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Integrating Financial and Production Information Systems - Why & How Do We Get There?PNW
Direct Seed Conference, Spokane, WA January 16-18, 2001 One of the fundamental
tenets of Direct Seeding is that it will "improve economic and environmental
sustainability." Looking at the economic side, farmers who have successfully
transitioned to this practice claim:
The combined impact of these two benefits ultimately should be reflected in increased Return on Equity (ROE). Is this a claim we can objectively measure? If so, what kind of information do we need to track our progress? The goals of this presentation are as follows: (1.) Discuss the concepts that need to be thought through in building a Management Information System, and (2.) Set the stage for the other two panel speakers to share with you their experiences on: how these concepts can be implemented; obstacles and successes they have encountered along the way, and finally, the benefits of going through the labor pains. Twenty Years Ago…Life
Was Simple. Our farm had the following characteristics:
"…after
20 years of Transition and Change" we have substantially changed
the face of the business to preserve a sustainable operation for the future.
The farm now encompasses:
We are constantly
asking the following questions:
As farm managers,
we all might be asking ourselves, "Are We Flying by the Seat of Our
Pants?"
Fundamental Premises
of Management Accounting--Management Accounting is designed to provide
the business manager with critical information useful for making better
decisions. The importance of a good managerial accounting process is reflected
in the following premises:
The following schematic summarizes the Dupont Financial Model. The Dupont Model illustrates the interdependence of several key financial ratios. This model can be used to see how all operating, financing and capital investment decisions and performance ultimately impact Return on Farm Equity. This model is helpful in identifying what performance areas are good and bad. But it does not reveal anything about why performance is bad or good, nor does it shed any information on who is responsible for good or bad performance. The answers to these questions lie in a more comprehensive Management Information System.
M. I. S. Hierarchy - The following schematic illustrates the relationships between tax reporting, external financial reporting and managerial reporting. Traditionally, farmers have concentrated on the first level-tax reporting. Increasing emphasis has been given to the second level over the last 20 years. Farmers with encouragement from lenders and farm management educators are seeing increasing importance of looking at accrual vs cash income, cost versus market valuation of balance sheets, and the capacity of our operations to service debt and capital asset replacement requirements. Our challenge in the future will be to add the third layer to our information systems, if we are going to really achieve good information for decision-making.
The third level allows
us to drill down deeper into the financial and operating aspects of our
business to answer some of the following key managerial questions:
Farmers en masse
tend to be frustrated when it comes to building a good Management Information
System
Decisions that require
good information can generally be placed in two categories:
The following discussion illustrates common farm management decisions we are forced to make and highlights the information we need to make an informed decision: Production Decision:
Which crops to plant; what rotation to follow; and what tillage strategy
should we follow?
Marketing Decision:
What and when to market?
Strategic Decision
#1: In-Source or Out-Source a Key Farming Activity?
Strategic Decision
#2: Direct Seed or Conventional?: Is Direct Seeding (NT) or
conventional tillage more optimal?
Strategic Decision
#3: Farm Succession & Growth
Information Needed:
Strategic Decision
#4 Contingency Planning - Government Pmts: What will we do different
if farm subsidies are cut or re-directed?
National Debate
Over Which Analysis Method Is Best? Academicians, economists, farm
consultants and farmers have struggled for decades on the ideal way to
analyze financial information. Each of the following methods serve unique
purposes, but each also has its own source of data integrity. A common
problem in managerial reporting is users mix up the analysis systems below
without a clear idea of how these analysis systems are different.
Farm Financial
Standards Council (FFSC) - Managerial Accounting Project -This is
a project producers should be monitoring closely. For the past two years
a special Task Force on the FFSC has been working on developing national
guidelines for managerial accounting and analysis. A key focus of this
project has been to develop a consistent approach for calculating Total
Cost of Production. This analysis is essential for:
Through developing
these guidelines we hope producers can also reap some of the following
benefits:
1The Council is a volunteer organization with a 40-member board of directors composed of agricultural producers, consultants, accountants, lenders, supply and Ag Service companies, and university/extension staff. The Council provides education and a national forum to facilitate the development, review, communication, and promotion of uniformity and integrity in both financial reporting and the analytic techniques useful for effective measurement of the financial position and performance of agricultural producers. A number of producer
accounting issues were tackled in this project:
Ideal Format for a Profit Center Analysis -One of the biggest issues debated in this project is "What format should the Profit Center Analysis take on?" The following template represents the latest Task Force consensus on a model Profit Center Report. If all producers in a given commodity field could track and subtotal performance data consistent with such a format, it could be invaluable for analysis of historical trends and peer comparisons. Our next panelist, Nate Riggers, will illustrate how these concepts are actually applied in his operation.
Producers interested in further information can access the councils efforts on the following website: www: ffsc.org Information Tools
Used To Improve Farm Management Decisions …(or, Complicate Our Lives!)
Commercial vendors have developed and marketed a diverse mix of tools
we can use to accumulate and access information. These tools could be
grouped in the following categories:
Accounting software
vendor options continue to consolidate. There only a handful of specialized
agricultural accounting software developers left, where once upon a time,
there was a mob pushing their own products. The following are common products
used widely across U. S. farms and still actively supported:
Field Record System
Options have struggled to provide a user friendly, practical software
package that works in the northwest. The need for better management information
as well as increasing reporting requirements from a myriad of regulators
has many producers looking for a more automated record system. The following
software systems have been used with limited success:
Yield Monitors are
seeing increasing use by farmers. But they are perceived as expensive
and many don't know what to do with the data once they get it. Popular
systems include:
Guidance/Variable
Rate Application (VRA) Systems have been used increasingly by farmers
for two decades. Some of the following brand names may be familiar to
you:
The following mapping
software options are being investigated by more and more farms:
Technical Gadgets
Required to Play "Farmer Star War Games" - Farmers love
toys. When the "farming game" shifts to information management,
we find ourselves looking at having to buy or borrow some of the following
hardware items:
Summary -We
could summarize the key issues surrounding building a quality Management
Information System by answering the following:
What incentive do
we have to build a good MIS? It helps to look at proven "Profits"
that have resulted from good decisions. The following are areas where
significant profits or cost savings have resulted from accessing and analyzing
good information:
The definition of a "Farmer" is changing. Historically, we have defined a farmer as a "…tiller of the soil." More and more, successful farmers are being defined as "…managers of people, resources, information and technology." This presentation
was designed to set the stage for the next speakers. I have focused on
the concepts and importance of building an effective management information
system. The next speakers will:
Time for Questions will be allowed at the conclusion of our final panel speakers presentation. |
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us: Hans Kok, (208)885-5971
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