FARM MANAGEMENT

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FARM MANAGEMENT

• RISK MANAGEMENT

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FARM MANAGEMENT CONCEPTS

• WK 1 INTRODUCTION
• WK 2 ECONOMICS
• WK 3 BUDGETS
• WK 4 LINEAR PROGRAMMING
• WK 5 INVESTMENT ANALYSIS
• WK 6 MACHINERY
• WK 7 LAND
• WK 8 CREDIT RISK MANAGEMENT
• WK 9 LABOR
• WK 10 ESTATE PLANNING

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RISK MANAGEMENT

• FARM MANAGEMENT, 4 Ed
• KAY EDWARDS
• PG
• FARM MANAGEMENT
• RESOURCE BOOK
• PG

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RISK MANAGEMENT

• DISCUSSION POINTS
• I. SOURCES OF RISK
• II. KNOWLEDGE RISK
• III. FACTORS AFFECTING RISK TAKING
• IV. TYPES OF RISK
• V. RISK MANAGEMENT

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RISKY DECISIONS

• 1. A DECISION FOR WHICH MULTIPLE OUTCOMES ARE
  POSSIBLE

2. MULTIPLE OUTCOMES ARISE BECAUSE ONE OR MORE
IMPORTANT PARAMETERS ARE STOCHASTIC OR
VARIABLE
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I. SOURCES OF BUSINESS RISK

• A. PRODUCTION
• B. MARKET PRICES
• C. TECHNOLOGY
• D. INSTITUTIONAL
• 1. SOCIAL
• 2. LEGAL
• E. HUMAN
• F. CAUSALITY

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G. FINANCIAL RISK

• VARIATION BROUGHT ABOUT BY THE WAY THE BUSINESS
  IS FINANCED

AS THE RELATIVE AMOUNT OF NON-EQUITY CAPITAL USED
IN THE BUSINESS INCREASES,FINANCIAL RISK
INCREASES AT AN INCREASING RATE
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II. KNOWLEDGE RISK

• A. PERFECT KNOWLEDGE
• - ABSOLUTE CERTAINTY
• B. IMPERFECT KNOWLEDGE
• - RISK (PROBABILITY OF BAD OUTCOME)

-- APRIORI
-- STATISTICAL
C. NO KNOWLEDGE -- ABSOLUTE UNCERTAINTY
-- SWAG
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III. FACTORS AFFECTING RISK TAKING

• A. AGE
• B. FAMILY
• C. EDUCATION
• D. CONFIDENCE
• E. LENGTH IN BUSINESS
• F. ADAPTIVENESS
• G. INDEPENDENCE
• H. ECON SECURITY
• I. NEED TO ACHIEVE

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J. ATTITUDES TOWARD RISK

• 1. RISK ADVERTERS
• WILLING TO TAKE LESS RETURN IN ORDER TO HAVE
  LESS RISK

2. RISK NEUTRALS DO NOT CONSIDER RISK, ONLY THE
EXPECTED RETURNS
3. RISK SEEKERS RISK CARRIES THE PROMISE OF THE
REALLY BIG SCORE
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IV. TYPES OF RISK

• A. SPECULATIVE RISK
• 1. CHANCE OF GAIN OR LOSS

2. NOT INSURABLE! B. PURE RISK 1.
INSURABLE 2. ONLY LOSSES OCCUR 3.
CHARACTERISTICS a. GEOGRAPHIC DISBURSED
b. NUMERICALLY DISPERSED c. KNOWN
PROBABILITY
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V. RISK MANAGEMENT

• A. AVOIDANCE

B. PREVENTION
C. ASSUMPTION
D. TRANSFER
E. POOL
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SUMMARY

• 1. FARMERS DEAL WITH MANY KINDS OF RISK,
  PARTICULARLY WEATHER AND PRICES.
• 2. WITH THE GOVT GETTING OUT OF AG, IT HAS BECOME
  RISKIER
• 3. MANY FACTORS INFLUENCE RISK TAKING.
• 4. THERE ARE SEVERAL WAYS TO MANAGE RISK,
  INCLUDING BUYING INSURANCE TO COVER PURE RISKS

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NEXT FARM MANAGEMENT TOPIC

• LABOR MANAGEMENT