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. To understand the functions of management2. To present the steps in developing a strategic

management plan for a farm or ranch3. 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 making5. 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

Item Highest Third Lowest Third   (Average) (Average)

Value of farm production $334,981 $241,861

Net farm income $90,800 $2,358

Return on assets 10.6% -1.6%

Crop acres farmed 729 802

Machinery value $166,212 $196,490

Months of labor utilized 16.6 17.6

Source: 2001 Iowa Farm Costs and Returns

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Functions of Management

• Planning• Implementation• Control

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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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Figure 2-1Management flow chart based on three

functions of management

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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 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 strategies6. 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 solutions3. Collect data and information4. Analyze the alternatives and choose one5. Implement the decision6. Monitor and evaluate results7. Accept responsibility for the decision

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Characteristics of Decisions

• Importance• Frequency • Imminence• Revocability• Number of alternatives

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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

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SummaryGood 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.