Farm Management

1. Farm Management Chapter 2 Management and Decision Making

2. Chapter Outline • Functions of Management • Strategic Farm Management • Tactical Decision Making • Characteristics of Decisions • The Decision-Making Environment in Agriculture

3. Chapter Objectives • To understand the functions of management • To present the steps in developing a strategic management plan for a farm or ranch • To identify common goals of farm and ranch managers, and to explain the steps in the decision-making process • To explain the steps in decision making • To describe some unique characteristics of the decision-making environment for agriculture

4. Table 2-1Comparison of Low- and High-Profit Farms in Iowa Source: 2001 Iowa Farm Costs and Returns

5. Functions of Management • Planning • Implementation • Control

6. Planning Planning means choosing a course of action. To plan, a manager must establish goals, identify resources, and allocate the resources to competing uses.

7. Implementation Once a plan is developed, it must be implemented, or set in motion. To implement, the manager must acquire the resources needed for the plan and oversee the process. Coordinating, staffing, purchasing, and supervising fit under this function.

8. Control Control is the “feedback” function. To control, the manager must monitor results, record information, compare results to a standard, and take corrective action as needed.

9. Figure 2-1Management flow chart based on three functions of management

10. 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

11. Steps in Strategic Management • Define the mission of the business • Formulate the goals for the farm and family • Assess the resources available to the business (internal scanning) • Survey the world surrounding the business (external scanning) • Identify and select appropriate strategies • Implement and refine the selected strategies

12. 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.

13. Goals • Goals should be written • Goals should be specific • Goals should be measurable • Goals should have a timetable

14. Possible Goals • Survive, stay in business • Maximize profits • Maintain or increase standard of living • Increase equity • Maintain stable income • Pass farm to next generation • Increase free time • Increase farm size (“growth”) • Maintain or improve environmental quality

15. Assessing Resources • Physical resources: 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

16. Surveying the Business Environment • Called “External scanning” • The major types of crops produced haven’t changed much, but their characteristics are changing • A change may provide an opportunity or a threat

17. Identifying and Selecting Strategies 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.

18. Implementing and Refining • Manager must formulate action steps to implement the plan • Manager must decide which information to collect to evaluate the success or failure of the plan • Strategic management is an ongoing activity

19. Tactical Decision Making • Identify and define the problem or opportunity • Identify alternative solutions • Collect data and information • Analyze the alternatives and choose one • Implement the decision • Monitor and evaluate results • Accept responsibility for the decision

20. Characteristics of Decisions • Importance • Frequency • Imminence • Revocability • Number of alternatives

21. The Decision-Making Environment • Fixed supply 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

22. 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.