What the #$?@ is Risk Management?

Risk management is more than marketing, crop insurance, safety and investments. Those are just the topics that come to mind when you hear the term risk management.

What is risk? It’s the decisions we face in our business where something can, and does, go wrong. What is risk management? The process of how we identify, analyze and respond to these risks.

A few examples of risk include business growth, equipment upgrades, team communication, collaborations, profit management and transition planning. 

We take risks for many reasons, such as financial success, to challenge ourselves, to grow and perhaps, most importantly, because it’s exciting.

The best attributes for managing risk are experience and intuition. Ironically, both of these require experience. What if you’re new and just getting started or you have been around for a while but are taking on a new endeavor? 

TWO FATAL FLAWS

The two fatal flaws in risk management are poor attitude and the inability to manage people, time, resources, etc. By keeping these two in check, you can become a great risk manager regardless of your experience and intuition.

The final piece of risk management is knowing your limitations. A NASCAR driver does not pretend to be a mechanic, pit crew chief, radio specialist, fueler or spotter. Why? It would be incredibly inefficient. Racing is a hallmark example of improving efficiency and winning by delegating tasks, knowing your limitations and focusing on what you’re good at.

In farming and ag-related businesses, we are often guilty of trying to do way more than we should. On any day you could be an accountant, attorney, team health coach, business consultant, agronomist or mechanic. 

But what are you really good at? Where do you excel? Remember, the inability to manage and a poor attitude are the two fatal flaws in risk management, so keep that in mind when you start to feel over-extended.

2022 is going to throw new challenges at us — every year does. And, you’re going to take risks this year. That’s great!

Be sure to know your operation’s numbers, learn to manage your risk, reach out to people who can help your business succeed and focus on sustainable business growth in the year ahead.  

Risk Management Principles: MEAT

A method of managing risk in 2022 comes from Chris Davenport, world renowned extreme skier and mountain climber. The acronym to help you remember his principles of risk management is M.E.A.T. — easy enough for us in ag to remember.

Mitigate risk by reducing impacts of the decision or by scaling it down a notch. This could mean reducing your financial exposure, segregating the businesses or simply having a rock-solid business plan. Learn from others’ mistakes and seek advice when possible. 

Eliminate risk by simply not doing part or all of a plan. It’s OK to work on something but decide to not pursue that path. This could also mean you’re simply not ready for it. Eliminate could also mean removing the biggest risk.

Accepting the risk is something we all understand. Do you not plant a crop due to increased costs? Probably not. If your decisions look and feel good, and you have experience and numbers to back you up, you can just accept risk.

Transferring risk is probably one of my favorites and the most fun. It simply means saying, “You go first.” There can be opportunity cost with letting someone else go first, but it can also be costly if you jump in without knowing the biggest risks.

Shay Foulk is a farm business consultant with Ag View Solutions, providing profit management, succession planning and business analysis. He farms and runs a regional seed business with his wife and father-in-law in Illinois. 

You can still register for the Online Top Producer Summit, which gives you access to content through March 31. Use the code “VIRTUAL” to take 50% off your registration fee.

Read more coverage of the Top Producer Summit.