Decision Making

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					Decision Making in
Farm Management

       AAE 320
  Dr. Paul D. Mitchell
                     Goal Today
   Overview the decision making process, focusing
    on a farm manager, and how it relates to the
    material covered in AAE 320

   Readings on course page
       What it take to be great (Colvin)
       Farm and Range Strategic Planning (R. Jones and
       How do I decide what is right for me? (B. Jones)
              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 the
    second question is just as, or more, important
        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 and
    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
       Examples: companies, agencies, organizations
       Ford Foundation, PBS, CIA, World Bank,
        Campus Crusade for Christ, Kodak, etc.
       Dilbert mission statement generator
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, p. 20)
        What it Takes to be Great
   Any of us can be great at whatever we
    want to (with some physical limits)
   Motivation key, combined with hard work:
    Deliberate Practice
   Business/farm applications
       Focused and deep thinker about your world,
        become an expert on cows, crops, soils
   Main Point: Don’t be afraid to pursue
    excellence in your life and profession
   Incorporate your passion into your mission
              Formulate Goals
   Concrete steps you take to achieve your
   How you work to make your dream come
   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 technology, genetics,
       production practices
    2. Consumer tastes, changing markets
    3. Government Regulations
   Livestock Producer: should be aware of
    new breeds and practices, consumer
    preferences, international markets,
    nutrient/manure 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
   Think Big! What it Takes to be Great
   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
   Work off farm and “weekend/evening” farm
Implement and Refine Strategies
   Form a business plan with specific goals, work to
    carry them out, and see if you meet your
   Evaluate as you go along and refine or change
    your strategy—Is it working?
   Deliberate Practice: set time aside to assess and
    improve yourself and business, 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
        Jones: “What Is Right For Me?”
        Hard questions, easy to avoid
         Decision Making Process
   Where easiest to focus effort/time and
    avoid the hard, “Why am I doing this?”
    type of questions
   Jones: “How Do I Decide?”
       What is the decision making process?
   Strategic Management calls this step
    “Tactical Decision Making”
   More academic, not so “navel gazing”
      Jones: How Do I Decide?
1.   Specify an objective or goal
2.   Identify and define the problem(s)
3.   Collect data and information
4.   Analyze various options for taking action
5.   Decide which action to take
6.   Implement the decision
7.   Monitor and evaluate the results
8.   Accept the consequences
     Specify an objective or goal
   This is Jones’ version of what is called
    “Strategic Management”
   Jones has a nice 2 pages on what this
    means, without all the terminology
   See the emphasis on values, the overall
    meaning of your farm life and work
   Does not formally structure the issue and
    how to go about forming mission & goals
   Blends mission and goals together
            How Do I Decide?
         Decision Making Process
         Tactical Decision Making
   After you have your mission statement,
    set your goals and chosen a strategy
   How do I decide?
   “Tactical Decision Making”
       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
Deliberate Practice: where along here can
   you improve?
Identify & define problem/opportunity
   Identification: How do I know I have a
       Sometimes it’s obvious
       Compare your performance to others
   Definition: Unlimited demands with limited
    resources and multiple options
       Many focus on relaxing resource constraints
        land, labor, (human) capital, time
       How choose how much of each resource to
        use for each option?
       How choose which options to pursue?
     Economic Problem Definition
   Find the mix of activities (crops, livestock) that
    maximize your profit/utility, subject to using
    only the resources you have (land, labor,
    capital, time)
   Economists express this mathematically
   Choose inputs to maximize profit/utility subject
    to your budget constraint
   Production functions, isoquants, production
    possibilities frontier
   This is what we will overview next section
     Identify alternative solutions
   Make a list of possible ways to deal with
    the problem/opportunity
   Some again 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
   Farm Media: newspapers, TV, radio, farm
   Company mailings, pamphlets, brochures
   Agricultural Professionals: consultants,
    input suppliers, veterinarians, banker,
    lawyer, government official
     Collect data and information

   Internet Search Engines
   Many useful web pages
       Farm DOC
       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
   Partial and Enterprise Budgeting,
    Financial, Cash Flow, and Risk Analysis
   The “meat” of this course: economic
    methods to analyze farm management
   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
   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
   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
   Know (be able to explain) deliberate practice
   We will focus on Tactical Decision Making
       Economic definition of management problem
       Information and data collection
       Analyzing alternatives
       Evaluating results