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Farm Management

Chapter 2Management and Decision Making

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Chapter Outline

• Functions of Management

• Strategic Farm Management

• Tactical Decision Making

• Characteristics of Decisions

• The Decision-Making Environment in Agriculture

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Chapter Objectives1. Understand the functions of management2. Present the steps in developing a strategic

management plan for a farm or ranch3. Identify common goals of farm and ranch

managers, and to explain the steps in the decision-making process

4. Explain the steps in decision making5. 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

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

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Functions of Management

• Planning

• Implementation

• Control• Adjustment

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Planning

Planning means choosing a course of action.

To plan, a manager must establish goals, identify resources, and allocate the resources to competing uses.

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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.

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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.

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Adjustment

If outcomes are not meeting the objectives, adjustments need to be made. Adjustment may involve fine-tuning the technology or changing enterprise. In some cases, additional information will be needed to diagnose the problem.

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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

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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

6. Implement and refine the selected strategies

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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.

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Goals

• Goals should be written

• Goals should be specific

• Goals should be measurable

• Goals should have a timetable

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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

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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

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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

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Identifying and Selecting Strategies

Some businesses have more potentialroutes for reaching their goals thanothers because resources are more flexible. As the number of alternative uses for resources increases, so does the complexity of the manager’s decisions.

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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

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Tactical Decision Making

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

• Frequency

• Imminence( Urgent )

• Number of alternatives

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The Decision-Making Environment in Agriculture

• 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

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Table 2-3Types of Farms and Ranches

in the United States

Source: 2002 Census of Agriculture

Type Percent

Family or individual 89.7

Partnership 6.1

Corporation 3.5

Other 0.7

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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 thatof most other businesses.

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FARM AS A BUSINESS

“The agriculture sector needs to be developed with a new spirit. We have committed RM11.4 billion to bring about a successful new agriculture”

Dato’Sri Abdullah Ahmad Badawi

NST 10 July 2007

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FARM AS A BUSINESS

“Agriculture is a business. Whatever you plant, grow or rear, if it makes money, it’s a business”

Tan Sri Dato’ Hj Mahyuddin Hj Mohd YassinMinister of Agriculture and Agro Based Industry