Whole-Farm Risk Assessment and Action Planning – Tools for Building an Effective Risk Management Action Plan
1
Singh-Knights ,
2
Brabham ,
2
Bailey ,
2
Richmond ,
2
Straight
Doolarie
B.
D.
J.
and A.
1Extension Specialist, 2Extension Agent, West Virginia University
INTRODUCTION
Local foods and direct marketing systems have become a statewide trend during the past decade because of
growing consumers’ interest in local, natural, farm-based foods with distinctive characteristics. The number of WV
small producers responding to this market opportunity is steadily increasing, but producers still face many risks to
profitability that are difficult to overcome given their size and financial capabilities. To benefit from this opportunity
in the long term, farmers must first fully understand the types of risks that threaten their farming profitability in
order to implement the appropriate strategies to reduce the impact of risks on their business.
RESULTS
Farm Business Risk Priority Ranking (See Workbook for Instructions and Details at http://anr.ext.wvu.edu/ag-women/annies-project)
Risk
(A)
The WVU Extension Service continues to offer whole-farm risk management training through two notable
programs, WV Annie’s Project and the WV Agritourism Initiative. The overall statewide risk management program
responds to an expressed need for continued risk-management education among aspiring, beginning and mid-level
producers with social and resource disadvantages. The Agritourism Initiative and Annie’s Project each follow a
unique business-planning curriculum designed to address the five functional risk management areas associated
with directly marketing agricultural products/services.
In order to effectively manage your risks, the following actions are recommended: 1) Assess and evaluate the risks
affecting your business in each of the five main functional areas; 2) Prioritize each risk in terms of how likely it is to
occur and the potential impact for your business, and 3) Reflect on your results and create an action plan that
addresses your priority risk issues, indicating what action will be taken, when it will be started and completed, by
whom, and how much it will cost. In order to create action plans that has a high probability of being implemented,
it is important involve your ‘farm team’ in the planning and implementation stages. The Farm Business Risk Priority
Matrix and Risk Management Action Planning tools provide a valuable visual perspective to be shared with your
‘farm team’ about the risk priorities of the farm, with associated action plans to address your priority risk issues
and help meet your strategic business goals.
METHODOLOGY - BUILDING THE WHOLE-FARM RISK MANAGEMENT TOOL
The Farm Business Risk Priority Matrix and Risk Management Action Planning tools were modified as follows:
 A survey of the literature on risk management issues facing small diversified farms was conducted, to
determine a checklist of general risk management strategies in each of the five functional business areas;
 A review of existing risk management tools was conducted, to generate a suitable tool that can be used with
our respective clientele in our whole-farm risk management programs – Annie’s and Agritourism Programs;
 The Risk Assessment Priority Ranking Tool was modified to help participants assess their whole-farm risks – it
considers five categories of risks and helps assign a score to each risk based on frequency (probability of risk
occurrence), magnitude (potential risk impact), and preparedness of farm managers to manage that risk;
 The results of the Whole-Farm Risk Assessment helps populate the Risk Priority Matrix , which provides a
visual prioritization of the risks facing the farm under review;
 The results of the Risk Priority Matrix is used to build your Risk Management Action Plan, which establishes
priorities for action (very high, high, medium and low priority), helps managers select appropriate risk
mitigation strategies, and helps determine implementation deadline and person(s) responsible for action; and
 Share this action plan with your ‘farm team’; and implement, monitor, evaluate and improve your risk actions.
Preparedness
(E)
Current risk
management
method
(G)
List all risks to the farm
Number from 1-10
Number from 1 - 5 Number from 1 - 5
Very well
(Frequency of risk +
Always=5;
Severe=5;
prepared=10;
Magnitude or
3-5 Year Goal Current Actions
Occasionally=3;
Moderate=3;
Somewhat
exposure to risk)
Rarely=1
Negligible=1
prepared=5; Not
prepared=1
PRODUCTION RISKS
Enter Information
here
Continue as is
(H)
New strategy for
managing this risk
(I)
Yes, No
Add details (See
Risk Management
Strategies for
Options)
MARKETING RISKS
LEGAL RISKS
HUMAN RESOURCES
RISKS
Farm Business Risk Priority Matrix
Lack of production or farm
management experience
RISK MANAGEMENT ACTION PLAN
10
Lack of or cost of capital to invest
in needed assets
Yield variability due to genetics
9
Lack of a succession or estate
plan or other exit strategy
Income variability due to lack of
effective diversification
Risk
[Record risks in this
column]
Action for Managing Risk
[Record new strategies in this
column]
Target Deadline
[Record Implementation
Deadline and Responsible
Person in this column]
8
Insufficient revenue to cover
operating costs
VERY HIGH PRIORITY (Items in Red Quadrant)
7
Preparedness
To lead a successful farming business, it is important to manage risks using the ‘whole-farm or big picture’
approach. Risk may affect five important functions of your business – production, financial, marketing, human
resource and legal. Effective risk management deals with selecting the appropriate mix of available strategies to
reduce risks within your operation, transfer risks to some third-party, or build your operation’s capacity to bear
risks. There is no single set of risk management solutions that will work for all farms - producers must choose the
strategies that are appropriate and cost-effective for their unique situation.
Degree of risk
(D)
Risk
Management
Goals
(F)
FINANCIAL RISKS
This poster demonstrates the Whole-Farm Risk Assessment and Action Planning Tool to help project participants
engage in effective risk management by prioritizing risks and selecting the right set of risk management strategies
to help maximize profits, reduce income variability and meet strategic goals. The Risk Priority Matrix lays the
foundation for their risk management action plan, helping participants to build profitable and viable enterprises
with strong community connections through improved business planning and risk mitigation.
RATIONALE
Frequency of risk
(B)
Magnitude or
exposure to risk
(C)
Lack of equipment or machinery
failure or outdated technology
Enter Information here
6
Unsuitable inputs and resources
(too much or too little,
expensive, poor quality etc)
Disconnect between product
price and product offering and
consumer preferences
Insufficient profit margin or net
returns to compensate
management high production
costs compared to market price
Unpredictable weather or pest
and disesases
5
Failure to maintain farm and food
safety best management
practices
Unproven technology or
production methods
HIGH PRIORITY (Items in Orange Quadrant)
Enter Information here
4
Limited or inappropriate
marketing channels
MEDIUM PRIORITY (Items in Yellow Quadrant)
Disconnect between key farm
numbers and strategic farm goals
3
Enter Information here
Lack of farm management
experience and competencies
Failure to track key farm numbers
2
Lack of knowledge about legal
isses (local, state and federal
rules and regulations) affecting
the buisness
#REF!
#REF!
LOW PRIORITY (Items in Green Quadrant)
1
1
2
3
4
5
6
7
8
9
10
Enter Information here
Degree of Risk
CONCLUSION/IMPLICATIONS OF THIS STUDY
 The Whole-Farm Risk Assessment and Action Planning Tool offers a way for farm managers to make a preliminary assessment about
the risk priorities of their overall operations (whole-farm), identify specific actions for risk mitigation, and develop a ‘customized’ risk
management action plan for their individual operations that details implementation deadlines and persons responsible for actions.
 The tool can be used by farmers and ranchers in any type of agribusiness enterprise and at any stage of business development.
 This tool provides an efficient and cost-effective way to lay the risk-management foundation for their individual agribusiness
enterprise, helping participants build sustainable enterprises through improved business planning and risk mitigation.
 Participants’ Comments – “I can SEE which risks I need to focus on and not waste time and money on unimportant things”; “I now
know why I need a ‘customized’ plan, because my risk are so very different from my peer’s, even though we have similar operations’.
ACKNOWLEDGEMENT
 The Whole-Farm Risk Assessment and Action Planning tools are adapted from Farm Management Canada’ Comprehensive Guide to Managing
Risk in Agriculture, and modified for use in the WV Annie’s Project and the WV Agritourism Initiative.
This material is based upon work with the WV Annie’s Project and the WV
Agritourism Initiative, supported by USDA/NIFA under Award Number
2012-49200-20031.