farm risk 2

Approach to risk management 

Chapter 2

 What is a risk management approach?

Risk management approach is a frame work that helps an organization manage threats to its  critical asset. Its a structure process that involves identifying and avoiding potential risk, responding to negative  outcome and identifying opportunity 

Risk management is the process of identifying, assessing and controlling threats to an organization capital, earning and operation. These risks stem from variety of source ,include  financial uncertainties  legal liabilities  , technology issues , strategic management  error  , accidents and natural disaster  

Risk  management approach sample

•  Introduction
• Risk management procedure
• tools and techniques 
• Record
• Timing of  the management activities 
• Risk categories used pestle
• Scale
• Role and responsibility
• Risk tolerances 
• Risk budget and a risk budget will be establish

lets  break down  some of them

Risk management procedure

Role and responsibility- this section defines who will be responsible for the risk register and response plans and who will create reports.

Scale - the grading criteria for each risk that  is for the probability and severity score are defined in this section , for example very high risk, , high, medium ,low, and very low.

Risk categories- m  cost project will divide their risk into categories e.g. strategic, operational, security and resource.

Source data for the risk management approach

Risk management approach for your agribusiness, shine raises, requires gathering data from various source that provide insights into potential risk and how to mitigate them

here are some source of data for a risk management approach.

internal source

1. Financial statements and reports
2. operational data - production and supply chain
3. employee reports and feedback
4. internal audit and compliance 

External source

• market research and trends analysis 
• supply and vendor assessments
• environment and climate data
    

quantitative data

• historical loss data
• market data
• operational metric
• quality control

qualitative data

• expert opinion and judgments
• lesson learned from past events 
• risk assessments  and scenario planning
• compliance and regulatory requirements.

Format of the risk approach

Risk approach  framework

1-----

• risk identification 
• define scope and context  e.g. specific activity crop production 
• categorize risks e.g. strategic and operational

2 -----

• evaluate likelihood impact
•  assessment risk level
• prioritize risks

3-----

• develop risk mitigation strategies 
• implement control
• monitor and review effectiveness 

quality criteria for risk management approach

 quality criteria management approach - refers to a systematic method of managing and controlling the quality f products, processes  or service by defining , monitoring and evacuating specific   determine level.

1- defining quality criteria

•  identify key performance  indicator - establish specific , measurable  criteria that reflect the desired quality
• standards and regulation 
• 2 - establish processes and systems

• process documents
• training and education

3- monitoring and measurement

• data collection  and analysis

4- corrective preventive action

• identify non conformities
• implement corrective action

 

Types of risk

Risk can be categorized  as production , marketing , finance ,human and institutional.

Production risk stem from uncertainty of factors that affect the quantity and quality of farm produce.

Marketing risk exists because of the variability of product price uncertainty of future market price.

Financial risk occurs when money is borrowed to finance farm business.

Institutional risk occur because unpredict change in the provision of service.

Human risk refers to the risks to the farm business caused by human illness and the personal situation of the farm family's 

 Production risk 

production risk stems from the uncertainty regarding the factor that affect the quality and quantity if farm produce e.g. weather and pest. It also arises with the introduction of new technology, several can be to reduce production risk

Risk reducing inputs

Risk reducing inputs are production inputs that improve the chance of better quantity or quality of the farm products. Fertilizer  and compost are used to reduce the risk of low yield .

Pesticides and integrated pest management practice are used to reduce the risk of crop damage.

Risk reducing technology 

Farmers can reduce risk by learning about and applying new technologies and  practices designed to address specific risk common of their area of production.  

production diversification

Diversification spread risk and risk a successful risk  management strategy because not all farm enterprise  and operations are likely to be affected  in the same way by changing situation.

 some technique include

• managing multiple farm enterprise together at any  one time(in the same season)
• engaging in the same farm enterprise in different physical location 

Marketing Risk

Marketing risk exists because of the variability of product price and uncertainty of future market price that the farmer face when making the decision to produce a commodity.

several method can be used to reduce price variability or set satisfactory price before the crop or livestock ready.

Spreading sales.

If the farmer is producing crop that can be easily stored after harvest, parts of the crop can be sold at different times during the year. Farmers can watch for change in the market and sell when prices are favorable. however storing has risk entails high cost and sometime loss. 

This strategy may or may not increase income for the famers but  it reduce risk and provides added benefit of ensuring a regulars cash flow through the year  

Direct sales

for some farmers selling directly to final consumers may be a way to enhance profitability and reduce risk. Small scale farmers near population centers may especially benefit from direct sales to final consumers. However the farmers need to be sure that they can sell everything  taken to market 

Building trust

Building trust  with farmers requires 

commination

• transparency clear explain program policies  and procedures
• regular updates share information on market trend
• active listening

Reliability

• follow through meeting commitment and deadlines 
• consistency maintain consistent policies and procedure 

Empathy 

• understand farming challenges
• show appreciation for farmers expertise

Support 

• technical assistance provide training and guidance
• market access take responsibility

 Integrity 

• honesty 
• fairness
• accountability

For famers involved in contractual relationships the most critical issue is a agreeing on the price with the buyer developing trust. Th nature of the business relationship is that both buyers and sellers try to obtain the best deal.

Famers aim at negotiating the highest possible price to maximize their  profits and buyer try to ensure that low price are paid so that they can also maximize their profits.

Farmers need skills in negotiating  contracts in order to arrive at an acceptable agreement ,even though agreement can be reached  there are still risk involved for both the farmer an buyer

Problem are often related

• agreement on the quality of the produce 
• calculating the money owed to farmer
• failure of buyer to buy agreed quantality
  

 both parties need to build trust and realize that the long-term advantage of fair relationship should outweigh ant short benefit of failing to honuor the agreement. 

    

Human and Personal Risk

Human  risk - refers to the risk to a farm business caused by illness and personal situation of the farm family.

Human and personal risks - refers to potential harm or loss affecting individual , their well being.

Human resource management 

an aspect of managing risk for the larger farmers is good human resource management these include

• selecting casual workers with suitable skills and experience
• regular communication
• providing adequate supervision  and discipline

Labour planning 

An other aspect of human risk management involves strategies to guard against unexpected change in the availability and productivity of labour .careful labour planning such as using a seasonal labour calendar  ensures that farmers know exactly what and how much labour is needed at various times during the production season

 Risk management strategies 

All of the strategy describe the previous sections are aimed at generating greater security for the farm. however it is for the to decide if the benefits gained outweigh the direct or implied  cost  the of strategy.

making decision involves a number of steps

• identify the most appropriate strategy 
• determine the degree to which may be reduce
• identify the cost implement strategy

 farmers  should develop a broad range of strategies that take into account the advantage and disadvantage of each risk management option  individually and in combination'

key questions that can  help a farmer make these decision 

• what risks is the farmer facing?
• what is the likelihood of these unfavorable event occurring?
• what are the consequences of these risk?
•  what risk management strategies are available  for the farmer?
• how do the best risk reduce option fit together

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