Strategic And Scenario Planning In Ranching: Managing Risk .

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EC924Strategic and Scenario Planning in Ranching:Roger Gates, SDSUManaging Risk inDynamic TimesSouth Dakota State University Texas A&M University–Kingsville

2Strategic and Scenario Planning in Ranching:Managing Risk inDynamic TimesCONTENTSRoger N. GatesExtension Range Specialist andAssociate Professor Departmentof Animaland Range SciencesSouth Dakota State UniversityBarry H. DunnExecutive Director and AssociateProfessorKing Ranch Institute forRanch ManagementTexas A&M University-KingsvilleJack DavisArea Management SpecialistDepartment of EconomicsSouth Dakota State UniversityAgustin ArzenoArea Management SpecialistDepartment of EconomicsSouth Dakota State UniversitySTEPS TOWARD SUCCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Stage 1: Charting the Course: Creating the Vision . . . . . . . . . . . . . . . . . . 6Step 1: Assess current situation and inventory of ranch resources. . . . . . 6Step 2: Conduct SWOT analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Step 3: Establish a vision for the ranch business . . . . . . . . . . . . . . . . . . 11Stage 2: Determining Strategies to Achieve the Ranch’s Vision . . . . . . 16Step 4: GAP analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Step 5: Alternative strategies to close the gap . . . . . . . . . . . . . . . . . . . . 16Stage 3: Scenario Planning for the Ranch . . . . . . . . . . . . . . . . . . . . . . . 20Step 6: Describe multiple scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Step 7: Select and evaluate the most-probable Scenarios . . . . . . . . . . . 22Stage 4: Merging Strategies and Scenario Planning . . . . . . . . . . . . . . . 24Step 8: Determine strategies with the highest likelihood of success . . . . 24Stage 5: Putting the Plan Into Action and Measuring Success . . . . . . . 26Step 9: Implementation of the strategic plan . . . . . . . . . . . . . . . . . . . . . 26Step 10: Monitor performance with the Balanced Scorecard . . . . . . . . . 27For More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Making the Case for Strategic Planning: Consider ethanol’s impact . . . 33Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34This manual was developed by the South Dakota State University ExtensionService and the King Ranch Institute for Ranch Management, Texas A&MUniversity–Kingsville with funding provided by North Central SARE.Martin BeutlerRanch Economist and ProfessorSDSU West River Ag Center,Rapid CitySouth Dakota State UniversityEditorial coordination byKindra Gordon, Sturgis, SDSouth Dakota State University, South Dakota counties, and U.S. Department of Agriculture cooperating. South Dakota StateUniversity is an Affirmative Action/Equal Opportunity Employer and offers all benefits, services, education, and employmentopportunities without regard for race, color, creed, religion, national origin, ancestry, citizenship, age, gender, sexual orientation, disability, or Vietnam Era veteran status.EC924: 1,100 copies printed at a cost of X.XX each. ESXXX October 2007

3A changing marketplace, price volatility, labor availability, recordhigh feeder calf prices, the effects of the ethanol industry:How will your ranchoperation adapt?As the ranching industry faces acceleratingchange in the most fundamental parts of itsbusiness, ranch managers need to look forwardand “create” their future. In other words, developing a strategic plan is essential for meeting thechallenges ahead.Strategic planning and scenario planning—thetwo concepts highlighted in this manual—offersystematic approaches to addressing a ranchbusiness’ future viability. Using these planningtechniques together, a strategic plan—which isultimately a set of decisions about what, why,and how to do something, all with a focus onthe future—can be developed.According to management consultant andauthor Peter Drucker, “The primary tasks ofstrategic management are to understand theenvironment, define organizational goals, identify options, make and implement decisions, andevaluate actual performance.”Strategic planning is a fundamental steptoward a ranch’s future viability. However, rapidchanges among a variety of outside factors—movement in the beef price cycle, availability oflabor and ranch (or estate) transition issues, orfeed availability and price—can strongly impactthe success of a strategic plan.Therefore, a key to successfully preparingfor the future is the ability to “understand theenvironment” and anticipate what industrytrends and patterns may affect the ranch business. Scenario planning provides the opportunityto do just that and can be a valuable tool instrengthening the ranch strategic plan.Challenges to the Ranching IndustryWhile the ranching business has dealt withmany serious changes throughout its history, thisis a new era, and rarely have so many key parts ofthe business re-aligned so rapidly. Thus, the needfor ranch management supported by strategic andscenario planning is crucial to the sustainabilityof the ranching industry.Present challenges to the ranching industryinclude prices for inputs—such as land, feed,transportation, labor, health care for employees,and energy—rising to historically high levels;concerns related to emerging diseases and relatedinternational trade issues hampering exportmarkets; and even positive challenge—theincreased revenue from beef cattle selling ator near record high prices.Additional factors within the ranchingbusiness—like the availability of skilled labor, theviability of supportive rural communities, andthe emergence of viable alternative enterprises—are also undergoing dramatic change. Some areextremely positive. Others present solemnchallenges.How can pragmatic ranchers address thesechallenging times? A logical response is to implement the strengths of two planning processes:strategic planning and scenario planning.Strategic planning is a process for determiningthe strategies and tactics that will help a businessachieve a clearly defined vision.Scenario planning is the process of, as objectively as possible, creating likely scenarios that abusiness may face based on demographic, social,political, and business trends. It is the ability to“understand the business environment” withinwhich the ranch operates.In combining strategic planning and scenarioplanning, multiple strategies are tested withinlikely scenarios. The strategies that are determined to work the best in the most scenariosare then candidates for implementation in astrategic plan.In the context of ranch management, thismeans determining key scenarios for the industry,placing yourself and your ranch in context withthe environment those scenarios may create, andthen developing strategies on how you will adapt.Ultimately, the processes of strategic planningand scenario evaluation are designed to helpranchers mitigate risk exposure through planning.This manual offers a step-by-step guidethrough the stages of the strategic and scenarioplanning processes. Space is provided throughoutthe manual for you to write down and practicethese procedures and create your own strategicplan.While the future of our ranching industry isinherently uncertain, risk can be mitigated byimplementing a strategic approach toward whatlies ahead.“The best way topredict the futureis to create it”—Peter Drucker,management consultant,author & university professorA strategic plan is ultimately aset of decisions about what,why, and how to do something,all with a focus on the future.Strategic planning and scenarioplanning are components of thatprocess.Strategic planning is a processfor determining the strategiesand tactics that will help abusiness achieve a given vision.Scenario planning is theprocess of creating likely scenarios that a business may facebased on demographic, social,political, and business trends.

4Steps Toward SuccessThe Stages of the Strategic and Scenario Planning Process“All successfulpeople have agoal. No one canget anywhereunless he knowswhere he wantsto go.”—Norman Vincent Peale,author, “The Power ofPositive Thinking”Implementing strategic and scenario planningin the quest for a strategic plan requires a greatdeal of reflection, decision making, and foresight.It is a process that will command time, attentionto detail, and commitment. In addition, theprocess necessitates continual evaluation andenhancement.This manual divides the strategic and scenarioplanning process into five workable stages.Within each stage are specific steps that becomethe foundation for your strategic plan.They are as follows:Stage 1: Charting the Course: Creating the VisionStep 1: Assess current situation and inventory of ranch resourcesStep 2: Conduct SWOT analysisStep 3: Establish a vision for the ranchStage 2: Determining Strategies to Achieve the Ranch’s VisionStep 4: Incorporate “gap” analysisStep 5: Identify alternative strategies to close the gapStage 3: Scenario Planning For the RanchStep 6: Describe multiple scenariosStep 7: Select and evaluate most probable scenariosStage 4: Merging Strategies and Scenario PlanningStep 8: Choose strategies with highest likelihood of successStage 5: Putting the Plan Into Action and Measuring SuccessStep 9: Implementation of the strategic planStep 10: Monitor performance with the Balanced ScorecardWhat Is Strategy? Strategy is that which top management does that isof great importance to the business/organization. Strategy refers to basic directional decisions,that is, to purposes and missions. Strategy consists of the important actionsnecessary to realize these directions. Strategy answers thequestion: What should the business/organization bedoing? Strategy answers the question: What are the endswe seek and how should we achieve them?– from George Steiner,author, “Strategic Planning”

5Understanding Strategic, Tactical and Operational PlanningNot all planning is the same. Essentially, there are threedifferent levels of planning: strategic, tactical, and operational.Here is a quick review of the differences and objectivesof each:Strategic Planning “Big picture” planning that defines where you are asa business and where you are going. Attempts to coordinate the deployment of resourcesover time. A key differentiation between strategic, tactical, andoperational planning is the “planning horizon” ofeach. Strategic plans may look ahead 3 to 5 years ormore.Tactical Planning Deals primarily with the implementation phase of theplanning process. These are the step-by-step actionsteps, timetables, and individuals responsible forcompleting projects. Turns strategy into reality and usually has a 1–2 yeartime horizon. It addresses prevailing circumstances anddictates within-year adjustments to a ranch strategy. Is usually tightly integrated with the annual budgetprocess.Operational Planning Deals with the day-to-day and week-to-week workroutine and supports tactical plans. Focus is on routine operational tasks and long-termprojects. Primary goal is to communicate. Weekly meetings are often used to coordinate effortsand review progress, and weekly or monthly summaries are often used to inform others.Tactical and operational planning tend to get themost attention on ranches, but it is the forward-lookingnature of strategic planning that is essential for futureranch viability.Nicola Shadbolt, a senior lecturer in Farm andAgribusiness Management at Massey University in NewZealand, has worked with ag producers in incorporatingstrategic planning, particularly through the BalancedScorecard. She states, “Operational and tactical management are essential skills on all ranches and must bemastered However, [ranch managers] must alsodeliver to the dream that they and their family have, soleadership skills are essential.”

6Stage 1: Charting the Course:Creating the Vision“If you don’t know where you aregoing, you are certain to end upsomewhere else.”—Yogi BerraWhy is strategicplanning necessary?Strategic planning anticipateschange. Survival inan environment of rapidchange demandsthoughtful strategicplanning.Without a step-by-step (strategic) plan and achosen destination (or vision), it is virtuallyimpossible to get where we want to go. Operatinga ranch without a strategic plan is akin to traveling without a road map. Consider the parallel:Just as a trip itinerary includes a starting pointand a destination, a strategic plan requires anassessment of current conditions and a visionof a desired future.The “road map” for a strategic plan beginswith an inventory process. The purpose of theinventory is to determine both “where you are”and “where you are going.”In this first stage of the strategic planningprocess, you will assess your ranch operation’scurrent situation through an inventory ofavailable resources and an analysis of strengths,weaknesses, opportunities, and threats. Throughthe awareness created by this assessment process,you will then establish a vision for your ranch.This vision should encompass the long-termdestination of your ranch operation.Step 1: Assess current situation and inventory of ranch resourcesA realistic vision statement requires an accurateassessment of the current situation. An inventoryassesses the tools that are available for you towork with. These tools should include financial,physical, natural, and human resources.(“Human” resources are the skills, abilities, andinclinations of those involved in the ranch.)

7Figure 1. Inventory Worksheet to identify current ranch resources.Category: Financial ResourcesCategory: Physical ResourcesCategory: Natural ResourcesCategory: Human Resources

8Step 2: Conduct SWOT analysisThe strengths, weaknesses, opportunities, andthreats (SWOT) analysis reviews the ranch operation as a whole and assesses the current situation;this can b

This manual offers a step-by-step guide through the stages of the strategic and scenario planning processes. Space is provided throughout the manual for you to write down and practice these procedures and create your own strategic plan. While the future of our ranching industry is inherently uncertain, risk can be mitigated by

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