Managing for the Millennium

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Managing for the Millennium

• Managing Risk in Risky Times

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(No Transcript)
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Sources of Risk

• Production
• Marketing
• Financial
• Legal
• Human Resources

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Production Risk

• Weather
• Diseases
• Pests
• Technology
• Management

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Marketing Risk

• Input cost variability
• Output price variability
• Price volatility
• Market access

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Financial Risk

• Access to capital
• Interest rate risk
• Credit obligations
• Asset control

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Legal Risk

• Production, marketing, and leasing contracts
• Business and personal liability
• Business and environmental regulations

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Human Resources Risk

• Hired labor
• Death and disability
• Divorce
• Business continuity
• Time

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Rankings of Risk Exposure

• Output price variability
• Yield variability
• Operator injury, illness, or death
• Changes in government programs
• Changes in environmental regulations
• Costs of inputs

Patrick and Ullerich, 1996, Purdue University
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Defining Risk Management
Every- thing you do that can impact your bottom
line and your long-term growth in net worth
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Steps of Risk Management

• Identification
• Evaluation
• Treatment
• Implementation
• Monitoring

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Identification

• Goal setting
• Risk tolerance
• Sources of risk

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Identification
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Evaluation

• Frequency
• Severity

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Evaluation
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Treatment

• Reduce
• Transfer
• Avoid
• Retain
• Self-insure

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Treatment
High frequency Low severity AVOID/REDUCE/ RETAIN
High frequency High severity AVOID/ TRANSFER
AVOID/REDUCE/ RETAIN Low frequency Low severity
REDUCE/RETAIN/ TRANSFER Low frequency High
severity
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Implementation

• Selection
• Team approach

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Implementation

• Production
• Enterprise choice
• Technology
• Yield insurance
• Revenue insurance
• Contract production
• Management

• Marketing
• Marketing plan
• Futures contracts
• Options contracts
• Cash contracts
• Revenue insurance
• Contract production

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Implementation

• Financial
• Recordkeeping and analysis
• Interest rate hedging
• Insurance
• Family living costs
• Transition and estate planning

• Legal
• Contracting
• Insurance
• Management
• Human Resources
• Planning
• Transition and estate planning
• Management

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Monitoring

• Performance
• Balance
• Changing conditions
• Advisory group

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Monitoring
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Benefits of Risk Management

• Risk management increases the value of the
  business
• Businesses with an appropriate risk management
  plan are positioned for future growth

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Summary

• Review your business plan
• goals
• risk tolerance
• risk exposure
• Understand risk management methods, tools, and
  interactions
• Build your risk management team