Farm Management AGRI 4411Chapter 2Management and Decision Making
2 farm management chapter 2Chapter Outline Functions of Management Strategic Farm Management Tactical Decision Making Characteristics of Decisions The Decision-Making Environment in Agriculture
3 farm management chapter 2Chapter Objectives1. To understand the functions of management2. To present the steps in developing a strategic management plan for a farm or ranch3. To identify common goals of farm and ranch managers, and to explain the steps in the decision-making process4. To explain the steps in decision making5. To describe some unique characteristics of the decision-making environment for agriculture
4 farm management chapter 2 Table 2-1 Comparison of Low- and High-Profit FarmsItem Iowa in Highest Third Lowest Third (Average) (Average)Value of farm production $584,618 $220,433Net farm income $171,054 $24,519Return on assets 13.9% 0.7%Crop acres farmed 537 365Machinery value $148,212 $102,565Months of labor utilized 18 11Source: 2005 Iowa Farm Costs and Returns, Iowa StateUniversity Extension, Iowa State University, Ames, Iowa
6 Functions of ManagementFunctions of ManagementPlanningImplementationControlAdjustment
7 Functions of ManagementPlanning Planning means choosing a course of action To plan, a manager must 1. establish goals, 2. identify resources, and 3. Identify all possible alternatives
8 Functions of ManagementImplementation Oncea plan is developed, it must be implemented, or set in motion. To implement, the manager must: 1. acquire the resources needed for the plan and oversee the process. 2. Coordinating, staffing, purchasing, and supervising all fit under this function.
9 Functions of ManagementControl Control is the “feedback” function. To control, the manager must: 1. monitor results, 2. record information, 3. compare results to a standard, and 4. take corrective action as needed.
10 Functions of ManagementAdjustment If outcomes are not meeting the manager’s objectives, adjustments need to be made. This may involve:1. Fine-tuning the technology being used or2. Changing enterprises3. Collecting more detailed cost data to identify specific problems
11 Functions of ManagementFigure 2-1Management flow chart based on threefunctions of management Planning Implementation Control New Information Adjustment
12 Strategic ManagementObjective 2To present the steps in developing astrategic management plan for afarm or ranch
13 Strategic ManagementStrategic Farm Management Strategic management consists of charting the overall long-term course of the business Tactical management consists of taking short-run actions that keep the business moving along that course until the destination is reached
14 Strategic ManagementSteps in StrategicManagement1. Define the mission of the business2. Formulate the goals for the farm and family3. Assess the resources available to the business (internal scanning)4. Survey the world surrounding the business (external scanning)5. Identify and select appropriate strategies that will reach goals6. Implement and refine the selected strategies
15 Strategic ManagementDefining the Mission of theBusiness The mission statement is a short description of why a business exists. It may include: Business accomplishments One component of the overall family mission if it is a family-owned and operated business Should emphasize the special talents and concerns of each farm business and its managers
16 Strategic ManagementSample Farm MissionStatement“Our mission is to produce safe andnutritious milk at a reasonable costs, tomaintain and enhance the quality of thenatural resources under our control and tocontribute toward making our community asatisfying place toe live.”
17 Strategic ManagementObjective 3To identify common goals of farm andranch managers, and to explain thesteps in the decision-making process.
18 Strategic ManagementTable 2-2Common Values Among Farmers and RanchersDo you agree or disagree?1. A farm is a good place to raise a family.2. A farm or ranch should be run as a business.3. It is acceptable for farmers to borrow money.4. A farmer should have at least two weeks of vacation.5. It is better to be self-employed than to work for someone else.6. It is acceptable for a farmer to also work off the farm.7. It is more enjoyable to work alone than with other people.8. Farmers should strive to conserve soil and keep water and air resources clean.9. A family farm should be passed on to the next generation.10. All family members should be involved in the operation.
19 Strategic ManagementGoals Goals should be written Everyone and see, agree and review them at a later date Goals should be specific To own 240 acres of class I farm land in Jefferson County versus “to own land” Goals should be measurable If measurable each year the manager can gauge progress toward the goal Goals should have a timetable To own 240 acres ….. In five years
20 Strategic ManagmentPossible Goals Survive,stay in business Maximize profits Maintain or increase standard of living Increase equity, accumulate assets Reduce debt, become free of debt Maintain stable income Pass farm to next generation Increase free time Increase farm size (“growth”) Maintain or improve environmental quality Own or manage my own business
21 Strategic ManagementAssessing Resources Physicalresources: land, buildings, fences, breeding livestock, machinery and equipment, established perennial crops Human resources: skills of the operator and other employees, likes and dislikes of individuals Financial resources: cash, other capital and available credit Anhonest and thorough assessment of these resources called internal scanning will help in choosing realistic strategies and achieving business goals
22 Strategic ManagementSurveying the BusinessEnvironment Called “External scanning” The major types of livestock and crops produced haven’t changed much, but their characteristics are changing Changing consumer taste –”leaner meats” Expanded international markets – “high protein grains” Changes in governmental regulations New production practices that lower costs per unit Price of key inputs such as fuel and fertilizer Lowering international trade barriers A change may provide an opportunity or a threat
24 Strategic ManagmentIdentifyingand Selecting Strategies Use of land resources for pasture Cow/calf production Grazing stocker steers Sheep production Goat production Some businesses have more potential routes for reaching their goals than others because resources are more flexible. As the number of alternative uses for resources increases, so does the complexity of the manager’s decisions.
25 Strategic ManagementImplementing and Refining Managermust formulate action steps to implement the plan A formal business plan may be developed to present to potential lenders or partners Concrete, short-term objectives need to be set so that progress toward long-term goals can be measured Manager must decide which information to collect to evaluate the success or failure of the plan Strategic management is an ongoing activity
26 Tactical ManagementTactical Managemento Once an overall strategy for the farm has been developed the manager can make tactical decisions. For example:o Where to market cropso What rations to feed livestocko Choosing what seed to useo When to trade machineryo Whom to hireo Which field to till on a given dayo Which telephone service to buy
27 Tactical ManagementTacticalDecision Making Steps 1. Identify and define the problem or opportunity 2. Identify alternative solutions 3. Collect data and information 4. Analyze the alternatives and choose one 5. Implement the decision 6. Monitor and evaluate results 7. Accept responsibility for the decision
28 farm management chapter 2Characteristics of Decisions Importance Number of dollars involved, size of potential gain or lost Frequency One in a lifetime choosing a vocation, or buying a farm or daily, setting breeding schedules, scheduling field work activities Imminence Quickly or below a deadline - grain prices moving up and down rapidly Revocability Reversible or mot reversible -constructing building or irrigation well Number of alternatives “yes or no”, or “either, or”
The Decision-Making 29 farm management chapter 2Environment Fixedsupply of land: Land base is essentially fixed, making decisions about land use, sale, or acquisition critical Biological processes and weather: Laws of nature place limits on manager’s decisions Small size: Often one person serves as management and labor Perfect competition: Producers are price takers
30 farm management chapter 2Summary• Good management means the difference between earning a profit or suffering a loss.• The overall direction is defined through strategic planning.• The strategic plan is carried out via a number of tactical decisions.• Agricultural managers operate in an environment that differs from that of most other businesses.