agri 4411 farm management chapter 2
DESCRIPTION
Strategic and Tactical Farm ManagementTRANSCRIPT
Farm ManagementAGRI 4411
Chapter 2Management and Decision Making
Chapter Outline
Functions of ManagementStrategic Farm ManagementTactical Decision MakingCharacteristics of DecisionsThe Decision-Making Environment in
Agriculture
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Chapter Objectives1. To understand the functions of
management2. 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
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Table 2-1Comparison of Low- and High-Profit Farms in Iowa
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Item 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
Objective 1:To understand the functions of management
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Functions of Management
PlanningImplementationControlAdjustment
Functions of Management6
Planning
Functions of Management7
Planning means choosing a course of action
To plan, a manager must
1. establish goals,
2. identify resources, and
3. Identify all possible alternatives
Implementation
Functions of Management8
Once a 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.
Control
Functions of Management9
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.
Adjustment
Functions of Management10
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
Figure 2-1Management flow chart based on three functions of management
Functions of Management11
PlanningPlanning
ImplementationImplementation
Control Control
AdjustmentAdjustmentNew
Information
Objective 2To present the steps in developing a strategic management plan for a farm or ranch
Strategic Management12
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
Strategic Management13
Steps in Strategic Management1. 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
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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
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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.”
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Objective 3To identify common goals of farm and ranch managers, and to explain the steps in the decision-making process.
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Table 2-2 Common Values Among Farmers and Ranchers
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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.
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
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Possible GoalsSurvive, stay in businessMaximize profitsMaintain or increase standard of livingIncrease equity, accumulate assetsReduce debt, become free of debtMaintain stable incomePass farm to next generationIncrease free timeIncrease farm size (“growth”)Maintain or improve environmental
qualityOwn or manage my own business
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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
An honest and thorough assessment of these resources called internal scanning will help in choosing realistic strategies and achieving business goals
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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
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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
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Identifying and Selecting Strategies
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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.
Implementing and Refining
Manager must 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
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Tactical Managemento 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
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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
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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”
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The Decision-Making EnvironmentFixed 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
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Summary
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• 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.