AAE 320 Dr. Paul D. Mitchell Decision Making in Farm Management

Goal Today Overview decision making process, focusing on a farm manager, and how it relates to the material covered in AAE 320 Readings on course page Farm and Ranch Strategic Planing

How Do I Decide What Is Right For Me? How Do I Decide? (What Is Right For Me?) How Do I Decide? What is the decision making process? What Is Right For Me? What is your mission? What do you value? What gets you out of bed in the morning? So often courses, meetings, etc. focus on the process and not the motivation, when often motivation is just as, or more, important

Today’s Lecture How Do I Decide What Is Right For Me? Strategic Management How Do I Decide? (What Is Right For Me?) Tactical Decision Making

Strategic Management 1.Define your mission 2.Formulate your goals 3.Assess your resources 4.Survey your environment 5.Identify and select strategies 6.Implement and refine selected strategies

Mission Statement Short description of WHO your are & WHY you exist The dream you pursue, your life’s activity, the kind of person you want to be Your personal/business mission – what you are working toward Reflects your and your family's social, religious, cultural values, special talents Reflects reality: economic, social, physical, and personal limits

Mission Statement Google “Strategic Management” Many “how to” pages, academic journal Google “Mission Statement” Many “how to” pages Fortune 500 Examples: ission_statements.html ission_statements.html Weird Al’s "Mission Statement"

Dairy Family Farm Example Our mission is to produce safe and nutritious milk at a reasonable cost, to maintain and enhance the quality of the natural resources under our control, and to contribute toward making our community a satisfying place to live. (Source: Kay, Edwards, & Duffy 2004, p. 20)

Formulate Goals Concrete steps you take to achieve your mission How you work to make your dreams come true Goals should be: Specific, Measurable, and Have a Deadline 1) “To own 240 acres of prime farmland in Columbia County within 5 years” 2) Not “Someday I’d like to have some land” (not specific, not measurable, no deadline)

Assess your Resources Internal look at your resources 1.Physical: land, livestock, machinery, buildings, irrigation, orchards, pasture 2.Human: your own and your family’s skills, talents, preferences, etc. 3.Financial: capital you have and can acquire from lenders, investors, family

Survey your Environment External look at your environment 1.Available technologies, genetics, production practices 2.Consumer tastes, changing markets 3.Government Regulations Dairy Producer: should be aware of new breeds and practices; consumer preferences; international markets, and nutrient/manure, labor, and machinery regulations

Identify and Select Strategies Identify Strategies: How you approach your mission This is the time to be creative and innovative, to dream up new ideas Worry about feasibility later Brainstorm, Think Outside the Box, Cutting Edge, Think Big, etc. Can be taught, but not in this course

Identify and Select Strategies Strategy Selection: Ag examples to illustrate High volume, low margin production Commodity crops and milk Low volume, high value production Organic milk, farmer’s market crops Integrate crop and livestock, or specialize Dairy & crops, grains only, vegetables only Form coops/alliances/contracts Join organic dairy coop, CSA farm, contract vegetables, tie in with a specific retailer or company Work off farm and be “evening & weekend” farmer

Implement and Refine Strategies Form a business plan with specific goals, work to carry them out, and see if you meet your deadlines Evaluate as you go along and refine or change your strategy—Is it working? Managerial Improvement: Set time aside to assess and improve yourself and business (books, classes), learn about where your world is going (new technology, new laws, market changes) Changes happen, so you may need to change your mission, your goals, and/or your strategy

Strategic Management 1.Define your mission 2.Formulate your goals 3.Assess your resources 4.Survey your environment 5.Identify and select strategies 6.Implement and refine selected strategies Hard questions, easy to avoid

The Decision Making Process: How Do I Decide? “How Do I Decide?” Where it’s easiest to focus and avoid the hard, “Why am I doing this?” type of questions Strategic Management calls this step “Tactical Decision Making” Have mission, goal, strategy, etc., now implementation: Choose Tactics

Tactical Decision Making 1. Identify and define problem/opportunity 2. Identify alternative solutions 3. Collect data and information 4. Analyze alternatives and make decision 5. Implement decision 6. Monitor and evaluate the results 7. Accept responsibility/consequences

Identify & Define Problem/Opportunity Identification: How do I know I have a problem? Sometimes it’s obvious: Accountant tells you Compare your performance to others Problem Definition: Unlimited possibilities with limited resources and multiple options Many focus on relaxing resource constraints: more land, labor, (human) capital, inputs and/or time How do you choose how much of each resource to use for each option? How choose which options to pursue?

Economic Problem Definition Economics: create a “model” of human decision making to describe problem mathematically: Choices and outcomes Find the mix of activities (crops, livestock) that maximize your profit/utility, subject to using only the resources you have (land, labor, capital, time) Choose inputs to maximize profit Production functions, isoquants, cost functions This is what we will cover in the next section

Identify Alternative Solutions Make a list of possible ways to deal with the problem/opportunity Some are obvious, some are only apparent once start collecting information Brainstorm, Think Outside the Box, … Be creative, worry about feasibility later Can be taught, but not in this course

Collect Data and Information University Extension/Research USDA: NRCS, FSA, AMS, RMA Farm Media: newspapers, TV, radio, farm journals/magazines Company mailings, pamphlets, brochures Agricultural Professionals: consultants, input suppliers, veterinarians, banker, accountant, lawyer, government official

Collect Data and Information Internet Search Engines Many useful web pages FarmDOC Center for Farm Financial Management National Risk Management Library Government Agencies: USDA, NOAA and National Weather Service, WI DATCP

Analyze Alternatives, Make Decision Analyze the alternatives you identified using the information you gathered Financial Analysis; Partial and Enterprise Budgeting, Farm Taxes/Accounting The “meat” of this course: economic methods to analyze farm management alternatives Work with key people to make decision: family, banker, investors, partners, etc.

Implement Decision Requires communicating with family, partners, employees, etc., so all buy-in Make and implement your plan: negotiate contracts, acquire resources, hire builder, hire workers, etc. Set goals that are specific, measurable, and have a deadline Requires many skills: organizational, management, people skills Can be taught/learned, just not here

Monitor and Evaluate Results Did you meet your specific and measurable goals within your deadline? Things change and you may have to re-evaluate and make changes/adjustments Keep good records and use them to see how you have done or are doing Financial Analysis: how to read and use financial statements, farm accounting, taxes, etc. Hire experts to assess your operation

Accept Responsibility Hopefully most of the results are good! Take credit when credit is due — celebrate your successes Accept responsibility when it’s your fault; don’t play the blame game Learn from your mistakes — failure can be a great teacher Sometimes it’s just bad luck! Plan for the worst case or use risk management tools

Summary Know (be able to explain) the difference between a Mission and a Goal Know (be able to explain) the difference between a Strategy and a Solution AAE 320 will focus on Tactical Decision Making Economic definition of management problem Information and data collection Analyzing alternatives Evaluating results