Reviewing the Risk-Reward Relationship for a Ranch

By Aaron Berger

For ranchers, risk is an accepted part of doing business. “No risk, no reward” is quoted when thinking about day-to-day operations and strategic, long-term decisions. Another familiar phrase is “if it were easy, everyone would do it.” To be in business is to take risks.

Ranching historically has been viewed as a risky business that also has a low return on investment. However, reviewing risks on the ranch and finding opportunities to reduce those risks while continuing to have opportunity to capture reward is important to improving ranch profitability and resiliency. The following are six broad categories of areas of exposure for ranch operations.

• Production
• Markets
• Finance and economics
• Political and cultural
• Business entity and legal
• People in the business

Questions to ask when thinking about risk on the ranch:

1. Have ranch business goals been written down and clearly communicated to those involved in the operation?
2. What is the current capacity of the ranch to handle risk exposure related to those goals?
3. What risks haven’t been considered or the significance fully realized?
4. Has a written risk management plan with contingency options been developed? When was it last reviewed?
5. What tools, programs and partnerships could help mitigate current and anticipated risks?
6. What resources can enhance risk management knowledge and skills?
7. How can resiliency be built to reduce risk while still taking advantage of opportunities?

Dr. Jay Parsons wrote an article for the Center for Ag Profitability titled "Five Key Principles of a Good Risk Management Culture.” This is an excellent resource to review as you think about engaging family members and employees in the operation in addressing risk exposure. Ranching is a risky business, but strategic planning and conversation can help reduce the impacts of risk exposure. Look for more in-depth discussion to come for each of the categories of risks on the ranch in future BeefWatch articles.