"It's not what people don't know that hurts them. It's what they do know that just ain't so." -Will Rogers
For many farm managers, especially on smaller farms, farm management is a hands-on endeavor. It’s in the barn or in the field and assessing the situation on the ground, making decisions based on what they can see. However, there’s so much more data available for modern farms.
Information, from a variety of sources, both internal and external, can help you make strategic decisions and increase profitability. We’ve talked about farm management information and the three levels of farm information from a higher level, but in this blog, we’ll dig a little deeper and look at the kinds of information available to you and how to leverage it.
- FARM MANAGEMENT: WHAT IS FARM INFORMATION?
- WHY IS FARM INFORMATION MANAGEMENT IMPORTANT FOR FARM MANAGEMENT?
- WHAT ARE THE FARM INFORMATION MANAGEMENT LEVELS?
- How Can Farm Managers Change Their Farm Information Management Level
Farm Management: What Is Farm Information?
Are you preparing to make critical management decisions based on intuition, past experiences, or what your neighbors are doing rather than relying on objective data? You’re not alone. In fact, for centuries farms were run on those very methods of planning. However, a majority of producers begin with erroneous assumptions, then bolster their "confirmation bias" with DIY analysis. What if, instead, you harnessed the available data to improve your farm management?
If there’s any lesson to be learned from the past few years it’s that no "black swan" assumption is too outlandish or unlikely. While we’re not aware of any risk-management service that has precisely predicted all the surprises we’ve experienced, these organizations—as compared with the sages at the “coffee shop”—provide valuable expertise and perspective in helping you cope with the uncertainties of the external world.
That means, when it comes to farm management, staying on top of the trends and forecasts, from external experts, should always be factored into the internal and organizational data you have at your disposal.
While external knowledge and resources are incredibly valuable, their real value is how they can be analyzed in conjunction with your data. That means that you must employ available mechanisms to gather internal data from each part of your operation.
Most of FBS’s technology and services are concentrated on helping you measure and manage the internal business processes of farming operations. More specifically, farm ERP software is designed to help you meet the following farm management and farm information challenges:
- Outside of very general mandatory reporting, nobody “makes” you follow sound business and accounting practices.
- Few standards are widely available for categorizing, prioritizing, benchmarking and making objective decisions from internal farm data.
- Most of the record-keeping/accounting tools used on-farm are way too generic or irreconcilable to generate useful and timely management information.
- The accounting education and training delivered through traditional sources such as the Extension Service are lagging the needs of modern agriculture.
- Many progressive farm businesses have grown to levels of complexity that can’t be easily managed using conventional tools and practices.
- While the best-managed operations do generate good-quality information, it’s rarely available quickly enough to make timely, quality decisions.
- A majority of farmers rely on someone else’s "plugged" cost assumptions rather than their own numbers.
- Quality control (and the entire validity of data) is hit-and-miss.
Why Is Farm Information Management Important for Farm Management?
Farm management is all about making the best decisions you possibly can with the farm information you have available. It should seem, hopefully, clear at this point, that the primary benefit to gathering all the data you have available to you is essential for making the kind of farm management decisions that can shift your operation from surviving to thriving.
Even twenty years ago, farmers didn’t have access to the kind of data we have now. These days, ag tech can provide you with detailed information regarding soil and air conditions. To complement that data, farm ERP systems can keep your back office running smoothly and help your team manage both profit and cost centers. Leveraging both types of data is vital to strategic planning.
What are the Farm Information Management Levels?
Farm management relies pretty heavily upon information; however, as noted above, aggregating all the data, whether financial or other, isn’t, often, prioritized the way it should. This is true for managerial accounting as well as farm information.
When it comes to managerial accounting on the farm and growth path farm accounting, the first part of the process involves asking a few important questions such as “Where am I now?” and “Where do I want to be?” It’s not much different when it comes to farm information management. You really have to know where you are, what you need, where you want to be, and how to get there.
Level #1: Compliance—What We Have to Do
Why do most farmers keep records? It’s sad to say that somebody—usually the government or a lender—is forcing them to do it. From tax returns and crop insurance to FSA forms and a banker’s balance sheet, it’s the job every producer does grudgingly and sometimes half-heartedly. Compliance records are indeed the “great equalizer”—a cost center that every business has to maintain, producing information that’s neither timely nor relevant for management decisions due to these limitations:
- Low perceived value and quality of the information are the natural outcome from shoveling random data into the jaws of a bureaucracy without the benefit of clear feedback or tangible payback.
2. The generic format required to fit a complex farming operation into broad categories on a government form or a non-agricultural accounting program dilutes most of the benefits of keeping that data in the first place.
- Lack of continuity results from most compliance records’ “zero-based” format, which means starting from “scratch” in each reporting cycle.
It’s no wonder that a majority of producers never climb above this level. But, those challenges can be overcome, and open up an entirely new way of making strategic farm management decisions.
Level #2: Business Processes—How We Get Things Done
Compared to the wide adoption of occasional decision support and annual compliance reporting by average producers, only the most intense managers use computers to control day-to-day business processes such as budget monitoring, inventory control, purchasing, marketing, production records, human resources and managerial-level accounting.
It’s not that the rest of the agricultural world doesn’t somehow perform these functions, it’s just that they do them out of habit or in a reactive, off-the-cuff manner as opposed to the formal, standardized approach employed by other industries.
Important as business process cost centers are for tracking operations, these applications’ real potential is when they begin connecting with decision support software. As a result, your decisions can finally combine knowledge (Level #3) with accurate, up-to-date, and relevant data (Level #2).
Are you preparing to make critical management decisions based on intuition, past experiences, or what your neighbors are doing rather than relying on objective data? And, what will happen, what can happen, if you make that next step?
Level #3: Decision Support—Where We Want to Go
Timely, well-informed decision support is the real profit center and ultimate objective (therefore, “Level #3”) behind an information system. The Ferguson System, for example, was a classic example of using financial ratios and indices as means to an end: objective, timely decisions.
Other decision support tools include Kaizen (continuous improvement) budgets, contribution margin analysis, Statistical Process Control, production benchmarking, executive dashboards, and consulting services.
How Can Farm Managers Change Their Farm Information Management Level
Decision support often comes in the form of “decision aid” software, usually based on specialized scientific or economic models. These programs are widely accepted because they offer instant gratification, are forward looking, provide a logical outlet for domain expertise from universities, Extension and agribusinesses, are often free or subsidized by their providers, and can be created and maintained easily through spreadsheets or web applications.
The latent hazard behind free-standing decision aids, however, is that they too often hinge on “heroic assumptions”:
- Easily-accessible “Rules of thumb” become “quick and dirty” substitutes for localized knowledge (which requires significant time and effort to accumulate and organize). As a result, decisions are based on either an amalgamation of industry averages or even worse, assumptions cherry-picked from the upper echelon of performance standards (since what producer doesn’t consider himself “above average?”).
- The more specialized (and therefore parochial) the source of the knowledge behind an application, the more likely the developers will either ignore critical factors outside their field of expertise or even worse, use naïve or over-simplified assumptions as they venture beyond their competency. For example, production-focused programs such as mapping and livestock feeding software often used “plugged” costs with no tie-out with accounting.
- Pre-programmed decision aids assume that the end user understands the terminology and is providing data that is accurate, complete, objective and standardized. A deviation in any of these areas will distort the reliability of the analysis. For instance, if an economic crop model calls for a land cost input, it must be clear what is and isn’t included in that land cost.
Most ad hoc decisions are now solved using the “Crescent Wrench” of the farm office—spreadsheet software. While infinitely malleable and powerful, this tool is only as reliable as the assumptions and debugging process provided by the “do-it-yourselfer” operator.
Modern production agriculture is getting much too complex, dynamic and integrated to make critical decisions based on single-dimension, partial budgets isolated from other inputs and consequences within the business.
That’s one reason an intermediate level (#2) is crucial step in reaching Level #3. And, it’s one reason why finding an ERP solution, like the one FBS Systems offers, is crucial for ascending the information levels to improve farm management.
And that Will Rogers quote at the top? It more likely originated from Mark Twain. The point? It’s easy to believe what you see, it’s smarter to verify that with the information sources available to you.
If you’re ready to start using the resources available to you to not only meet the demands of regulatory reporting but to also grow your farm or ranch using software and tools designed specifically for you, get in touch with FBS Systems and let’s start working together.