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Systems Thinking Part 5: Business Analysis

Category: Farm Finance, Ag Business, Management, Farm Business Planning | No Comments

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piece of paper with blue and white chartsBusiness analysis sounds like something you are doing every day. After all, you are looking at your business while working in it and, from time to time, you notice things you could do better. Good start, but that casual observation and your good intentions are not enough. To propel your business forward, you must take the time to identify and implement incremental and significant improvements.

 

Are You Running a “Lean” Farming Operation?

 

You need to assess a few different categories in your analysis including: costs, waste, and potential improvements. Look at costs for each item on your P&L. Compare costs year over year; utilize the Pareto approach. For example, when is the last time you developed a pie chart to show your costs for corn or for fertilizer and chemicals by type? For equipment?

 

corn cost per acre

 expenses chart

 

model, unit, and price breakdown

 

Now, go back and analyze the costs for labor, one slice in that corn cost pie.

 

        corn cost pie chart 

book of ones cost

 

As you consider this information, ask yourself, Where is the waste? What improvements can be made?

Thinking about adding a tiling business or building another grain storage unit? Careful analysis is also needed for one-time costs associated with implementing a new project. A quick rule of thumb: small projects should pay off your investment in 3 years. Larger projects should pay off in 3-5 years, and very large projects should require no more than 7 years for payback.

 

The “Lean” Approach

 

Do not assume you are running your operation in the most efficient ways possible. Seek out training in waste identification and elimination such as “Lean Six Sigma” with Kaizen improvement techniques.  Using “Lean,” you’ll learn about 7 different types of waste: waiting, under-utilization of talent, processing, transportation, inventory, motion, and errors. I think you will be surprised at the efficiencies to be gained as you learn more and focus on analyzing your business. Those efficiencies will translate into more savings for your business.

Remember, identify and implement those improvements. Just finding them won’t lead to success. A wise man once said, “A goal or objective without a plan creates failure and waste.”  Identify your priority areas for improvement, make detailed plans to implement solutions and then do it.

We’ll be talking about Business Planning in the next blog, the final one in this series on Management Skillset. You can read part 4 of our blog series.

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