| | Risk is often defined as the possibility of unexpected outcomes, or the chance of a loss or a gain. For agricultural businesses, the need to manage risk has never been greater. Margins are tight, weather seems more variable and international trade issues keep getting more complicated. Making an extra effort to consider the risks faced by your business may be the difference between success and failure.
Risk management is the process of identifying, measuring, and managing these uncertain events. Risk management can be approached in two distinct ways: by using numbers or by using words. The “numbers” method of measuring and managing risk is both common and well understood in our industry. Financial statements, with their benchmarks and ratios, are one example; CropChoice$ Version 2.11 software is another. Futures market activities, such as hedging, also provide this type of quantitative approach to dealing with risk.
However, when you don’t have numbers, or when risks don’t lend themselves to a numbers approach, a new easy-to-use risk matrix tool called RiskChoices can help you identify, measure, and manage risk by using “words.” RiskChoices consists of an instruction folder, and a series of worksheets and charts that guide you through its various steps.
While this type of process is new to most agri-businesses, it is not new to the oil and gas, accounting and hi-tech sectors. Usually part of a larger risk-framework, this approach to risk management is known as enterprise risk management (ERM), or project risk management. Closer to home, the Canadian On-Farm Food Safety Risk Management Program uses a very similar concept.
In summary, the strengths of the RiskChoices approach are several:
- It’s very adaptable, and can be used whenever you need to identify, measure and manage risk
- It uses words and ideas instead of numbers, math and statistics
- It simplifies risks by separating each one into two components: likelihood and impact
- It generates meaningful and structured discussion about managing risk and, at the same time, provides a simple but organized method of keeping track of the strategies created
- It gets risks out on the table where the whole management team can see them and deal with them in an organized manner
For more information about using RiskChoices, click here for RiskChoices – Strategies & Tips. or here for a RiskChoices web preview version . If you would prefer a published copy with extra worksheets, contact the Business Management Innovations Branch at Olds (403) 556-4240, Ted Darling at (403) 948-8524, or Dean Dyck at (403) 340-7007.
A RiskChoices Example
Follow the information and the links below to see an example of how this simple tool can help lead you through an organized risk management process.
Getting Started - Setting the scope of your analysis is the first task. You need to be completely clear whether you are dealing with the whole business, one profit centre, or one specialized process.
Once a risk is evaluated with risk management strategies in place, it may or may not be judged as acceptable. If not, the process should be repeated. |
|