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planning

Decision Making with Incomplete Information

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“We rob ourselves when we make decisions in the moment with no thought of how those decisions will
impact our futures.” – Andy Stanley

It’s easy to look back at decisions we have made and say we could have done better. Are you ready to
head down “Metaphor Avenue”? Hind-sight is 20/20, so don’t beat yourself up; next time you’ll knock it
out of the park!

Why can you say that you could have done better in making past decisions? It is likely because you were
working with incomplete information. However, considering the vast availability of information today
let’s also suggest that too much information contributes greatly to incomplete information. There is a lot
of noise out there, and sorting through it all can be overwhelming.

So how does one make better decisions when working with incomplete information? It’s difficult, and
risky, especially considering the financial repercussions each decision can hold. Yet these decisions get
made regularly often based on emotion, a hunch, or some gossip.

Stick with your Strategic Plan

The strategy you have established for your business should rule when attempting to make decisions
with incomplete information. Any option that leads you to deviate from your strategy should be quickly
discarded. If a decision takes you away from your original strategy then either there are extenuating
circumstances or business has changed and your strategy wasn’t changed with it. Either way, you’ve got
some more work to do.

Follow your Tactical Plan

Strategy is what you want to accomplish and why. Tactics are how you will get it done. These 2 plans
should be closely aligned. Don’t get caught using justification that is “tactical” in nature to permit a
decision that goes against your strategic plan. To paraphrase the quote above, how will this decision
affect your future?

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Get Advice from Trusted Sources

Ideally, a trusted source has no vested interest in one decisive outcome over another. Although, a
trusted source can be someone who may have a vested interest, but whose integrity is above any
question you may have about his/her judgement. When information is incomplete or confusing, seek
out someone who has expertise and knowledge to help you sort through the noise and clear your focus.
A naturopath will always have a miracle product that can cure anything that ails you; a surgeon’s advice
will always insist that surgery is the best option. Vested interests….get a second (or third) opinion.

Direct Questions

Do you make business decisions without adequate information, basing your choice on emotion, a hunch,
or gossip?

Do your major decisions reflect your strategic plan? (Do you have a strategic plan?)

Do you have trusted advisors who you can call on for help?

Are you contributing to incomplete information from your own habits of improper data management?

From the Home Quarter

If we waited for perfect information before making every decision, we’d never make any decision. We
have always had to proceed with the best information we had at the time. And the fact is information is
never perfect. But don’t let that fact be an excuse to allow yourself to not manage your own business
information adequately. You have a responsibility to ensure that you provide yourself with information
that is as complete as you can make it. Business moves at the speed of the internet, so we must be in a
constant state of information management. Advisors can bring immeasurable benefit to your decision
making by either removing emotion or by providing insight from a position of unique expertise. And at
the end of the day, your best allies in decision making are planning and discipline.

If you’d like help planning your farm for business and personal success, then call me or send an email.

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Life and Business Can Sometimes Be Like Snowmobiling

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I love sledding. I don’t get out nearly enough, but I can say the same about playing ball or golfing in the summer. I’m no expert at snowmobiling, but I learn something new each time I ride, and I really enjoy riding with people who, like me, are still learning how to be better.

Let’s go back to the late 90’s when I was getting more serious about sledding. I had just purchased a late model 500EFI; I was reading the magazines and watching the TV programs. One TV episode I especially took to heart and it saved my bacon that season.

The instruction in that one segment of that one TV episode was how to manage a steep hillside. Considering I’m way too much of a prairie dog to have deep desires to ride the mountains, I could have used that time to get another snack, use the washroom, change the channel, or whatever. But I paid attention.

Later that winter, I was riding with one other person in an area neither of us was familiar with. We were in the ditch of a gravel road when we came to a wide old creek bed. The bottom was probably 30-40 feet deep with a four strand barbed-wire fence running right where the base of the slope met the bottom of the ditch. Couldn’t go down, we had to ride the shoulder of the road.

I’m sure you can all picture what seemed like a 60 or 70 degree pitch with at least a 30ft drop; it was imminent doom should we lose control and start barrel rolling down that slope. But I remembered the lesson from the TV program about how to manage steep hillsides: both feet on one runner, lean hard, and stay on the throttle! About half way across I had visions of dying in the bottom of that creek as I felt my machine start to pull downward, but I hit the throttle, the machine rose back up, and I made it across.

It is human nature to pull back or slow down when we get into a trouble spot. We inherently want to be cautious when we see something that we believe to be dangerous. But is what we are seeing actually dangerous? Not always, and less so if you know what you’re doing.

Direct Questions

Is it your practice to always “pull back?” Is it your practice to always “push forward?” What’s been your level of success with either?

When you’ve committed to a decision, are you able to “stay on the throttle” through to completion, or are you inclined to pull back?

How confident are you in “assessing the danger” objectively without letting emotion impede your decision?

From the Home Quarter

No one can deny that our best decision that day on our sleds would have been to turn around. But we pushed ourselves through the fear of failure and grew our confidence by several multiples because of our success. Sometimes in business, pulling back is exactly the wrong decision. It has been said that you “cannot shrink your way to greatness.” But either way, if you don’t understand the degree of danger or trouble you’re facing, you’re likely to make the wrong decision. Staying on the throttle does not guarantee success; this is not a rule. Sometimes we need to pull back. The trick is to know when to pull back, and when to “Just Give ‘Er!”

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Always Growing…Growing All Ways

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“Think of your business like a tree. What is a tree doing all the time? It’s growing. And if it’s not growing,
what is it doing? It’s dying. Your business is the same: if it’s not growing, it’s dying.”

I made this statement to a <2,000ac farmer at Canada’s Farm Progress Show in June 2014. He gave his
head a quarter turn with the slight tilt that indicated he thought I was nuts. Remember, this was still in
the period where Main Street of many small towns looked like a drag strip when word got out that there
was land for sale. Farm trucks from all over the area were burning rubber to get to the banker as fast
they could to get the loan and make the deal before anyone else. It was a period of “growth at all costs.”
His reply was, “I don’t want to grow. I’m happy with my land base as it is. My debts are almost gone,
why would I want to get back into debt? Then I’ve got to buy more equipment, hire some help!”

So I quantified my statement. “Growth doesn’t have to mean acres. There are many ways a business can
grow. If a farm can increase gross margins from better marketing, isn’t that growth? If a farm can
increase profits from better awareness of cost control and management of those costs, isn’t that
growth?” Reluctantly, he agreed.

Ever since the boom in ag took hold in 2007, farmers have increased acres and increased equipment
lines faster than ever. The truth of that statement can be read in the smile of every farm realtor and
farm equipment salesperson on the prairie. But why when we think of “growth” do we limit the scope of
our thinking to “size?”

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Increase Operational Efficiency

This is purely process management. How can you make improvements to processes on your farm that
will increase overall efficiency? For example, on our farm we run a single shoot drill. In order to apply
the volumes of fertilizer that our agronomic plan requires, we need to cover the entire farm twice: once
with a fertilizer blend in a band, and a second pass with seed & the fertilizer blend for the seed row.
Increasing operational efficiency for us could be trading up for a double shoot drill (although I’d prefer a
triple shoot), using a larger cart to reduce the frequency of stopping to fill, add a liquid kit to the existing
drill, or even utilize the high clearance sprayer to apply liquid fertilizer later in the growing season. There
are more options, but you get the drift. Naturally, each option has pros & cons and must be evaluated
from a management perspective to measure cost versus benefit.

Increase Size and Scale

Bigger is better, right? Not always. Are you confident that your net profit per acre is linear? What I mean
by that is, if you currently enjoy a net profit of $75/ac on your 3,000ac, will your net profit per acre
change if you increase to 6,000ac? 7,500ac? 10,000ac? The answer is Yes, it will change. Net profit per
acre is not linear and if you haven’t created realistic and honest projections when considering scaling up
your farm size, you might be surprised at the end of the year.

I often get asked by people who grew up on small farms in the 60’s and 70’s about farm size and just
“how big is too big” when it comes to farming in current environment. Is it 5,000ac, 10,000ac, more? I
always answer the same way, “I can tell you exactly when a farm is too big. It’s the moment that a farm
has expanded beyond the owner’s management capability. For some that’s 400ac, for others that
40,000ac. It depends.”

Increase Gross Margin

This one is easy to identify, but not always easy to do. Easy to identify because this is where profitability
on your farm begins. Not always easy to do because there are many factors out of your control. But as
you’ll recall from Growing Farm Profits Weekly Issue #2, I won’t dwell on what we can’t control.
Focusing on what we can’t control is passive and it concedes that outcomes are beyond our control.
Plus, it’s total BS.
Increase your gross margin by doing one, or all, of the following:

  • Increase your yields and/or quality
  • Reduce the costs of your direct inputs (seed, chemical, fertilizer)
  • Increase realized prices for your crop

Reduce Costs

Beyond the direct inputs as described above, cost control is a major issue on a lot of farms today. It
begins first and foremost with knowing your costs. How much are you spending on equipment, hired
help, fuel, parts & repairs, interest, etc? These are all controllable costs, and if you haven’t had a handle
on them to date, the current environment of narrow margins dictate you better get on it soon.
Now I’m not suggesting that you eliminate these costs, because you can’t if you want to keep farming.
But knowing where you can “trim the fat” is critical, and it also relates to operational efficiencies.

Direct Questions

Have you limited your view of growth to only “size and scale?”

How many different growth metrics can you identify on your farm?

What is the threshold of your management ability? Have you exceeded it, or do you still have capacity to
expand?

If you reduced each of your controllable expenses by a mere 5%, how much would your net profit
change?

From the Home Quarter

Growth as it relates to business does not purely mean “get bigger.” Remember that the purpose of your
business is to increase wealth, and size does not have a direct correlation to wealth. Size is one factor,
but we must not ignore all the others. I believe in the mantra that “better is better before bigger is
better.” Growth can manifest itself many ways, and we must examine all ways to grow if we want to
always grow.

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Planning With a RESULTS Mindset

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I was listening to a local radio station the other night and heard an interview with the hockey coach of
the local junior team. What caught my attention was the comment “every game matters now, every
shift matters now as we try to make our way into the playoffs.”

So did every game and every shift matter less early in the season? Why would the team accept
mediocrity at the beginning of the season only to urgently try to find excellence at the tail end in a mad
dash to make the playoffs and maintain fan support?

It sounds to me like they didn’t have a plan when they opened Game 1 of the current campaign. If their
plan at the beginning of the season was to actually make the playoffs, then every shift and every game
would have mattered all season! Granted, that would not have guaranteed entry into the post-season,
but it’s about mindset. Did they have winning as a frame of mind all season? That is what I question.
How does this apply to your business? Simple: examine honestly and critically what is your frame of
mind going into the growing season.

Believe it or not, mindset will ultimately create your results.

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For example, a mindset of “don’t lose any money” will create an attitude of risk aversion, and a that would likely prevent you from forward pricing any new crop before it’s in the bin. The results would be lost pricing opportunities and likely lower profitability.

But if you are planning, I mean really putting effort into planning, the whole scheme changes.

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The essence of planning puts the focus on results. If you focus on results and therefore create a “results
mindset,” your attitude and your actions will reflect as such.

I contest that if that junior hockey team began this season with a results mindset, then every game and
every shift would matter right from the beginning of training camp. They’ll have about as much success
making the playoffs with a sub-.500 record in February as your farm will have in trying to turn an
average crop into a bumper in August.

Direct Questions

You are crop planning. Hopefully you’re market planning as well. Are you “business” planning?
Are you prepared to get dirty with some ground level business planning in 2015?

From the Home Quarter

In a recent issue of the blog, you were asked to think about how you define wealth,
because it would provide clarity in how you run your business. This week, you’ve been challenged to
think about your mindset at the beginning of this crop season. Intention sets direction. Clear goals set
the roadmap. As the CEO, you are the captain of your ship. Are you using any guidance tools, still
holding on to the compass and sextant, or consulting the GPS?

Over the next few weeks of Growing Farm Profits Weekly, we’ll dig deeper, and get a little dirty
regarding business planning. It can be messy, but it’s still cleaner than trying to deal with the unforeseen
when we’re not prepared.

Think about this: every enterprise that you do business with has a business plan.