Transcript Business Planning - Penn State College of Ag Sciences

Managing Risks in
Your Operation
Jeffrey Hyde, Gary Micsky, Sarah Roth, & Lynn Kime
Copyright © 2004, The Pennsylvania State University. All rights reserved.
Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce.
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Take Home Points
• You should learn to identify sources of risk
• Many risks can be managed
• Risk management should be incorporated
into your business plan
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Risks Are All Around!
Increasingly Litigious Society
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Risks Are All Around!
Weather is Unpredictable
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Dollars per hundredweight
Risks Are All Around!
Prices Bounce Around A Lot
Wholesale Milk Prices
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All People Face Risks
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Farmers Face Distinct Risks
Weather
Prices
Hired Labor
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Change Brings New Risks
School tours can
be lucrative,
but…
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Change Brings New Risks
Are you sure your
food is safe to
consume?
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ANTICIPATE!!
Include risk management in the business
plan
Reader should know:
1. That you considered the
risks
2. That you have avoided
some risks
3. That you have contingency
plans
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Types of Risk
Production Risks
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Types of Risk
Production Risks
Manage with:
– Sound production
practices
– Crop Insurance
– Diversification
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Types of Risk
Production Risks
Sound production
practices
– To learn more,
contact county
extension office
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Types of Risk
Production Risks
Crop Insurance
– Protects against unavoidable losses
– Covers many different types of field, fruit,
vegetable, and nursery crops; also whole farm
revenue protection to a specified limit
– Subsidized by federal and PA government
– Fact Sheets in Registration Package
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Types of Risk
Production
Risks
Diversification
– To learn more,
contact county
extension
office
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Types of Risk
Price Risks
Prices move up and down
Function of many factors
Consider input and output prices
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Types of Risk
Price Risks
Manage with:
– Forward contracts
– Futures and options
– Hedging
– Direct marketing
– Diversification
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Types of Risk
Price Risks
Forward contracts,
future and options,
& hedging
– To learn more,
contact your farm
management
educator
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Types of Risk
Price Risks
Direct marketing
– Control prices better
– Take advantage of buyer
loyalty
– Requires quality service
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Types of Risk
Price Risks
Diversification
– Product prices do not all move together
– Learn when peak prices occur and match
production to these peaks
– Variety and hybrid selection may reduce risk
– Match products to smooth cash flow
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Types of Risk
Personal Injury/Health Risks
Injury to management could
cripple business
Injury to key employee increases
labor and management’s
workload
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Types of Risk
Personal Injury/Health Risks
Manage with:
– Disability insurance
– Key-man insurance
– Health insurance
– Life insurance
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Types of Risk
Personal Injury/Health Risks
Buying insurances
– Contact local agent(s)
– Shop around (prices and policies vary)
– Insurance must meet family and
business needs
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Types of Risk
Employee Injury/Health Risks
Someone could be injured on
the job
Health problems can affect
ability to work
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Types of Risk
Employee Injury/Health Risks
Manage with:
– Worker’s compensation
– Liability insurance
– Health insurance
– Safety training
– Have a back-up plan!
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Types of Risk
Employee Injury/Health Risks
Worker’s compensation
– Can self-insure but not
recommended
– Premiums are based on
the amount of yearly payroll
– Check with your insurance provider for details
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Types of Risk
Employee Injury/Health
Risks
Buying insurances
– Contact local agent(s)
– Shop around (prices and
policies vary)
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Types of Risk
Employee Injury/Health
Risks
Safety training
– Teach safety
– Be sure employees know
safe way to work
– Observe employees to be
sure they practice safety
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Types of Risk
Employee Injury/Health
Risks
A Back-Up Plan
– Be sure each employee has
an ‘understudy’
– Cross-train for knowledge
and safety
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Types of Risk
Liability Risks
Product – Diseases, allergies,
injury
General – Property, vehicle
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Types of Risk
Liability Risks
Manage disease risks with:
– Product liability insurance
– Proper screening of outputs
– Attention to production process
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Types of Risk
Liability Risks
Manage allergy risks with:
– Full disclosure
– Product labeling
– Avoiding common allergy
issues
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Types of Risk
Liability Risks
Manage product injury risks
with:
– Warning labels
– Concerted effort to minimize
danger
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Types of Risk
Liability Risks
Manage property risks with:
– Communication
– Diligence
– Liability insurance
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Types of Risk
Liability Risks
Manage vehicle risks with:
– Commercial auto insurance
– Fleet insurance (> 5 vehicles)
– Employ competent drivers for
all types of vehicles
– Maintenance
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Types of Risk
Other Risks
Losing good employees
Fire, flood, vandalism
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Types of Risk
Other Risks
Manage employee loss
risks with:
– Proper compensation
– Acceptable work
environment
– Empowerment
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Types of Risk
Other Risks
Proper compensation
– Be sure employee is
happy
– Ask around
– Include benefits
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Types of Risk
Other Risks
Manage fire, flood, vandalism with:
– Business property insurance
– Common sense!
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Take Home Points
• You should learn to identify sources of risk
• Many risks can be managed
• Risk management should be incorporated
into your business plan
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Disclaimer
Information in this presentation is intended to be
educational in nature. No specific advice is intended.
For legal, financial, or other counseling, please see a
professional specializing in your needed field of
expertise.
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Thank You!
Questions?
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