How can I make better farm management decisions?

PRODUCTION ADVICE - MAY 2020 - THE BUSINESS OF FARMING

By Adrian Smith
Senior Land Services Officer, Mixed Farming Systems
P: 03 5881 9932 | M: 0447 778 515 | E: adrian.smith@lls.nsw.gov.au

The difference between the top 20 per cent of profitable farmers and the rest is their ability to make the right decision at the right time. Making good decisions is a skill that can be learned.

Making decisions is something each one of us does nearly every waking minute of the day. Some we don’t (need to) put too much thought or time in to (“What am I going to eat for lunch today?”), while others require a lot more conscious thinking (“Should I feed or sell my livestock?”).

Making informed, rational and practical decisions is integral to running a successful farm business. We all know of producers who always seem to manage to ‘pull the right rein’ and get their decision-making spot on, whereas others seem to struggle a bit more to make the right call.

But just because we make decisions all the time, it doesn’t necessarily follow that we are good at making them!

Is there a way that we can improve the choices we make?

Firstly, decision-making is a skill – although we weren’t taught it like reading and writing, it is nonetheless an ability that can be improved.

Secondly, you can improve your decision making through practice, learning and adapting over time.

It is important to recognise there are two types of decisions – a ‘good’ decision and the ‘right’ decision. The terms aren’t interchangeable!

Good decisions are based on information – obtaining facts, figures, projections and the like. They include an appreciation of the risk or odds of something happening.

The right decision can only be gauged ‘after the event’ – the old saying ‘everything is easy in hindsight’ applies here!

A good decision will not always lead to the right decision, particularly in agriculture, where there are so many ‘externalities’ such as weather, markets, politics and policies that producers have little control over, but can influence an outcome. However, making a good decision will undoubtedly go a long way to making the right decision!

There are three key components of our make-up which influence the decisions we make:

• Our head – facts, figures, logic, dealing with complexity
• Our heart – our values, beliefs, personal preferences, personality and temperament
• Our gut – experience, intuition, ‘rules of thumb’

Each has its own strengths and weaknesses, pros and cons - and all three contribute to varying degrees to the decisions we make. There is no ‘right or wrong’ in terms of how much influence these have on our choices – the key is that as an individual, you are aware of how, and to what extent, they influence the decisions you make.

In agriculture, the decisions we make are often very complex, with multiple factors interacting to produce a range of possible outcomes. However, not all the factors have equal importance.

We need to be able to identify which are the critical factors and evaluate their relative importance – this will lead to an overall ‘balanced’ decision.

And your choices can often change over time – as the conditions, circumstances, information, risks and potential impacts change, so too may the decisions you make.

One other important factor is time (and timing) – sometimes we may be forced into making a quick decision without necessarily having all the information at hand. Other times, we may have too much time, and can over analyse – the so-called ‘analysis paralysis’.

All of this makes sense in a perfect world, but how can we pull all this theory together to help us in our day-to-day decision-making on our own farms?

The answer is by developing a ‘decision matrix’, which can be used to help to make relatively simple decisions such as “Do I topdress my wheat crop?”, to much more complex decisions such as “Do I buy the farm next door?”. The table below gives an example of a relatively simple decision matrix.

It is important to note that you as an individual set the relative ‘points’ (ie. the value or importance) to each of the critical factors, and also the ‘total points’ where a decision is made. The numbers in the table are purely an example. By you allocating points ensures the results take into account not only the facts (the head), but your own preferences (the heart) and your experience and intuition (the gut) as well.

Question: Should I apply nitrogen to my wheat crop?

When developing a decision matrix, there are five important steps you need to take:

1. Be clear on what the choice or decision is (define the decision).
2. List the major factors which influence the decision.
3. What considerations might make me change my decision – the range of scenarios.
4. Assign each critical factor a score or weighting.
5. Make a call based on all of the above – does the decision make sense?

Importantly, the decision matrix takes into account your own personal circumstances, preferences and propensity to manage risk – it considers the ‘head, heart and gut’ components of the decision-making process.

The value in adopting this ‘formal’ approach to making decisions is that it is repeatable (should circumstances change), it is documented and transparent (which allows informed discussion around the kitchen table), and importantly provides you with time to make a good decision.

Making good decisions is a skill – it can be learned and improved through practice, by adopting some relatively straightforward decision matrices, and through reviewing the outcomes of the decisions you made.

The basis of this article was a presentation by Cam Nicholson, Nicon Rural Services, and his contribution is duly and gratefully acknowledged.