Mitigate risk during dynamic times by having a strategic plan
Not that long ago, there wasn’t much volatility in the beef-cattle business. Corn held steady at $1.50-$2.50/bu., and calves sold between $65-$75/cwt. Those days seem like a faint whisper amid the deafening uncertainty of today.
“You could get into a production system, repeat it and do really well,” reminisces Barry Dunn, executive director of the King Ranch Institute for Ranch Management. Even if for the next 30 years oil stayed at $150/barrel and fed cattle at $100/cwt., as occurred in mid- 2008, ranchers could adapt their production system to make it work.
“But when things are changing rapidly, not only going up but coming back down, I think strategic planning is the way to take control,” Dunn says.
A strategic plan is a set of decisions about what, why and how to do something with a focus on the future. Strategic planning and scenario planning are components in that process. According to “Strategic and Scenario Planning in Ranching: Managing Risk in Dynamic Times,” a workbook developed by South Dakota State University and Texas A&M University-Kingsville, there are five major stages in the planning process. They consist of:
Stage 1: Charting the course – creating the vision
1. Assess current situation and inventory ranch resources.
2. Conduct a SWOT (strengths, weak- HOW TO: STRATEGIC PLANNING nesses, opportunities and threats) analysis.
3. Establish a vision for the ranch.
Stage 2: Determining strategies to achieve the ranch’s vision
4. Incorporate “gap” analysis.
5. Identify alternative strategies to close the gap.
Stage 3: Scenario planning for the ranch
6. Describe multiple scenarios.
7. Select and evaluate most probable scenarios.
Stage 4: Merging strategies and scenario planning
8. Choose strategies with the highest likelihood of success.
Stage 5: Putting the plan into action and measuring success
9. Implementation of the strategic plan.
10. Monitor performance with the “Balanced Scorecard.” Click here to view the entire workbook.
Disciplined and thoughtful
“In volatile times, the only rational thing to do is plan by being disciplined and thoughtful. This process helps that,” Dunn says. He believes ranchers can use a strategic plan to become nimble enough to take advantage of the volatility in the marketplace and not get hammered by it. In simple terms, the purpose of having a strategic plan is to have a direction for the business. And that includes devising a map so that operators don’t lose their way in the course of evolving events.
“Not having the time to plan is the most common reason why ranches are without a strategic plan. Dunn counters with, “When did it become a choice to invest $4 million into a business and not do strategic planning?”
Instead, ranching operations spend the majority of their time in tactical and operational planning; it’s what ranchers often do best and what attracts them to the business. Here’s an overview of the components that comprise strategic, tactical and operational planning:
• “Big picture” planning that defines where you are and where you’re going.
• It attempts to coordinate the deployment of resources over time.
• A key difference between strategic, tactical and operational planning is the “planning horizon” of each. Strategic plans may look ahead 3-5 years or more.
• Deals primarily with the implementation phase of the planning process. These are the step-by-step actions, timetables and individuals responsible for completing projects.
• Turns strategy into reality and usually has a time horizon of 1-2 years. It addresses prevailing circumstances and dictates within-year adjustments to a ranch strategy.
• Is usually tightly integrated with the annual budget process.
• Deals with the day-to-day and week-to-week work routine and supports tactical plans.
• Focus is on routine operation tasks and long-term projects.
• Primary goal is to communicate.
• Weekly meetings are often used to coordinate efforts and review progress, and weekly or monthly summaries are often used to inform others.
Tactical and operational planning will take place under the umbrella of strategic planning, as they are necessary to incorporate vision and direction in the operation.
Before you consider the first stage of strategic planning, understand that this process requires a great deal of reflection, decision-making and foresight. Many ranch managers have considered the aforementioned factors, but in all likely cases haven’t written down a plan and shared it with key stakeholders. The process requires time, attention to detail, commitment and continual evaluation and enhancement. The positive results in a volatile environment, however, can be critical to positioning your ranch to succeed in the future.