1. Busines$ense Management Training for Dairy CFO’s Bradley J.Hilty Information Management Specialist Penn State Dairy Alliance

2. Busines $ ense What is Busines$ense? Best Management Practices in BM & IM Standardization of IM Practices A systematic approach to business analysis –Identifying bottlenecks with benchmarks A Dairy Alliance program to train Chief Financial Officers of dairy businesses in:

3. Busines $ ense Program Objectives Enhance participants’ understanding of BMP in IM & BM Implement standards for data management Provide benchmarks for evaluating business Provide a systematic approach to evaluate business Provide tools for ongoing business evaluation Improve information for decision making

4. Busines $ ense How did we do this? Established a Baseline –Collect data for Dairy Farm Business Analysis Implement standards for IM –Short term –Long term Evaluate Cost of Production-DairyCOP$ Evaluated Business Performance-DFBS Develop Strategies to Address Weaknesses

5. Busines $ ense How did we do this? Hands On Experience –Data Collection for DFBS –Systems analysis using benchmarks –Calculating Production Costs with DairyCOP$ Group Discussion –The Key to Busines$ense (10-15 dairies)

6. Busines $ ense Features of Busines$ense Lecture – Topics –Characteristics of successful businesses –Standardization of IM practices –Benchmarks for measuring business performance –Managing investments for profitability –Cost control & net margin analysis Analyzing incremental costs and returns

7. Data Collection Observation, measuring & recording of data Data Organization Provides structure to the data set Data Processing Data entry & calculations Data Reporting Presents data for interpretation Data Integration 1 Data Utilization 2 The Six Steps of Information Management Bradley J. Hilty, Information Management Specialist, Penn State Dairy Alliance

8. Busines $ ense If you don’t measure it, you can’t control it. GIGO Provide Accurate Feedback to Others Benchmarks Comparisons Standardizing the Process Importance of Sound IM Practices

9. Busines $ ense Maximize profits Maintain adequate cash flow Build equity Quality of Life –Family –Employees Others?? Goals of Successful Business Owners

10. Busines $ ense Goals of Successful Business Owners: Achieve Balance Maximize profits Maintain adequate cash flow Build equity Quality of Life

11. Busines $ ense Goals of Successful Business Owners: Achieve Balance Maximize profits Maintain adequate cash flow Build equity Quality of Life

12. Busines $ ense Goals of Successful Business Owners: Achieve Balance Maximize profits Maintain adequate cash flow Build equity Quality of Life

13. Busines $ ense Very Profitable Generate Abundant Cash Flow Sound Financial Base Efficient in the Use of Inputs Capital Efficient Characteristics of the Successful Businesses

14. BUSINESS ANALYSIS - Five “Star” Financial Benchmarks Profitability Return on Assets (ROA) >10% Liquidity Term Debt & Lease Coverage Ratio (TDLCR) > 1.20 Solvency % Equity % Equity > 60% Financial Efficiency Operating Expense Ratio OER< 75%-Corp OER<65% -SP/P Capital Efficiency Asset Turnover Ratio ATR >.6 Dairy & Crops ATR> 1.0 Dairy $ Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

15. Evaluating Herd Performance with Benchmarks Production Milk/Cow/Day Herd Status DIM Cow Management Cull Rate Reproduction Pregnancy Rate Udder Health SCC Diagnostic Benchmarks Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

16. Benchmarks –Evaluating Business Performance CriteriaRatioAverageLeadersGoal ProfitableROA4-4.5%15-20%8-10% Cash Flow TDLCR 1.152.001.25 Financial Base % Equity 50-55% 50-60% Financial Efficient OER72-76%< 65%65% Capital Efficient ATR.40-.45>.65.65 (>1.00) Busines$ense

17. Key Performance Indicators Key Herd Performance Benchmarks –Milk/Cow/Day – Production (>70 lbs) –Cull Rate – Total Cow Management (<30%) –Days In Milk –Herd Status (170-175 days) –Pregnancy Rate – 22-24% Heat Detection - 60% Conception Rate – 40% –SCC - Milk Quality (< 200,000) Reproduction Busines$ense

18. Cost of Production System Busines $ ense Hands-On:

19. Analyzing Business Performance Busines $ ense Hands-On:

20. Busines $ ense Understanding Bottlenecks? PRODUCTS Production Systems Are Pipelines INPUTS Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

21. Busines $ ense Understanding Bottlenecks? INPUTSPRODUCTS A restriction in the product pipeline It is important to detect & correct the most restrictive bottleneck first. Fixing the wrong bottleneck is of no benefit. Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

22. Evaluate investment strategies; Consider liquidation or reallocation of assets Is the business profitable? ROA Is the business financially efficient? OER Is the business capital efficient? ATR Is the production a problem? Milk/Cow/Day Examine Investment per cow Land Values Why is production a problem? Examine production record KPI’s Evaluate Forage Quality; Cow Comfort; Ventilation; Water; Management SOP’s Examine Key Expenses Feed Labor Others Busines$ense A systematic approach to analyzing business performance. Bradley J. Hilty – Information Management Specialist; Penn State Dairy Alliance

23. Busines $ ense Business Analysis Results:

24. Busines$ense

25. IndicatorAverageSDMinMaxBSTNo BST Herd Size19115137530228112 Cull Rate27.111.74.047.530.220.5 Milk/Cow20405382111280256212262216286 Acres/Cow2.85.941.234.322.852.86 Milk Price$13.49$0.95$11.74$15.19$13.56$13.36 Mail Box $$12.84$0.83$11.43$14.61$12.85$12.81

26. Busines$ense IndicatorAverageSDMinMaxBSTNo BST ROA1.15 %5.7 %-12.20 %16.4 %2.15 %-0.72 % OER74.5 % 11.5% 53.0 %95.0 %77.5 %68.9 % ATR.55.18.331.08.59.47 % Equity56.423.920.099.551.665.4 TDLCR1.16.66.203.221.081.30 Cost $/cwt$10.12$2.00$6.46$13.75$10.49$9.44

27. Busines$ense IndicatorAverageSDMinMaxBSTNo BST Cows/FTE34.38.522.049.033.336.0 Milk/FTE683419 203344 4648021058740752472555177 Labor $/cwt $1.27$0.82$0.00$3.14$1.53$0.78 Feed/Cwt$4.04$1.01$1.70$6.04$4.19$3.78 Feed+Crop/ Cwt $5.00$1.08$2.62$6.67$5.07$4.85 Feed %-Milk 27.8 %9.4 %10.0%37.0%30.9 %22.2 %

28. Busines$ense IndicatorAverageSDMinMaxBSTNo BST Invst/Cow$7138$1773$3571$10907$7500$6466 Debt/Cow$3266 $2003 $171$8705$3732$2401 Machine $/Ac $205$113$79.00$504$193$226

29. Busines$ense

33. Cost of Production Data- DairyCOP$ Busines$ense 2001 Results..\..\Desktop\Managing Production Costs-Complete.doc

34. Busines$ense Indicators Identified Financial – Pre Financial – Post Production - Pre Production – Post 0/577.4 %0.0 %13.8 %2.0% ?? 1/512.9 %0.0 %27.6 %0.00 2/59.7 %7.1 %41.4 %0.00 3/50.0 %21.5 %13.8 %0.00 4/50.0 %28.6 %3.4 %38.1 % 5/50.0 %42.8 %0.0 %59.9 % Program Evaluation Results

35. Thank You! ?? Questions ?? For a copy of this presentation email.. bhilty@psu.edu