Photos by USDA NRCS
Making a Success of
Succession Planning
using the
Critical Path Method
David W. Baker
Farm Transition Specialist
1-877-232-1999
baker@iastate.edu
ACKNOWLEDGEMENTS
Dr. Andrew Errington (died 2003)
University of Plymouth, England
Dr. Walter Warrick
Drake University
Dr. Michael Duffy
Iowa State University
John R. Baker, Attorney at Law
Iowa Concern Hotline
IMPORTANT CONSIDERATIONS
Is there a desire to continue family ownership of
the farm family business?
Is there an heir or key employee capable of
managing the farm family business?
Does the heir or key employee want to manage the
farm family business?
Will the owner/managers recognize the authority of
the successors?
Can the family withstand the stress that succession
planning will generate?
Will the owners/managers actively manage the
development of a farm family business succession
plan?
Will the owner/managers transfer the management
of the farm family business to the successor?
Have all stakeholders been identified, informed and
involved?
Has a decision-making process been agreed upon
by all parties?
Have the stakeholders developed a vision of their
future and the future of the farm family business?
Have the necessary roles that will be filled by the
stakeholders been identified?
Have successors been chosen for key
positions and have training plans
been developed for those positions?
Has an estate plan been developed and
does it provide for equitable
distribution of farm family business
property?
Have all important parties been made
aware of the details of the farm
family business succession plan?
Have contingency plans been
developed?
Business Life
S
I
Z
E
START-UP
GROWTH
MATURITY DECLINE
ATTRIBUTES OF THE BUSINESS
HIGH RISK OF FAILURE
SHORTAGE OF CAPITAL
EXCESS LABOR
LEARNING TO MANAGE
EXPANSION GOALS
STABLE BUSINESS
ADEQUATE CAPITAL
SHORTAGE OF LABOR
CAPABLE MANAGEMENT
EXIT GOALS
Business Growth Curve
S
I
Z
E
I
N
D
O
L
L
A
R
S
TIME
THE FARM
Owner’s Goal:
Continuation of farm
family business
Owner’s Goal:
Continuation of family
ownership of farmland
SUCCESSION
PLAN
ESTATE
PLAN
Assets Money Management
BUSINESS
SUCCESSOR
HEIRS
VALUES
What is important to me?
What do I hold dear?
VISION
What does the future look like?
MISSION
Why are we here?
What do we believe in?
GOALS
What do we want to do?
What do we want to be?
OBJECTIVES
How are we going to get there?
How will we know when we have arrived?
STRATEGIES
What do we need to do?
What are we required to do?
TACTICS
What do we need to carry out our strategies?
Who is responsible for the necessary activities?
ACTIVITY
Skills
Training
Recreational
Activities
Business
Meetings
Strategic
Business
Planning
Financial
Analysis
Retirement
Planning
Transfer
Planning
Asset
Analysis
Estate
Planning
Skills
Assessment
Continuing
Education
Relaxation
Expansion
Asset
Inventory
Business Succession Planning
Owner Generation
Successor Generation
Values – What is important to me?
Vision – What does my future look like?
Mission – Why am I here?
Goals – What do I want to do or be?
Objectives – How will I measure activity?
Strategies – What is my plan?
Tactics – How do I implement the strategies?
Self-Assessment
Skills
Abilities
Essential Planning Skills
Communicating
Decision making
Conflict resolution
Values – What is important to me?
Vision – What does my future look like?
Mission - Why am I here?
Goals – What do I want to do or be?
Objectives – How will I measure activity?
Strategies – What is my plan?
Tactics – How do I implement the strategies?
Self-Assessment
Skills
Abilities
Essential Planning Skills
Communicating
Decision making
Conflict resolution
Business
Resource inventory and analysis
Physical – Short, intermediate and long term property.
Financial – Income statement, balance sheet, financial
ratios.
Personnel – Human assets.
Planning should be
done simultaneously
because all
planning areas
influence one
another.
Business Planning
Opportunities
Threats
Strengths
Weaknesses
One year
Two years
Five Years
Ten Years
Essential business principles
Values - What is important to our business?
Vision - What does the future look like?
Mission - Why are we here?
Goals - What do we want to do or be?
Objectives - How will we measure activity?
Strategies - What is our plan?
Tactics - How do we implement the strategies?
Retirement Planning
Timing
Residence
Income Source
Household Budget
Recreational Needs
Health Care Needs
Long Term Needs
Transfer Planning
Income
Amount
Source
Method
Household Budget
Management
Assets
Estate Planning
Equal vs. Equitable
Business Assets
Personal Assets
Consistency
Flexibility
Legal Documents
Liquidity Needs
Tax Consequence
The Critical Path
Method
• Identification of necessary resources
• Effective method of analyzing a complex
process
• Calculates the minimum time for
completion
• Prioritizes activities to be completed by
that date
• Effective scheduling and monitoring of
progress
• Focuses on the essential activities
• Provides a graphic view of the plan
Activities
• Sequential activities: activities that are
dependent on other activities being first
completed.
• Sequential Activities must be completed in an
ordered sequence.
• Each activity in the sequence must be
completed, or near completion, prior to the
start of the next activity in the sequence.
• EXAMPLE:
A foundation must be built before
walls can be erected.
• Parallel activities: activities that are not
dependent on the completion of a previous
activity or activities.
• EXAMPLE:
Selection of the paint color for the
kitchen walls.
Estimating Time
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Difficult to estimate the length of time that an activity
will take
Particularly true if it is a new activity
Normal to underestimate the time need to complete
and activity
High priority activities must be carried before
immediate activities
Unexpected or unscheduled high priority work that is
forgotten
Accidents and/or emergencies
Meetings
Holidays and sickness
Break downs in equipment
Delays and Interruptions
Rejections due to quality or quantity
Etc. (If it can, it will and it will at the most inconvenient
time.)
Develop a systematic approach to include these
factors
Rely on your experience
Methodology
List all activities in plan
List the earliest practical start date; estimate length of time to
completion; if the activity is parallel or sequential; how to
measure the activity; who is responsible for the activity; and
how and to whom the activity will be reported.
The context of the activity determines if it is parallel or
sequential.
Activity__________________________________________
Start week __________________________
Number of days to completion __________
Sequential & dependent upon________________________
Parallel _________________
How will the activity be measured?____________________
Who is responsible for the activity?____________________
How and to whom will progress be reported?_______________
List all the activities need to complete the plan
Copy activities in the appropriate
time period
• Begin with the activities with the earliest
start dates
• Show the activities as arrows that end
with a box
• Show the time taken to complete the
activity above each arrow
• Show whether the activity is sequential
or parallel
Critical Path Method Chart
Weeks
1
2
3
4
5
6
Sequential --------------------------------------------
7
8
9
1
0
1
1
Parallel -----
1
2
1
3
1
4
1
5
1
6
1
7
1
8
Schedule Activities
Schedule activities so that sequential
activities are carried out in the proper
sequence
Scheduled parallel activities so as not to
interfere with sequential activities
Allow for the unexpected
Be prepared for “Murphy’s Law” be flexible with
time schedules. Allow extra time.
The Critical Path is the longest
sequence of sequential activities
leading to the completion of the plan.
Any delay of in the commencement or
completion of an activity on the critical
path will delay the completion of the
whole plan.
The time allowed for future sequential
activities will need to be shortened.
Critical Path Method Chart
Weeks
1
2
3
4
5
6
7
8
9
1
0
1
1
1
2
The Critical Path
Sequential --------------------------------------------
Parallel -----
1
3
1
4
1
5
1
6
1
7
1
8
Keys to Success
• Strong family relationships, trust and
honor
• Excellent communication skills
• Recognizing individual differences and
being able to compromise
• Allow gradual management
participation
• Encourage outside interests and
hobbies
• Separate living areas helps separate
family and business decisions
Keys to Success
(continued)
• Develop a flexible, written
agreement that is
appropriate to situation and
update when necessary.
• Deal with non-farming heirs
in a fair or equitable manner
not always equal terms.
Conclusion:
• Develop your own
basic plan using a
proven system:
values, vision,
mission, goals,
objectives,
strategies, and
tactics.
• Share openly and
honestly to bridge
the generation gap.
• Enlist experts when
needed, i.e.
financial
consultants,
lawyers,
management
specialists,
mediators, and
others.
Beginning Farmer Programs
• Farm On- A matching service for
beginning and retiring farmers.
• Individual consultations for
beginning or retiring farmers.
• Individual financial analysis of
farm transfers.
• Research and resource data for
farm succession planning.
BFC of Iowa Programs
(cont.)
• Nationwide leadership as cofounder of the National Farm
Transition Network.
• Participant in International farm
transfer research with Japan,
Australia, Canada, et al.
• Farm Savvy Resource Manual
• Ag-Link- a special seminar and
training session for students and
family members returning to
family farm operations.
Presented by:
David W. Baker
Farm Transition Specialist
baker@iastate.edu
1-877-232-1999
Beginning Farmer Center
www.extension.iastate.edu/bfc/
877.BFC.1999
Providing such programs as Farm On, Ag
Link Seminar, educational materials,
individual consultation, National Farm
Transition Network