We all make the best decisions we can given that we really don’t know what’s going to happen in the future. For example, if we knew we were headed into drought, we’d sell off animals when the prices are at their best. Heck, if we knew what the very best price was going to be in a year, we’d certainly take advantage of it. But since we’re unlikely to get a tool that tells us exactly what’s going to happen, we might as well think about what our risks are in a given time period so that we can make decisions we feel good about and safe with. Thanks to Mark Cannella who created a risk management planning worksheet. Whether or not you fill it out completely, it will at least get you thinking.
The worksheet starts with thinking about what kind of a risk taker you are:
Here are definitions of these labels to help you place yourself:
Avoiders are cautious, expecting the worst to happen, and if they can avoid taking a risk, they will. This means that often miss opportunities to profit.
Calculators know they have to take some chances, but before they make a decision, they gather information and analyze the odds. They try to be realistic and to reduce risks to something they can live with. Farmers tend to be calculators when it comes to business risk.
Adventurers think that taking risks is challenging and exciting, but they try to keep the stakes reasonable. If you enjoy playing the market as long as your financial survival is not at stake, you might be an Adventurer.
Daredevils are the opposite of Avoiders. They plunge in without a worry for the risks, or the facts and they often fail because they refuse to take precautions. Farmers are rarely Daredevils in business.
Your next step is to take a good look at your risk factors. Feel free to use the back of the page to get into as much depth as you need. Once you’ve gone through this list, take some time to identify the greatest risks to your operation. Yes, this can be painful and scary, but when you get to the next step, you’ll reassert some control!
Here’s how the USDA Economic Research Service defines these categories to help you think about them:
Production risk comes from uncertainties like weather, disease, pests, and other things that can affect the quality and quantity of what you can produce.
Marketing risk covers pricing uncertainties for the different things you’re selling.
Legal risks are potential changes in the rules and regulations around you as well as the possibility that you might be sued for something.
Human risk refers to health or personal relationships that can affect farms like accidents, illnesses, death and divorce.
Financial risks come from borrowing money, rising interest rates, and restricted credit as a result of what’s happening in the world around you.
Now for the Risk Management Tools!
Even though this part of the worksheet looks just like the part where you were listing risks, this is the part where you take back a little control over your life. In this list you’ll write down a tool, or something you can do to mitigate the risks that you noted above. Some farmers buy crop insurance, or they figure out pricing contracts for their products. You might realize that a new regulation is coming down the pike and you need to adjust your operation in response. To reduce human risk you may decide to take better care of yourself and your spouse/partner. And that loan you were looking at? Well you might decide to borrow less or borrow while the interest rates are low.
If you’re having trouble coming up with a good solution for a particular risk, ask for help. Visit your local NRCS, Extension or Conservation District office and talk to folks there, or see if they have examples of producers in your area that have faced similar situations. Maybe there’s even someone in the On Pasture community that can share tips and hints.
Implementing Your Strategy
While you’re thinking about a solution, don’t forget to factor in estimated costs, and new skills and training you might need, as well as contacts, agencies or companies that are part of your strategy. Then take take the steps you’ve identified to cover your bets.
The Strengths, Weaknesses, Opportunities and Threats analysis that Mark shared in an earlier article can help you as you’re thinking about your risks and how to manage them. Check it out here!