busines $ ense

Busines$enseManagement Training for Dairy CFO’s

Bradley J.Hilty Information Management Specialist Penn State Dairy Alliance

Busines$enseWhat is Busines$ense?

• Best Management Practices in BM & IM

• Standardization of IM Practices

• A systematic approach to business analysis– Identifying bottlenecks with benchmarks

A Dairy Alliance program to train Chief Financial Officers of dairy businesses in:

Busines$enseProgram Objectives

• Enhance participants’ understanding of BMP in IM & BM

• Implement standards for data management• Provide benchmarks for evaluating business• Provide a systematic approach to evaluate

business• Provide tools for ongoing business evaluation• Improve information for decision making

Busines$enseHow did we do this?

• Established a Baseline– Collect data for Dairy Farm Business Analysis

• Implement standards for IM– Short term– Long term

• Evaluate Cost of Production-DairyCOP$• Evaluated Business Performance-DFBS• Develop Strategies to Address Weaknesses

Busines$enseHow did we do this?

• Hands On Experience– Data Collection for DFBS– Systems analysis using benchmarks– Calculating Production Costs with DairyCOP$

• Group Discussion– The Key to Busines$ense (10-15 dairies)

Busines$enseFeatures of Busines$ense

• Lecture – Topics– Characteristics of successful businesses– Standardization of IM practices– Benchmarks for measuring business

performance– Managing investments for profitability– Cost control & net margin analysis

• Analyzing incremental costs and returns

Data CollectionObservation, measuring & recording of data

Data OrganizationProvides structure to the data set

Data ProcessingData entry & calculations

Data ReportingPresents data for interpretation

Data Integration1

Data Utilization2

The Six Steps of Information Management

Bradley J. Hilty, Information Management Specialist, Penn State Dairy Alliance

Busines$ense

• If you don’t measure it,

you can’t control it.

• GIGO

• Provide Accurate Feedback to Others

• Benchmarks Comparisons

• Standardizing the Process

Importance of Sound IM Practices

Busines$ense

• Maximize profits• Maintain adequate cash flow• Build equity• Quality of Life

– Family

– Employees

• Others??

Goals of Successful Business Owners

Busines$ense

Goals of Successful Business Owners: Achieve Balance

Maximize profitsMaintain adequate cash flowBuild equity

Quality of Life

Busines$ense

Goals of Successful Business Owners: Achieve Balance Maximize profits

Maintain adequate cash flowBuild equity

Quality of Life

Busines$ense

Goals of Successful Business Owners: Achieve Balance

Maximize profitsMaintain adequate cash flowBuild equity

Quality of Life

Busines$ense

• Very Profitable

• Generate Abundant Cash Flow

• Sound Financial Base

• Efficient in the Use of Inputs

• Capital Efficient

Characteristics of the Successful Businesses

BUSINESS ANALYSIS- Five “Star” Financial Benchmarks

Profitability

Return on Assets(ROA) >10%

Liquidity

Term Debt & Lease Coverage Ratio (TDLCR) > 1.20

Solvency

% Equity% Equity > 60%

Financial EfficiencyOperating Expense Ratio

OER< 75%-Corp OER<65% -SP/P

Capital EfficiencyAsset Turnover Ratio

ATR >.6 Dairy & Crops

ATR> 1.0 Dairy$

Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program

Evaluating Herd Performance with Benchmarks

ProductionMilk/Cow/Day

Herd Status DIM

Cow ManagementCull Rate

ReproductionPregnancy Rate

Udder HealthSCC

Diagnostic Benchmarks




Benchmarks –Evaluating Business PerformanceCriteria Ratio Average Leaders Goal

Profitable ROA 4-4.5% 15-20% 8-10%

Cash Flow TDLCR 1.15 2.00 1.25

Financial Base % Equity 50-55% 50-55% 50-60%

Financial Efficient OER 72-76% < 65% 65%

Capital Efficient ATR .40-.45 >.65 .65 (>1.00)

Busines$ense

Key Performance Indicators

• Key Herd Performance Benchmarks– Milk/Cow/Day – Production (>70 lbs)

– Cull Rate – Total Cow Management (<30%)

– Days In Milk –Herd Status (170-175 days)

– Pregnancy Rate – 22-24%

• Heat Detection - 60%

• Conception Rate – 40%

– SCC - Milk Quality (< 200,000)

Reproduction

Busines$ense

Cost of Production System

Busines$enseHands-On:

Analyzing Business

Performance

Busines$enseHands-On:

Busines$enseUnderstanding Bottlenecks?

PRODUCTS

Production Systems Are Pipelines

INPUTS


Busines$enseUnderstanding Bottlenecks?

INPUTS PRODUCTS

A restriction in the product pipeline

It is important to detect & correct the most restrictive bottleneck first.

Fixing the wrong bottleneck is of no benefit.


Evaluate investment strategies;

Consider liquidation or reallocation of assets

Is the business profitable?

ROA

Is the business financially efficient?

OER

Is the business capital efficient?

ATR

Is the production a problem?

Milk/Cow/Day

Examine

Investment per cow

Land Values

Why is production a problem?

Examine production record KPI’s

Evaluate

Forage Quality;

Cow Comfort;

Ventilation;

Water;

Management SOP’s

Examine Key Expenses

Feed

Labor

Others

Busines$ense

A systematic approach to analyzing business performance. Bradley J. Hilty – Information Management Specialist; Penn State Dairy Alliance

Busines$enseBusiness Analysis Results:

Busines$ense

0

2

4

6

8

10

12

14

16

18

<0 0-5 5-10 10-15 <15

ROA Range

Distribution of ROA

Busines$ense

Indicator Average SD Min Max BST No BST

Herd Size 191 151 37 530 228 112

Cull Rate 27.1 11.7 4.0 47.5 30.2 20.5

Milk/Cow 20405 3821 11280 25621 22622 16286

Acres/Cow 2.85 .94 1.23 4.32 2.85 2.86

Milk Price $13.49 $0.95 $11.74 $15.19 $13.56 $13.36

Mail Box $ $12.84 $0.83 $11.43 $14.61 $12.85 $12.81

Busines$ense


ROA 1.15 % 5.7 % -12.20 % 16.4 % 2.15 % -0.72 %

OER 74.5 % 11.5% 53.0 % 95.0 % 77.5 % 68.9 %

ATR .55 .18 .33 1.08 .59 .47

% Equity 56.4 23.9 20.0 99.5 51.6 65.4

TDLCR 1.16 .66 .20 3.22 1.08 1.30

Cost $/cwt $10.12 $2.00 $6.46 $13.75 $10.49 $9.44

Busines$ense


Cows/FTE 34.3 8.5 22.0 49.0 33.3 36.0

Milk/FTE 683419 203344 464802 1058740 752472 555177

Labor $/cwt $1.27 $0.82 $0.00 $3.14 $1.53 $0.78

Feed/Cwt $4.04 $1.01 $1.70 $6.04 $4.19 $3.78

Feed+Crop/Cwt

$5.00 $1.08 $2.62 $6.67 $5.07 $4.85

Feed %-Milk 27.8 % 9.4 % 10.0% 37.0% 30.9 % 22.2 %

Busines$ense


Invst/Cow $7138 $1773 $3571 $10907 $7500 $6466

Debt/Cow $3266 $2003 $171 $8705 $3732 $2401

Machine $/Ac $205 $113 $79.00 $504 $193 $226

Busines$ense

Herd Size vs ROA

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

0 100 200 300 400 500 600

Cows

RO

A

Busines$ense

ROA vs Milk/cow

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000

Busines$ense

ROA vs ATR

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1

ATR

RO

A

Busines$ense

Machinery Investment/Acre vs ROA

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

$0 $100 $200 $300 $400 $500 $600

Machine $/Ac

RO

A

Busines$ense

• Cost of Production Data- DairyCOP$

Busines$ense 2001 Results

..\..\Desktop\Managing Production Costs-Complete.doc

0

1

2

3

4

5

6

# H

erd

s

< $ 12.00 $12-$13 $13-$14 $14-$15 $15-$16 $16-$17 > $17.00

$/Cwt

Milk Production Costs/ CWT

Busines$ense

Indicators Identified

Financial – Pre

Financial –Post

Production - Pre

Production – Post

0/5 77.4 % 0.0 % 13.8 % 2.0% ??

1/5 12.9 % 0.0 % 27.6 % 0.00

2/5 9.7 % 7.1 % 41.4 % 0.00

3/5 0.0 % 21.5 % 13.8 % 0.00

4/5 0.0 % 28.6 % 3.4 % 38.1 %

5/5 0.0 % 42.8 % 0.0 % 59.9 %

Program Evaluation Results

Thank You!

?? Questions ??

For a copy of this presentation email..

[email protected]

busines $ ense

Documents

dairy cropsatr

dairy cfosbradley j

ensefeatures of busines

baselinecollect data

im bmimplement standards

best management practices

dfbssystems analysis

businessprovide tools