How Do I Stay on Track?

1. How Do I Stay on Track?

2. Monitoring and Control Requires: • Identifying factors critical to success • Measuring performance • Defining standards of expected performance • Comparing actual and expected performance • Assessing need for and type of adjustment

3. Monitoring and Control Process Operations Problem? No Determine Critical Success Factors Yes No Take Corrective Action Determine What to Measure Does Performance Match Standards? Establish Standards Yes Measure Performance Continue Monitoring Devise Strategy • Internal? • Financial? • Customers? • Innovation • and Learning?

4. Identifying Critical Success Factors • The few key areas or activities where things must go well if vision is to be achieved • Should focus on answering: • How do owners see us? (Financial perspective) • How do customers see us? (Customer perspective) • What must we excel at?(Internal perspective) • Can we continue to improve and create value? (Innovation and learning perspective)

5. Determining What to Measure • What information is needed to determine how stakeholders see us? • If the information is gathered, how will it affect the decision-making process? • Preliminary controls • Concurrent controls • Feedback controls • When should the measures be taken to be useful?

6. Controls Should. . . • Involve only the minimum amount of information needed to give a reliable picture of events. • Monitor only meaningful activities and results, regardless of measurement difficulty. • Be timely. • Be long-term and short-term. • Pinpoint exceptions (trigger action). • Be used to reward rather than punish.

7. Example Measures • Financial • Operating Profit Margin, Asset Turnover Ratio, Return on Equity, Return on Assets, etc. • Customer • Quality, delivery, # of complaints, etc. • Internal • Planting and harvesting timing, weed control, employee satisfaction, etc. • Innovation and Learning • # of seminars attended, R&D investment (evaluation of new products, processes, etc.), etc.

8. Defining Standards of Performance • Benchmarking • Looking for those businesses that are the best at doing something and learning how they do it so that we might emulate their methods

9. Benchmarking: How? • Identify the area or process to be examined. • Should be an activity that has potential for competitive advantage • Find behavioral and/or output measures of the are or process to obtain measurements. • Select an accessible set of competitors and best-in-class companies to benchmark. • Performing similar activities • Not necessarily in agriculture

10. Benchmarking Principles • Be sure to understand and appreciate the differences between business environment and cultures. • Understand how the aspect that is being studied fits with the other elements of the firm.

11. Monitoring and Taking Action • Are we meeting the standard? • If yes, continue to monitor or move to next level. • If no, is the performance gap due to extenuating circumstances? • Wait and measure again, but be careful! • If no, is the performance gap due to operational breakdowns? • Take corrective measures to fix the problem. • If no, is the performance gap due to changes in the firm’s external or internal environment? • Assess strategic position and prepare new strategy

12. Using Dupont Analysis in Monitoring and Control

13. Gross Revenue Fixed Costs Variable Costs Net Income - - = Operating Profit Margin Net Income Interest Expense Gross Revenue + ÷ = - Interest Assets ROA x Gross Revenue ÷ Turnover Ratio Total Assets = ROE x Financial Structure Total Assets Equity Financial Structure ÷ = Operating Performance DuPont Analysis

14. Worksheet 4: MBC Farms

15. Worksheet 4: MBC Farms

16. Acceptable If both asset Turnover and Operating margin are acceptable, Increase size Acceptable Operating Profit Margin Needs Improvement • Look for ways to increase • the revenues from existing • assets. Re-evaluate: • Thruput • Crop Mix/Product Mix • Marketing Program • Yields • Resource Use • Custom Work Enterprise • Look at Cost Controls. Look for ways to decrease expenses without reducing revenues. Reevaluate: • Production costs • Rents • Capital Spending Plans • Purchasing Practices • Family Needs • Business Organization • Financing Costs • Employment • Inventory Management • Outsourcing • Records • Control Procedures • Management Priorities Needs Improvement • Look for non-performing assets to cull. Reevaluate: • Leasing vs Owning • Custom vs. Owning • Sharing Assets Decisions and Rates of Return Asset Turnover

17. Linking Ideas & Actions • Action Steps • Behavior Controls • Policies, rules, and SOP’s to get an idea implemented • Output Controls • Using objectives and performance targets to achieve an idea • Resources • People • Financial • Equipment • Information

18. Linking Ideas & Actions • Responsible Individual • Performance Monitor • Time Table • Corrective Adjustments

19. Exercise • Work on the action plan table. • Try to identify critical actions/controls. • Include both behavioral and output actions. • Make sure to identify the resources need to accomplish the action. • Make someone be responsible for the action. • Determine how you will measure achievement. • Think of the responsible person’s authority to take corrective action.

20. Strategic Business Planning for Commercial Producers