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AGRI 4411 Farm Management Chapter 2

The document discusses farm management and outlines the functions of management including planning, implementation, control, and adjustment. It then discusses strategic farm management, identifying the steps as defining the mission, formulating goals, assessing resources, surveying the environment, identifying strategies, and implementing plans. Finally, the document discusses tactical decision making and characteristics of decisions in agriculture.

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Farm Management AGRI 4411 Chapter 2 Management and Decision Making
2 farm management chapter 2 Chapter Outline  Functions of Management  Strategic Farm Management  Tactical Decision Making  Characteristics of Decisions  The Decision-Making Environment in Agriculture
3 farm management chapter 2 Chapter Objectives 1. To understand the functions of management 2. To present the steps in developing a strategic management plan for a farm or ranch 3. To identify common goals of farm and ranch managers, and to explain the steps in the decision-making process 4. To explain the steps in decision making 5. 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 Farms Item Iowa in Highest Third Lowest Third (Average) (Average) Value of farm production $584,618 $220,433 Net farm income $171,054 $24,519 Return on assets 13.9% 0.7% Crop acres farmed 537 365 Machinery value $148,212 $102,565 Months of labor utilized 18 11 Source: 2005 Iowa Farm Costs and Returns, Iowa State University Extension, Iowa State University, Ames, Iowa
5 farm management chapter 2 Objective 1: To understand the functions of management
6 Functions of Management Functions of Management Planning Implementation Control Adjustment
7 Functions of Management Planning  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 Management Implementation  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 Management Control  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 Management Adjustment  If outcomes are not meeting the manager’s objectives, adjustments need to be made.  This may involve: 1. Fine-tuning the technology being used or 2. Changing enterprises 3. Collecting more detailed cost data to identify specific problems
11 Functions of Management Figure 2-1 Management flow chart based on three functions of management Planning Implementation Control New Information Adjustment
12 Strategic Management Objective 2 To present the steps in developing a strategic management plan for a farm or ranch
13 Strategic Management Strategic 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 Management Steps in Strategic Management 1. Define the mission of the business 2. Formulate the goals for the farm and family 3. 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 goals 6. Implement and refine the selected strategies
15 Strategic Management Defining the Mission of the Business  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 Management Sample Farm Mission Statement “Our mission is to produce safe and nutritious milk at a reasonable costs, to maintain and enhance the quality of the natural resources under our control and to contribute toward making our community a satisfying place toe live.”
17 Strategic Management Objective 3 To identify common goals of farm and ranch managers, and to explain the steps in the decision-making process.
18 Strategic Management Table 2-2 Common Values Among Farmers and Ranchers Do 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 Management Goals  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 Managment Possible 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 Management Assessing 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 Management Surveying the Business Environment  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
23 Strategic Management Identifying and Selecting Strategies  Low -volume high-value producer  High-volume, low-value producer  Specialty service provider  Part-time operator  Form Strategic Alliances  Feeder pig producer  Custom hog finisher  Cooperatives
24 Strategic Managment Identifying and 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 Management Implementing 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 Management Tactical Management o Once an overall strategy for the farm has been developed the manager can make tactical decisions. For example: o Where to market crops o What rations to feed livestock o Choosing what seed to use o When to trade machinery o Whom to hire o Which field to till on a given day o Which telephone service to buy
27 Tactical Management Tactical Decision 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 2 Characteristics 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 2 Environment  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 2 Summary • 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.