Farm Management
Chapter 2
Management and Decision Making
Chapter Outline
•
•
•
•
•
Functions of Management
Strategic Farm Management
Tactical Decision Making
Characteristics of Decisions
The Decision-Making Environment in
Agriculture
farm management
chapter 2
2
Chapter Objectives
1. To understand the functions of management
2. To present the steps in developing a
strategic management plan for a farm or
ranch
3. 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 making
5. To describe some unique characteristics of
the decision-making environment for
agriculture
farm management
chapter 2
3
Table 2-1
Comparison of Low- and High-Profit Farms
in Iowa
Item
Highest Third
(Average)
Lowest Third
(Average)
$334,981
$241,861
Net farm income
$90,800
$2,358
Return on assets
10.6%
-1.6%
Crop acres farmed
729
802
$166,212
$196,490
16.6
17.6
Value of farm production
Machinery value
Months of labor utilized
Source: 2001 Iowa Farm Costs and Returns
farm management
chapter 2
4
Functions of Management
• Planning
• Implementation
• Control
farm management
chapter 2
5
Planning
Planning means choosing a course of
action.
To plan, a manager must establish
goals, identify resources, and allocate
the resources to competing uses.
farm management
chapter 2
6
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.
farm management
chapter 2
7
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.
farm management
chapter 2
8
Figure 2-1
Management flow chart based on three
functions of management
farm management
chapter 2
9
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
farm management
chapter 2
10
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
farm management
chapter 2
11
Table 2-2
Common Values Among Farmers and Ranchers
Do you agree or disagree?
1.
2.
3.
4.
5.
6.
7.
8.
A farm is a good place to raise a family.
A farm or ranch should be run as a business.
It is acceptable for farmers to borrow money.
A farmer should have at least two weeks of vacation.
It is better to be self-employed than to work for someone else.
It is acceptable for a farmer to also work off the farm.
It is more enjoyable to work alone than with other people.
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.
farm management
chapter 2
12
Goals
•
•
•
•
Goals should be written
Goals should be specific
Goals should be measurable
Goals should have a timetable
farm management
chapter 2
13
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
farm management
chapter 2
14
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
farm management
chapter 2
15
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
farm management
chapter 2
16
Identifying and Selecting Strategies
Some businesses have more potential
routes for reaching their goals than
others because resources are more
flexible. As the number of alternative uses
for resources increases, so does the
complexity of the manager’s decisions.
farm management
chapter 2
17
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
farm management
chapter 2
18
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
farm management
chapter 2
19
Characteristics of Decisions
•
•
•
•
•
Importance
Frequency
Imminence
Revocability
Number of alternatives
farm management
chapter 2
20
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
farm management
chapter 2
21
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 that
of most other businesses.
farm management
chapter 2
22