Busines $ ense

1. Busines$ense Management Training for Dairy CFO’s Bradley J.Hilty Information Management Specialist Penn State Dairy Alliance

2. Busines$enseWhat is Busines$ense? • Best Management Practices in BM & IM • Standardization of IM Practices • A systematic approach to business analysis • Identifying bottlenecks with benchmarks A Dairy Alliance program to train Chief Financial Officers of dairy businesses in:

3. Busines$enseProgram Objectives • Enhance participants’ understanding of BMP in IM & BM • Implement standards for data management • Provide benchmarks for evaluating business • Provide a systematic approach to evaluate business • Provide tools for ongoing business evaluation • Improve information for decision making

4. Busines$enseHow did we do this? • Established a Baseline • Collect data for Dairy Farm Business Analysis • Implement standards for IM • Short term • Long term • Evaluate Cost of Production-DairyCOP$ • Evaluated Business Performance-DFBS • Develop Strategies to Address Weaknesses

5. Busines$enseHow did we do this? • Hands On Experience • Data Collection for DFBS • Systems analysis using benchmarks • Calculating Production Costs with DairyCOP$ • Group Discussion • The Key to Busines$ense (10-15 dairies)

6. Busines$enseFeatures of Busines$ense • Lecture – Topics • Characteristics of successful businesses • Standardization of IM practices • Benchmarks for measuring business performance • Managing investments for profitability • Cost control & net margin analysis • Analyzing incremental costs and returns

7. The Six Steps of Information Management Data Utilization2 Data Integration1 Data Reporting Presents data for interpretation Data Processing Data entry & calculations Data Organization Provides structure to the data set Data Collection Observation, measuring & recording of data Bradley J. Hilty, Information Management Specialist, Penn State Dairy Alliance

8. Busines$ense • If you don’t measure it, you can’t control it. • GIGO • Provide Accurate Feedback to Others • Benchmarks Comparisons • Standardizing the Process Importanceof Sound IM Practices

9. Busines$ense • Maximize profits • Maintain adequate cash flow • Build equity • Quality of Life • Family • Employees • Others?? Goals of Successful Business Owners

10. Busines$ense Goals of Successful Business Owners: Achieve Balance Quality of Life • Maximize profits • Maintain adequate cash flow • Build equity

11. Busines$ense Goals of Successful Business Owners: Achieve Balance • Maximize profits • Maintain adequate cash flow • Build equity Quality of Life

12. Busines$ense Goals of Successful Business Owners: Achieve Balance Quality of Life • Maximize profits • Maintain adequate cash flow • Build equity

13. Busines$ense • Very Profitable • Generate Abundant Cash Flow • Sound Financial Base • Efficient in the Use of Inputs • Capital Efficient Characteristics of the Successful Businesses

14. Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program BUSINESS ANALYSIS- Five “Star” Financial Benchmarks Profitability Return on Assets (ROA) >10% Financial Efficiency Operating Expense Ratio OER< 75%-Corp OER<65% -SP/P Capital Efficiency Asset Turnover Ratio ATR >.6 Dairy & Crops ATR> 1.0 Dairy $ Liquidity Term Debt & Lease Coverage Ratio (TDLCR) > 1.20 Solvency % Equity % Equity > 60%

15. Evaluating Herd Performance with Benchmarks Production Milk/Cow/Day Herd Status DIM Cow Management Cull Rate Udder Health SCC Reproduction Pregnancy Rate Diagnostic Benchmarks Diagnostic Benchmarks Diagnostic Benchmarks Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

16. Benchmarks –Evaluating Business Performance Busines$ense

17. Busines$ense Key Performance Indicators • Key Herd Performance Benchmarks • Milk/Cow/Day – Production (>70 lbs) • Cull Rate – Total Cow Management (<30%) • Days In Milk –Herd Status(170-175 days) • Pregnancy Rate – 22-24% • Heat Detection - 60% • Conception Rate – 40% • SCC - Milk Quality (< 200,000) Reproduction

18. Busines$enseHands-On: Cost of Production System DairyCOP$

19. Busines$enseHands-On: Analyzing Business Performance

20. Busines$enseUnderstanding Bottlenecks? Production Systems Are Pipelines INPUTS PRODUCTS Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

21. Busines$enseUnderstanding Bottlenecks? A restriction in the product pipeline INPUTS PRODUCTS Fixing the wrong bottleneck is of no benefit. It is important to detect & correct the most restrictive bottleneck first. Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

22. Is the business profitable? ROA Busines$ense Is the business financially efficient? OER Is the business capital efficient? ATR Examine Key Expenses Feed Labor Others Examine Investment per cow Land Values Is the production a problem? Milk/Cow/Day Why is production a problem? Examine production record KPI’s Evaluate Forage Quality; Cow Comfort; Ventilation; Water; Management SOP’s Evaluate investment strategies; Consider liquidation or reallocation of assets A systematic approach to analyzing business performance.Bradley J. Hilty – Information Management Specialist; Penn State Dairy Alliance

23. Busines$enseBusiness Analysis Results:

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33. Busines$ense Busines$ense 2001 Results • Cost of Production Data- DairyCOP$ ..\..\Desktop\Managing Production Costs-Complete.doc

34. Busines$ense Program Evaluation Results

35. Thank You! ?? Questions ?? For a copy of this presentation email.. bhilty@psu.edu