How do you prioritise risk?

Its vey common to hear how much risk there is in agriculture.  I know I hear the phrase “farming is a risky business” fairly frequently.  To some degree that’s true.  There are risks with the weather and the markets.  There are risks associated with production from diseases and pests.  There are the risks working with machinery, animals and working in isolation. 

However choosing to focus on the negative side of risk is also a risk.  Choosing not to do something, simply as a reaction to a perceived level of risk might actually be the wrong thing to do for your business or for yourself.

Lets face it; risk is part of life! There are risks with everything we do.  The way we manage those risks depends on our experiences, our knowledge of similar or past events.  It includes an appreciation of the situation and a decision to way up the possible outcomes of that response.  So risk management is something we all do!

In day-to-day life making risk management decisions needs to happen in our head, and often quite quickly!  However for a business, making risk management decisions on the fly, often leads to missed opportunities or costly mistakes that time and money to correct.

So how do you look at risk?  How can you plan for risks and develop a business structure that is robust enough to respond to risk and capitalize on opportunities that often come along?

One of the tools I find most useful comes from the work health and safety industry.  Called a risk score calculator, its basically a way to plot the level of risk to an activity or an event.

The tool plots the Likelihood of something occurring.  

There are five levels, from Almost Certain to Rare.  

The way I use these levels is to look at the data I’ve collected on the business.  Has it happened before, is it happening often, does it happen all the time?  In my mind, that’s the whole point of collecting data!

The second step is to decide what are the consequences of an event happening?  Is it Catastrophic – which if you prefer is an easy way to say if this occurs will someone die, or will huge losses occur?  And then through Moderate to insignificant consequences. 

When you determine that level it’s fairly straightforward to decide if the risk you are considering is extreme, high, medium or low. 

Effectively using this tool helps you prioritize your actions and future plans.  Extreme risks are the ones you need to fix straight away.  

Quite simply you need to consider what can you change to lower that risk?  Is it a change to the way you operate?  Is it a physical change to infrastructure?  Does it require you to invest in skills and training?

Setting priorities is a huge part of risk management.  You can’t do everything at once!  And while there are always jobs to do, some of them are probably less important and can wait a while. 

I reckon the real value of using this tool comes from actually sitting down and having a rational and objective assessment of the situation.  As I said previously, your data will help you decide if the situation is likely to occur or not.  The consequences of the event help set its place on your list of priorities.

I’ve recently been working with a producer using this tool to evaluate the impact of weather extremes.  Their farm data shows clearly rainfall is coming in more intense events and the periods between rainfall is growing.  

The pasture data shows changes in growing days as well.  That data shows that it is likely they can no longer rely on certain species of temperate pastures to finish cattle for their traditional market. 

The consequence of that is major impact on the business.  The risk to that business is rated as High.  So we have been working to develop pastures that suit the changes recorded, with more sub tropical species introduced into the mix.  We have also started focusing on alternative markets so that cattle hit the specifications.

These are all big business changes.  But we are making them to respond to a clearly determined level of risk.  More importantly with my clients, we have a set of priorities to focus on.  In sitting down to discuss the ways to respond, we were able to look at opportunities and new directions before choosing the best option for this business.

It also highlights the importance of collecting good data.  I like using data to drive innovation on farm.  Responding to and lowering risk needs some innovative ideas!  If your data can’t help with those decisions, then you really do need to rethink how you are operating.

Over the next month I’m visiting several new clients to look at their programs and offer some advice.  One of my first questions will be how do you manage risk?  You can be sure we will go through this exercise and work up a few priorities! 

Don’t forget if you want a hand to help set your priority list in order or to look over the data you need, I’m always happy to come and ask the questions and get you going!

Are you focused on the basics or the peripherals of profit?

In the last few weeks I’ve read several articles and discussions focused on beef production.  Specifically I’ve been looking for ideas or thoughts that I can bring into practice with my clients this year.  After all, my job is to work with producers to find better ways and more efficient ways to produce beef and make money.

One of the first articles I came across highlighted the huge difference between profitable beef producers and the majority of the industry.  This article from Beef Central, suggests that only 2 in 10 producers is actually making money.  Having read that, I was more struck by the fact this isn’t really news to me. 

For some years now it has been clear that the large majority of producers are not making nearly enough money to operate a profitable business.  It also seems that there really isn’t anything new in the way that the profitable operators are conducting their business.   In fact the profitable producers are focused on their practices on farm to producer kilograms of red beef efficiently and profitably.

So what is everyone else focusing on?  It seems the focus for the less profitable operators is on the peripheral things.  For some time I have been following an on line breed discussion.  The discussion is driven by participants desire to be more profitable.   However rather than sharing ideas to implement on farm or in the business, the discussion is now around issues that don’t really make money.

These issues include; why does “no one want to buy cattle from our breed?” “why do people overlook us in the sale yard” “we can’t advertise the same way the big breed societies do”. I actually find reading these points a little disheartening. 

It gets worse when the discussion moves towards more defensive positions.  These things include “well we had a good success in the show ring”, “our carcase competition results are always very good” “people say my cattle are great”. 

Its generally about then that I stop reading and go away a bit depressed.  In 24 years of judging carcase competitions, I’ve never actually met anyone who has been paid because of the results of a single animal in a carcase competition.  It seems a very weak argument to put forward when discussing ideas to change and be more profitable. 

Finally in one of the rural newspapers I read an article by an older cattleman who wrote about his work over many years, crossbreeding animals, and his focus on feed efficiency.  While these are both very important traits, I was a bit skeptical when it also suggested processors need to change their specifications to suit cattle producers.  I’m not really sure that any other business would think it’s a valid point to tell the customer to change what they want to suit the producer!

So what does this really mean?  I think it means many people are focusing on peripheral issues that are not the primary driver for business profitability. 

In my books a profitable beef herd is a highly fertile herd.  It must have not only high conception rates, it also needs to achieve those conception rates within a defined joining period.  For many herds this really should be within 6 to 9 weeks. 

Those cows should then be able to actually calve and rear that calve through to weaning.  And then be rejoined in order to produce another calf in a 12 month period. 

Having worked with many producers, across regions this is the crunch point for me.  The producers who achieve these things with their cows are already achieving higher levels of productivity and profitability for their businesses. 

The next key point is animal growth.  Growth isn’t just genetics.  It isn’t just nutrition.  It is the combination of genetic selection.  I think t be more specific, choosing cattle for your country!  Choosing the genetics, the breed type and the animal type that suit the environment you live. 

If you get that bit right you are already on the way to making nutritional management that much easier.   After all if the cattle suit the country, your management should complement the animals ability to use your pastures efficiently.  But if your cattle don’t suit the country because their maturity pattern isn’t quite correct, or for some other reason, you will have to spend more time juggling feed and cow condition to ensure they get into calf, rear that calf and that any progeny meet market specifications.

I know fertility and growth (from both genetics and nutrition) has a direct link to business profitability.  Its pretty clear from lots of industry studies, the herds that produce more kilograms of beef per hectare are the more profitable herds. 

What I don’t really get is if it is so clear, why do we ignore these areas to focus on the peripherals?  I’d get it if a producer was ticking all the boxes in fertility, in growth, in nutritional management.  If the were I would see that they were selecting animals for market specifications and selling tem to capture the value those animals are worth.  In effect, if you tick all the boxes it opens up the peripherals to explore and extract a little more value.

I know some producers will be defensive when they read this.  I’ve heard it in comments such as “my cattle are fertile”  “Its a very fertile breed”.  My response is how do you know?  I know not everyone pregnancy tests.  I know that not everyone selects for females that go into calf early in the joining period.  I know that many cows are joined for longer than 3.5 months. 

So what does it really mean?  This year I’m challenging all of my clients, old and new to look at the basics objectively and honestly.  To make sure we are ticking the boxes.  The peripherals that distract many in the industry won’t play a part in our decisions until we get the boxes ticked.  I’m actually excited by this! I’m confident it will set my clients up to either become part of, or remain well within the profitable sector of the industry. 

Don’t forget if you’d like to step up and take the challenge, I’d love to hear from you!