Crop Insurance Today November 2012 - (Page 17)
STEP 7-DEVELOPING AND TESTING TRANSITIONAL PLANS
Q:What steps are needed to implement the feasible alternative?
This is the seventh in a ten-part series of articles on “The Steps of Farm Business Planning.” The introductory article for the series was published in the November 2010 issue of Crop Insurance TODAY® and additional articles will be printed each quarter.
By Dr. Laurence Crane, NCIS
Preparing a transitional plan is an opportunity for you to consider how you will transform your current business into your desired business. This transitional plan should explicitly specify what needs to change and why and when each action will take place. The resources required to accomplish the changes need to be identified and the potential risks considered. The various components of the plan need to be tested to ensure that the desired and expected results occur. The objective of this step is to prepare a transitional action plan, implementing the changes you envision for your farm. Identifying which resources will be need-
ed and when they will be needed are critical components of this plan. Establishing a time frame for accomplishing the changes, and an understanding of the financial impact is required. Thus, the decision criteria (profitability, cash flow, goal fulfillment, etc.) that you used in previous steps to determine the feasibility of initiating this change should be tracked to help stay on course. Also, a review of the farm’s individual functional plans should be part of this step. In practice transitional planning involves developing a series of successive short-run plans for several years. Alternatively, some may prepare short-run plans only for the years when major changes are expected in their operation. Regardless of approach, an important component in transitional planning is to outline, in sufficient detail, how, when, where, and why changes in the current farm business (or baseline farm) will occur. The description builds on the information assembled in previous steps and could include answers to some of the following questions: • What needs to be changed? • Why does that need to be changed? • When does the change need to occur?
• What resources are needed to accomplish the change? • What risks are associated with making the change (analysis of risk is described in Step 8)? • Will the change generate the necessary profit/return? • How will the change impact the farm’s cash flow? • How will the change impact the match between resource availability and needs? • Will the change fulfill the owners’ goals for making the change [compare the results of the change to the description of the problem/shortcoming of the current business (beginning of Step 6)]? Most of these questions should be familiar because they are similar to the criteria suggested in the preceding two steps.
Importance of Transitional Plans
Transitional planning is important because farmers operate with a large proportion of fixed assets that are difficult to acquire and dispose of. Moreover, many assets are linked together. For example, row crop farmers usually have planters, cultivators and harvesting equipment of
CROP INSURANCE TODAY®
Table of Contents for the Digital Edition of Crop Insurance Today November 2012
The Song Remains the Same
2012 Farm Bill Debate -- Crop Insurance Takes Center Stage
Step 7: Developing and Testing Transitional Plans
Vermont Orchard Depends on Crop Insurance
Jim Deal Receives Orville L. Freeman Award
Charles "Chuck" Lee Joins NCIS
Drought & Adjuster Education is Video Shoot Focus
1890 Scholarship Recipients
In Memory of Brian J. Laird
Crop Insurance Today November 2012