forces
• Competitive Forces

5. ECONOMIC FORCES
• The attractiveness of different strategies is directly
affected by the economic factors. For example,
when the interest rates increases then the
acquisition cost of capital also increases.
• Also increase in interest rates decrease the
discretionary income which will ultimately decrease
the demand for discretionary goods.
• Moreover raise in the market price results in the
expansion of business & consumer wealth.

6. Some of important key economic forces
are as follow
• Economic conditions of foreign countries
• Export/import factors
• Income differences by customer/region
• Demand shift for goods & services
• Monetary policies
• Price fluctuations
• Tax rates
• Exportation of capital & labor etc

7. Social, Demographic, Cultural &
Environmental Forces
• All the products, services, customers & markets
are virtually affected by social, demographic,
cultural & environmental forces.
• All the products, services, customers & markets
are virtually affected by social, demographic,
cultural & environmental forces.

8. Following are some of examples are:
• Population growing older
• Rise in younger population
• Less Caucasian
• The gap between poor & rich widens
• The people with age more than 65 years will
increase up to 18.5% of population in 2025 in
America
• No racial & ethnic majority exist in 2075 in
America

9. Following are some of key external
factors are
• Racial equality
• Government regulation
• Average level of education
• Energy conservation
• Attitudes towards customer services
• Social responsibility
• Recycling
• Value placed on leisure time
• Waste management
• Ozone depletion
• Endangered species

10. Political, Legal & Governmental
Forces:
• Opportunities & threats are always associated
with the changes in government
regulation. Example includes the antitrust
legislation which includes struggle to ban
monopolies.
• Special resolution laws are passed through
lobbying efforts which are only beneficial for
certain parties along with the laws of increase in
the tax rates.

11. Following are the key opportunities &
threats of the government regulation.
• Antitrust legislation
• Lobbying efforts
• Tax rates
• Patent laws

12. Following are the impacts of political
variables
• Formulation of strategies
• Implementation of strategies
The strategists in the global economy anticipate
the political climate, diverse world cultures &
legislative skills.
Local, state, federal & foreign governments are
important regulators, subsidizers, deregulators,
customers & employers of the organizations.

13. Government regulations have following
impacts on political variables.
• Special tariffs
• Government regulation/deregulation
• Political Action Committees (PACs)
• Tax law changes
• Number of patents
• Changes in patent laws
• Voter participation rates

14. Technological Forces
• Internet is major technological revolution that
becomes global economic engine which
increases the productivity of the organizations
throughout the world.
• The XML language of programming comprise of
“tags” which enables an organization to take
strategic decision for exposing their information
to the world in the shape of inventories,
catalogs, an invoice, price, zip code etc.

15. Following are some of revolutionary
technological changes that have
dramatic affects on the organizations.
• Semiconductors
• Internet
• UWB (ultra wideband wireless) communications
• XML (extensible markup language) technologies
• Robotics
• Computer engineering
• Lasers
• Satellite networks

16. Competitive Forces:
• The useful information about competitors should
be collected & evaluated in order to formulate
effective strategy by the organization.
• It is much difficult to identify competitors in
many industries.
• For collecting & maintain information on
competitors, most of organizations maintain
competitive intelligence programs that keeps
records of the information about the current
activities of the competitors specifically as well as
generally.

17. Continue…..
• The strengths & weaknesses of the competitors
• The objectives & strategies of the competitors
• The response of competitors to external variables
like social, cultural etc
• The positioning of products & services of
organization relative to its competitors
• The vulnerability of competitors to the alternative
strategies of the organization
• The nature of distributor & supplier relationship
• Ranking of profit & sales of competitors over time
• Substitute products or services threat etc

19. PORTER’S FIVE-FORCES MODEL

20. • These forces determine an industry structure and the
level of competition in that industry. The stronger
competitive forces in the industry are the less
profitable it is.

21. Bargaining power of suppliers
• Strong bargaining power allows suppliers to sell
higher priced or low quality raw materials to their
buyers.
• This directly affects the buying firms’ profits
because it has to pay more for materials.

22. Suppliers have strong bargaining power
when:
• There are few suppliers but many buyers.
• Suppliers are large and threaten to forward
integrate.
• Few substitute raw materials exist.
• Suppliers hold scarce resources.
• Cost of switching raw materials is especially
high.

23. Bargaining power of buyers
• Buyers have the power to demand lower price or
higher product quality from industry producers
when their bargaining power is strong.
• Lower price means lower revenues for the
producer, while higher quality products usually
raise production costs.
• Both scenarios result in lower profits for
producers.

24. Buyers exert strong bargaining power
when
• Buying in large quantities or control many access
points to the final customer.
• Only few buyers exist.
• Switching costs to other supplier are low.
• They threaten to backward integrate.
• There are many substitutes.
• Buyers are price sensitive.

25. Threat of substitutes
• This force is especially threatening when buyers
can easily find substitute products with attractive
prices or better quality and when buyers can
switch from one product or service to another
with little cost.
• For example, to switch from coffee to tea doesn’t
cost anything, unlike switching from car to bicycle.

26. Rivalry among existing competitors.
This force is the major determinant on how
competitive and profitable an industry is. In
competitive industry, firms have to compete
aggressively for a market share, which results in
low profits.

27. Rivalry among competitors is intense
when:
• There are many competitors;
• Exit barriers are high;
• Industry of growth is slow or negative;
• Products are not differentiated and can be easily
substituted;
• Competitors are of equal size;
• Low customer loyalty.