By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

Strengths, weaknesses, opportunities, and threats (SWOT): A SWOT analysis is an effective planning and budgeting tool used to keep businesses focused on critical issues that may lead to wonderful successes or horrible failures. The SWOT analysis should be as comprehensive as possible and capture both relevant information for the specific idea as well as incorporating more broad-based data about the company, the industry, and the competition.

The simple SWOT analysis (or matrix) shown provides a better understanding of how it works.

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A SWOT analysis is usually broken down into a matrix containing four segments. Two of the segments are geared toward positive attributes (for instance, a company’s strengths and its opportunities) and two are geared toward negative attributes (weaknesses and threats).

In addition to illustrating these categories, The figure makes reference to the terms internal versus external. This distinction highlights the fact that certain attributes tend to come from internal company sources (namely, strengths and weaknesses) and other attributes from external sources (typically opportunities and threats).

Used correctly, a SWOT analysis not only provides invaluable information to support the planning process but also (and more importantly) helps identify the type of management a business has in place. The success of any business plan hinges on having the right leaders driving the bus to take the opportunity from a concept to reality.

A frontline manager in need of direction can assist with this process but generally isn’t qualified to lead. You need a bona fide businessperson to lead the charge.

A variety of different parties may conduct SWOT analysis. In a larger or well-established business, the management team assigned to complete a project or pursue an opportunity may take the lead. The SWOT analysis is then evaluated and interpreted by the company’s executives, who consider whether it’s viable and whether the right people are in place.

On the other hand, two founders just starting a business may complete a SWOT analysis. When the SWOT is complete, company executives may ask a third-party consultant to review the document. An outside expert can provide management with an unbiased view on whether the analysis is realistic.