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PESTLE and Risk Analysis

BY Praveen.D 10UTB44 Rajishankar.O.R 10UTB 02 Sridharan.S.V 10UTB31

What is PESTLE analysis? It is a framework that categorizes Environmental influences as Political, Economical, Social, Technological, Legal and Environmental. Ensures that companys performance is aligned positively with the powerful forces of change that are affecting business environment

PESTLE useful?
PESTLE is useful when a company decides to enter its business operations into new markets and new countries. It is also done for new business ventures. This helps the company to break free of unconcious assumptions and help adapt realities of new environment.

Advantages of PESTLE
Simple and only costs time to do. Provides an understanding of the wider business environment. Encourages the development of strategic thinking. May raise awareness of threats to a project. Can help an organisation to anticipate future difficulties and take action to avoid or minimise their effect. Can help an organisation to spot opportunities and exploit them.

Usually a simple list and not critically presented. The rapid pace of change in society makes it increasingly difficult to anticipate developments that may affect an organisation in the future. Collecting large amounts of information may make it difficult to take decisions. The analysis may be based on assumptions that prove to be unfounded. PEST analysis only covers the external environment and the results need to be considered with other factors, such as the organisation itself, competitors and the industry in which it is working.

PESTLE Analysis for Bus transport

POLITICAL: In Tamil nadu Bus transport is a combination of both government and private sector. The government has a major role in fixing the ticket prices and also issuing routes to private players.

The government has set up Regional transport authority in all regions to control over the routes in those regions. The government issued routes to private sector(in 1974), which are less than 100Km. The government increased the minimum ticket rate from Rs1.75 to Rs 2 in the year 2000.

At present the price of diesel is increasing rapidly. In the year 2000 the diesel cost was Rs 18/ lt but now it has increased to Rs42.50 approx. Peoples mindset towards saving money has increased which increases the demand for public transportation. The price of spare parts has also increased more than 50%

Increasing population, tourists and immigrants create demand for public transportation system. Ageing of population has also created a positive impact on public transport system. In metro cities parking of private vehicles is of great difficulty.

Introduction of AC Volvo buses, Low floor buses has attracted more number of passengers to travel in public transport. Electronic ticket printing machines is used in town buses.

Each bus must operate in their respective routes in their time schedule. Regulations framed by State Transport corporations and Regional transport authorities must be strictly followed.

Each district in Tamil nadu has Private bus owners association and each owner is a member of that association. The association acts as a bridge between the operators and the government, to solve the issues arising between them.

As per Pollution control board the bus must be tested with Bharat stage 4 norms and clearance certificate must be issued by the emission control testing agent. Electronic ticket machine is been introduced, which issues tickets printed in eco friendly paper.

Risk analysis
Political Risk: The political risk involved in bus transport is that the private operators do not have the right to increase the ticket prices. There is no solution to overcome this scenario. Economic Risk: Fuel prices are increasing rapidly which causes the operating cost to increase.

Risk Analysis
Social Risk: As the disposal income of the people increases, comfort level also increases which makes them own a private car. People seek convienience hence it creats negative impact for the public transport system. Technological Risk: Technology will become outdated sooner as many new innovations are ruling the market.

Technological Risk: The main risk is the lack of expertise who maintain the bus. Mechanics are not well known about the newly invented technology, hence experts must be hired which incurs high cost of operation.

Financial projections with old bus and old ticket fare

Average collection per day = Rs 8325 Average Diesel Expenses = Rs 4430 Average salary and wages = Rs 1050 Average Rent & Rates = Rs 685 Average Maintenance = Rs 1441 Average Interest = Rs 216 Average office expenses = Rs203 Average Cash balance per day = Rs 300

Financial projections
Assuming that ticket rate is increased From Rs.2 to Rs 3 minimum fare and proportionate increase in other stage tickets. If Ticket rate increases then wages will increase by Rs 300 per day. Collection increases by Rs 2000 per day on an average.

Revised projection with old bus and new ticket fare.

Avg collection = Rs 10,325 Avg Diesel expense = Rs 4430 Avg Salary and wages = Rs 1350 Avg Rent and rates = Rs 685 Avg Maintenance = Rs 1441 Avg interest = Rs 216 Avg office expense = Rs 203 Avg Cash balance per day = Rs 2000

Investment analysis
Cost of Replacing old bus Rs 18,00,000/Bank loan and down payment ratio is 60 : 40 Bank loan amount is Rs 10,00,000/Rate of interest is 13.5%

Average interest paid per day is Rs 370. Average principal repaid is Rs 391(for year 1)

Replacement of old bus

When old bus is replaced, the operating cost decreases due to following reasons, Diesel cost decreases on an average of Rs 800 per day. Maintenance cost also decreases by Rs 350 Which increases the average balance cash per day by Rs 1050.

New bus old ticket fare

Avg collection = Rs 8325 Avg Expenses = Rs 6875 Avg cash balance = Rs 1450. Pay back period = Rs 18,00,000 / Rs 5,29,250 PBP = 3.40 yrs.

New bus with new ticket fare

Avg collection = Rs 10,325 Avg expenses = Rs 7475 Avg cash balance = Rs 2850 Pay back period = Rs 18,00,000/ 10,40,250 PBP = 1.73 years.

If the government hikes the ticket rate the private operators will enjoy a huge rise in the cash balance on a daily basis. It is beneficial to replace the bus when government increases the ticket fare.

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