Every farm operation is unique and has different risk management needs because each has differences in debt levels, costs and other items.
In the March 2003 Riskwise column we talked about people management — where to find key employees and how to compensate them with bonuses.
People management is the largest bottleneck for expansion. Although it once ranked second to marketing, I believe in operations greater than 5,000 acres it's now the largest impediment to growth. However, finding, compensating, organizing, retaining and motivating employees can be fine-tuned just like seed selection.
For farmers and producers who can grow their human resource management skills and talents, the future of production agriculture looks bright and profitable.
Labor costs vary greatly among operations. When managed properly, it can make up to a $60/acre swing in bottom-line profitability.
One corn and soybean operation I'm familiar with has a cost of $9.42/acre in family living and labor costs. Another's cost is $70/acre. Add that difference to some similar numbers in better marketing, equipment cost management and agronomic cost management and you get a difference of more than $200/acre net income.
These and other factors contribute to return on asset figures for our clients that exceed 12% and return on equity that exceeds 18%.
An area of increased attention is determining and communicating who is in charge of what tasks and responsibilities.
We assist a number of clients in sorting this out with a simple one-page responsibility and accountability chart. In my experience, if you can communicate what you want on one sheet of paper the chances of it getting read and used increases tremendously.
Creating the chart is a simple process of listing the people involved and matching the tasks that need to be done. There are a number of easy tools to use.
A client of ours from Harlan, IA, uses a RACI chart that is easy to use. Just list the processes/functions that need to be done and then assign an R, A, C or I to people involved. Here are the definitions.
R — Responsible: There must be at least one R for every process/function. There can be more than one R and it can be the same person as the A. This person/people are responsible for carrying out the process/function. They are the “doers.”
A — Accountable: “The buck stops here.” There can be only one A for each process/function. This is the person the team counts on to make sure the duty gets done — correctly — and on time.
C — Consult: There can be any number of Cs or none. The C person/people need to be consulted before a decision is made. Their input is required before moving forward.
I — Informed: There can be any number of Is or none. The I person/people are members of the team that need to be informed of what's being done. They don't provide input, but do have a need to know what's happening. Perhaps their duties are impacted by what other people do.
Family members, including spouses, need to be listed on the chart as well as employees. Often we assume family members understand who's in charge of what and who needs to be informed and when. But many times these issues aren't clear.
This process clears up confusion and allows you to separate tasks and responsibilities, and match them with the talent and skills of individual team members.
I'm involved in a hog operation with a number of my brothers and we use a similar process to match tasks with talent and experience. It makes a big difference in helping things run smoothly.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spent 26 years with Farm Credit Services as a division president. For more risk management tips, check his Web site (www.russellconsultinggroup.net) or call toll-free 877-333-6135.