The Real Reasons to Manage Risk
By: Lance Woodbury
Agricultural businesses face significant risks every day. While we tend to focus on managing risk in the areas of grain and livestock production and marketing – the financial lifeblood of an operation – there is also safety risk, legal risk, employee succession risk, even family relationship risk. Risk is all around us, and this recent Purdue newsletter highlights how ag producers perceive the risks they face.
Our colleague Del Craig is an advocate for identifying and understanding your risks. Any effort to make a decision, set a price or manage a cost should involve a fundamental understanding of your exposure. What have you protected? What are the possibilities – positive and negative – with what has been left exposed?
Going one step further, I would encourage you to consider why managing a given risk is important. In other words, answer the question: “What are the consequences if I fail to manage this risk?”
I once heard the managers of a chemical plant describe how they motivate their team to stay safe. They do all the right training, provide certifications, use safety equipment and checklists. But the real motivator to stay safe? in the breakroom they have a wall with pictures of every team member’s family. Each staff person walks by this “family wall” on their way out to the plant, and it reminds them that failure to manage a risk impacts far more people than just the employees at the plant. It impacts children, parents, brothers, sisters and community members. When you think about the impact on all those people, “risk management” takes on a whole new dimension.
If you fail to manage financial risks, more than simply losing money, you jeopardize your land and your legacy. If you fail to manage employee succession risk, you won’t just lose an employee, you’ll make everyone’s life more stressful. If you fail to manage safety risks, you cause pain to many more people than just yourself. Those consequences are the real reasons to manage risk in your business.