Strength, weakness, opportunity and challenge analysis is a technique used to identify the external and internal factors that play a part in whether a business venture or project can reach its objectives. Strengths and weaknesses are internal factors, while opportunities and challenges are external. The analysis is carried out on a four-square or four-cell matrix. The outcome of the analysis allows the company to decide if it should proceed and -- if so -- to build a strategic plan. A more common term for this approach is SWOT analysis, in which "Challenge" replaces "Threat."


Strengths are entered in the top left square of the matrix. They are essentially the competitive advantages that the business possesses, and include the unique resources to which it has access, operational procedures it has perfected, technologies it owns and its unique selling point. Examples are strong brands, popularity, cost advantages, patents and access to rare natural resources.


Weaknesses take up the top right square. They are the factors that place the business at a disadvantage against its competition. Lack of certain strengths could even be a weakness. The perception of others is also important. For example, a poor reputation among customers could be harmful to a business and is definitely a weakness. Knowing its own weaknesses allows a business to identify factors it should avoid in building strategic plans if it can't convert them into strengths.


Opportunities, which are listed in the bottom left square, indicate external factors that the business can take advantage of. Trends related to the business could be counted as opportunities, as could changes in government policies and regulations. Social shifts and changing demographics also can be sources of opportunity, along with new technologies, relaxation of regulations and the competition's dissatisfied customers. Businesses can build their strategic plans around opportunities.


The bottom right square reflects challenges that a business might face. Here you might find a consideration that has also been listed as an opportunity -- new technologies, for example. Tightening of regulations, changes in consumer demands, newer products and a changing competitive landscape can pose challenges.


SWOC analysis can be applied at the overall organizational level, at a business segment level, or even at the product level. The outcomes can vary at each level, so it is important to decide which level to apply it to right from the start. SWOC analysis need not be limited to businesses. It is useful in any scenario -- including personal matters -- that requires an analysis of the environment to reach a decision.