Risk Management Education Managing for the Millennium Managing

Risk Management Education Managing for the Millennium Managing Risk in Risky Times

Risk Management Education Defining Risk The uncertainty about an outcome and the possibility of an undesirable outcome from an expected goal

Risk Management Education Sources of Risk • • • Production Marketing Financial Legal Human Resources

Risk Management Education Production Risk • • • Weather Diseases Pests Technology Management

Risk Management Education Marketing Risk • • Input cost variability Output price variability Price volatility Market access

Risk Management Education Financial Risk • • Access to capital Interest rate risk Credit obligations Asset control

Risk Management Education Legal Risk • Production, marketing, and leasing contracts • Business and personal liability • Business and environmental regulations

Risk Management Education Human Resources Risk • • • Hired labor Death and disability Divorce Business continuity Time

Risk Management Education Rankings of Risk Exposure • • • Output price variability Yield variability Operator injury, illness, or death Changes in government programs Changes in environmental regulations • Costs of inputs Patrick and Ullerich, 1996, Purdue University

Risk Management Education Defining Risk Management Everything you do that can impact your bottom line and your long-term growth in net worth

Risk Management Education • • • Steps of Risk Management Identification Evaluation Treatment Implementation Monitoring

Risk Management Education Identification • Goal setting • Risk tolerance • Sources of risk

Identification Income In 10 9 fe e Li anc r su Estate Planning I He Disa 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 Pers Liab onal il 10 ity ns a 10 l u ra th 9 10 nce 8 9 7 8 6 7 5 6 5 4 4 3 2 23 1 1 y bilit Lon Hea g Term lth C a re 7 1 8 2 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 3 5 4 6 5 3 6 4 7 ent rem Reti ning Plan 8 In ve 10 st 9 m en 10 8 t 9 7 8 6 7 5 6 5 4 4 3 3 2 2 1 1 1 al n io y s es ilit f o b Pr Lia 109 2 Risk Management Education

Risk Management Education Evaluation • Frequency • Severity

Risk Management Education Evaluation High frequency Low severity High frequency High severity Low frequency Low severity Low frequency High severity

Risk Management Education Treatment • • • Reduce Transfer Avoid Retain Self-insure

Risk Management Education Treatment High frequency Low severity AVOID/REDUCE/ RETAIN High frequency High severity AVOID/ TRANSFER AVOID/REDUCE/ RETAIN Low frequency Low severity REDUCE/RETAIN/ TRANSFER Low frequency High severity

Risk Management Education Implementation • Selection • Team approach

Risk Management Education Implementation • Production Enterprise choice Technology Yield insurance Revenue insurance Contract production Management • Marketing plan Futures contracts Options contracts Cash contracts Revenue insurance Contract production

Risk Management Education Implementation • Financial Recordkeeping and analysis Interest rate hedging Insurance Family living costs Transition and estate planning • Legal Contracting Insurance Management • Human Resources Planning Transition and estate planning Management

Risk Management Education Monitoring • • Performance Balance Changing conditions Advisory group

Risk Management Education Monitoring Income In 10 9 fe e Li anc r su Pers Liab onal il 10 ity 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 Estate Planning I He Disa 7 ns a 10 l u ra th 9 10 nce 8 9 7 8 6 7 5 6 5 4 4 3 2 23 1 1 y bilit Lon Hea g Term lth C a re 8 1 5 2 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 3 6 4 3 5 4 6 1 7 ent rem Reti ning Plan 8 In ve 10 st 9 m en 10 8 t 9 7 8 6 7 5 6 5 4 4 3 3 2 2 1 1 2 al n io y s es ilit f o b Pr Lia 109

Risk Management Education Benefits of Risk Management • Risk management increases the value of the business • Businesses with an appropriate risk management plan are positioned for future growth

Risk Management Education Summary • Review your business plan goals risk tolerance risk exposure • Understand risk management methods, tools, and interactions • Build your risk management team