Copyright © 2004, The Pennsylvania State University. All rights reserved. Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce. 1 Managing Risks in Your Operation Jeffrey Hyde, Gary Micsky, Sarah Roth, & Lynn Kime

2 Take Home Points You should learn to identify sources of risk Many risks can be managed Risk management should be incorporated into your business plan

3 Risks Are All Around! Increasingly Litigious Society

4 Risks Are All Around! Weather is Unpredictable

5 Risks Are All Around! Prices Bounce Around A Lot

6 All People Face Risks

7 Farmers Face Distinct Risks Weather PricesHired Labor

8 Change Brings New Risks School tours can be lucrative, but…

9 Change Brings New Risks Are you sure your food is safe to consume?

10 ANTICIPATE!! Include risk management in the business plan Reader should know: 1.That you considered the risks 2.That you have avoided some risks 3.That you have contingency plans

11 Types of Risk Production Risks

12 Types of Risk Production Risks Manage with: –Sound production practices –Crop Insurance –Diversification

13 Types of Risk Production Risks Sound production practices –To learn more, contact county extension office

14 Types of Risk Production Risks Crop Insurance –Protects against unavoidable losses –Covers many different types of field, fruit, vegetable, and nursery crops; also whole farm revenue protection to a specified limit –Subsidized by federal and PA government –Fact Sheets in Registration Package

15 Types of Risk Production Risks Diversification –To learn more, contact county extension office

16 Types of Risk Price Risks Prices move up and down Function of many factors Consider input and output prices

17 Types of Risk Price Risks Manage with: –Forward contracts –Futures and options –Hedging –Direct marketing –Diversification

18 Types of Risk Price Risks Forward contracts, future and options, & hedging –To learn more, contact your farm management educator

19 Types of Risk Price Risks Direct marketing –Control prices better –Take advantage of buyer loyalty –Requires quality service

20 Types of Risk Price Risks Diversification –Product prices do not all move together –Learn when peak prices occur and match production to these peaks –Variety and hybrid selection may reduce risk –Match products to smooth cash flow

21 Types of Risk Personal Injury/Health Risks Injury to management could cripple business Injury to key employee increases labor and management’s workload

22 Types of Risk Personal Injury/Health Risks Manage with: –Disability insurance –Key-man insurance –Health insurance –Life insurance

23 Types of Risk Personal Injury/Health Risks Buying insurances –Contact local agent(s) –Shop around (prices and policies vary) –Insurance must meet family and business needs

24 Types of Risk Employee Injury/Health Risks Someone could be injured on the job Health problems can affect ability to work

25 Types of Risk Employee Injury/Health Risks Manage with: –Worker’s compensation –Liability insurance –Health insurance –Safety training –Have a back-up plan!

26 Types of Risk Employee Injury/Health Risks Worker’s compensation –Can self-insure but not recommended –Premiums are based on the amount of yearly payroll –Check with your insurance provider for details

27 Types of Risk Employee Injury/Health Risks Buying insurances –Contact local agent(s) –Shop around (prices and policies vary)

28 Types of Risk Employee Injury/Health Risks Safety training –Teach safety –Be sure employees know safe way to work –Observe employees to be sure they practice safety

29 Types of Risk Employee Injury/Health Risks A Back-Up Plan –Be sure each employee has an ‘understudy’ –Cross-train for knowledge and safety

30 Types of Risk Liability Risks Product – Diseases, allergies, injury General – Property, vehicle

31 Types of Risk Liability Risks Manage disease risks with: –Product liability insurance –Proper screening of outputs –Attention to production process

32 Types of Risk Liability Risks Manage allergy risks with: –Full disclosure –Product labeling –Avoiding common allergy issues

33 Types of Risk Liability Risks Manage product injury risks with: –Warning labels –Concerted effort to minimize danger

34 Types of Risk Liability Risks Manage property risks with: –Communication –Diligence –Liability insurance

35 Types of Risk Liability Risks Manage vehicle risks with: –Commercial auto insurance –Fleet insurance (> 5 vehicles) –Employ competent drivers for all types of vehicles –Maintenance

36 Types of Risk Other Risks Losing good employees Fire, flood, vandalism

37 Types of Risk Other Risks Manage employee loss risks with: –Proper compensation –Acceptable work environment –Empowerment

38 Types of Risk Other Risks Proper compensation –Be sure employee is happy –Ask around –Include benefits

39 Types of Risk Other Risks Manage fire, flood, vandalism with: –Business property insurance –Common sense!

40 Take Home Points You should learn to identify sources of risk Many risks can be managed Risk management should be incorporated into your business plan

41 Disclaimer Information in this presentation is intended to be educational in nature. No specific advice is intended. For legal, financial, or other counseling, please see a professional specializing in your needed field of expertise.

42 Thank You! Questions?