It Pays to be Paranoid: Considerations When Developing Contingency Plans for Your Farm
No risk management plan is complete without consideration of the “what-ifs.” In fact, you could argue that this is truly the “why” behind having a risk management plan on your farm. It’s also true that, as Mike Tyson put it, “Everyone has a plan until they get punched in the mouth.”
Our industry has been hit in the mouth a bunch lately. From COVID-19 to governmental policy changes to H5N1 avian influenza (bird flu) outbreaks, the unpredictable is coming at us at a faster and faster pace. When making your contingency and continuity plans, here are some of the key areas of preparedness you should consider.
Inventory your resources
Whether in a crisis or simply responding to an unexpected event, it’s imperative to make sure you understand all of the resources available to you in your response. During my military deployment in Afghanistan, I was always amazed at how fast information and available resources were relayed to those in charge during an incident. Whether it was air support, additional ground forces, medevac resources, or all forms of intelligence, the leadership was almost instantly informed of what was available to them when a fire fight broke out in their area of command.
As a leader on your farm, you should always understand what you have at your fingertips to respond. Whether it’s knowing where your protocols and plans are, knowing what equipment your local emergency response teams have, or where is the closest excavation company, having a list of potential response assets is critical to successfully managing through an incident. Along those same lines, ask yourself: Are there assets that you can preposition to improve response times? For example, placing emergency medical equipment and first-aid kits in key areas of your operation. This could save valuable time in an emergency.
Prepare your finances
Working capital and availability of cash are critical for the initial business continuity discussion. This is the short-term shock absorber that every operation should have in place. How much? Four to six months of operating expenses will allow operations to continue in a time of stress. It’s also crucial to make sure these funds are readily available in a contingency. That is, make sure you have accounts set up for continuity in the event of the incapacity or death of a primary account holder.
Having cash flow grind to a halt and lacking the ability to gain access to credit due to lack of appropriate account titling and management can significantly impact your cash availability. While working capital is critical, having a balance sheet with depth of equity is also critical to managing for longer-term issues. The ability to borrow additional capital can be crucial in managing through those longer-term disruptions.
Your goal should be to have more than of 50% net worth on a market-based balance sheet. Preserving both working capital and balance sheet depth is truly the purpose behind every high-functioning operation’s risk management plan. Whether using market pricing protection tools, crop insurance, revenue insurance or other insurances, the focus should be on preserving these two elements.
Prepare your workforce
Do you have redundancy built into your workforce? That is, cross-trained employees who can fill in to multiple rolls depending on the event. Can they do multiple jobs with little or no additional training? Does your culture reward flexibility and initiative? What fallback options do you have? For example, are there custom operators available to fill in for harvesting a crop, or custom heifer raisers available to fill in a gap and reduce labor needs on a short-term basis? Also think about fallback leaders for each team on your operation. If one isn’t available, who can step up and take the lead? Do your leaders have the mentality for training their replacements? That is, are they willing to share how they work with their key employees. Training and job shadowing can go a long way to adding depth and preparedness for your operation.
Update your succession plan
One of the largest disruptors on an operation is the death of a primary owner. Your succession planning document should clearly address this. How will the operation go forward without you? While a lot of focus is often put on how to transition assets through an estate plan, management succession is often overlooked. Be sure your plan is complete and includes clear management transition plans.
Conduct a walk-through
In the military, we used to call it “war gaming.” In the civilian world, it’s “scenario-based training.” That is, create a scenario that interrupts or impacts your business and walk through the steps from response to resolution of that scenario.
These scenarios can range from the relatively straightforward—managing through a power outage or a barn fire—to the more catastrophic, such as the death of an owner or another pandemic. Be creative in the creation but prioritize the most likely and most disruptive events first. Some events, while highly likely, have very little impact on the continuity of the business.
For example, having a parlor fire is significantly more impactful than a power outage, though the power outage may be more likely. Be sure to involve as many on your team as possible in the process of planning and executing the scenario training event. The more ideas and input the better when it comes to running this sort of exercise. One of the key questions leaders ask others is: What does this look like from your point of view? Additionally, consider putting as much real-world pressure into each scenario. Understanding how both you and your employees react to the stress of a scenario will aid in ensuring you have the right person in charge.
The value of completing this exercise should not be underestimated, especially when it comes to assessing the mental preparedness of your team and identifying areas you may have overlooked. This sort of exercise will also give you some great insights into what additional resources you may need.
This should not be a one-and-done approach. As you develop your scenarios, you should come away with clear protocols that should dovetail into your future training. In other words, once you have a protocol in place, practice it. Unlike an operations protocol for, say, how to treat fresh cows, these protocols are not practiced on a day-to-day basis. Use scenario training of the same type to reinforce the appropriate responses while implementing a process of continuous improvement of the protocols.
Establish a communication policy
Along with your scenario planning, make sure you pay close attention to communication. Plan for breakdowns, plan for interruptions and plan for misinformation. Be sure to create redundant communication channels with your employees. If the cell tower is down, for example, make sure you can still get your message out. And don’t forget about communication with those outside of your operation. Depending on the incident, outside communication may be necessary. That communication needs to be well thought out.
Also, be clear with your employees who is authorized to speak on behalf of the operation. One of the worst things that can happen is contradictory statements from the same operation in the middle of an incident.
So much has occurred in the last several years—extreme weather events, the pandemic, bird flu—that could not have been predicted. Those who completed a what-if analysis and planned up front have been able to survive and thrive through these events. Simply put, it pays to be paranoid!
This article originally appeared in Progressive Dairy
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Brad Guse
Director, Production Agriculture, US Food, Consumer and Agribusiness
No risk management plan is complete without consideration of the “what-ifs.” In fact, you could argue that this is truly the “why” behind having a risk management plan on your farm. It’s also true that, as Mike Tyson put it, “Everyone has a plan until they get punched in the mouth.”
Our industry has been hit in the mouth a bunch lately. From COVID-19 to governmental policy changes to H5N1 avian influenza (bird flu) outbreaks, the unpredictable is coming at us at a faster and faster pace. When making your contingency and continuity plans, here are some of the key areas of preparedness you should consider.
Inventory your resources
Whether in a crisis or simply responding to an unexpected event, it’s imperative to make sure you understand all of the resources available to you in your response. During my military deployment in Afghanistan, I was always amazed at how fast information and available resources were relayed to those in charge during an incident. Whether it was air support, additional ground forces, medevac resources, or all forms of intelligence, the leadership was almost instantly informed of what was available to them when a fire fight broke out in their area of command.
As a leader on your farm, you should always understand what you have at your fingertips to respond. Whether it’s knowing where your protocols and plans are, knowing what equipment your local emergency response teams have, or where is the closest excavation company, having a list of potential response assets is critical to successfully managing through an incident. Along those same lines, ask yourself: Are there assets that you can preposition to improve response times? For example, placing emergency medical equipment and first-aid kits in key areas of your operation. This could save valuable time in an emergency.
Prepare your finances
Working capital and availability of cash are critical for the initial business continuity discussion. This is the short-term shock absorber that every operation should have in place. How much? Four to six months of operating expenses will allow operations to continue in a time of stress. It’s also crucial to make sure these funds are readily available in a contingency. That is, make sure you have accounts set up for continuity in the event of the incapacity or death of a primary account holder.
Having cash flow grind to a halt and lacking the ability to gain access to credit due to lack of appropriate account titling and management can significantly impact your cash availability. While working capital is critical, having a balance sheet with depth of equity is also critical to managing for longer-term issues. The ability to borrow additional capital can be crucial in managing through those longer-term disruptions.
Your goal should be to have more than of 50% net worth on a market-based balance sheet. Preserving both working capital and balance sheet depth is truly the purpose behind every high-functioning operation’s risk management plan. Whether using market pricing protection tools, crop insurance, revenue insurance or other insurances, the focus should be on preserving these two elements.
Prepare your workforce
Do you have redundancy built into your workforce? That is, cross-trained employees who can fill in to multiple rolls depending on the event. Can they do multiple jobs with little or no additional training? Does your culture reward flexibility and initiative? What fallback options do you have? For example, are there custom operators available to fill in for harvesting a crop, or custom heifer raisers available to fill in a gap and reduce labor needs on a short-term basis? Also think about fallback leaders for each team on your operation. If one isn’t available, who can step up and take the lead? Do your leaders have the mentality for training their replacements? That is, are they willing to share how they work with their key employees. Training and job shadowing can go a long way to adding depth and preparedness for your operation.
Update your succession plan
One of the largest disruptors on an operation is the death of a primary owner. Your succession planning document should clearly address this. How will the operation go forward without you? While a lot of focus is often put on how to transition assets through an estate plan, management succession is often overlooked. Be sure your plan is complete and includes clear management transition plans.
Conduct a walk-through
In the military, we used to call it “war gaming.” In the civilian world, it’s “scenario-based training.” That is, create a scenario that interrupts or impacts your business and walk through the steps from response to resolution of that scenario.
These scenarios can range from the relatively straightforward—managing through a power outage or a barn fire—to the more catastrophic, such as the death of an owner or another pandemic. Be creative in the creation but prioritize the most likely and most disruptive events first. Some events, while highly likely, have very little impact on the continuity of the business.
For example, having a parlor fire is significantly more impactful than a power outage, though the power outage may be more likely. Be sure to involve as many on your team as possible in the process of planning and executing the scenario training event. The more ideas and input the better when it comes to running this sort of exercise. One of the key questions leaders ask others is: What does this look like from your point of view? Additionally, consider putting as much real-world pressure into each scenario. Understanding how both you and your employees react to the stress of a scenario will aid in ensuring you have the right person in charge.
The value of completing this exercise should not be underestimated, especially when it comes to assessing the mental preparedness of your team and identifying areas you may have overlooked. This sort of exercise will also give you some great insights into what additional resources you may need.
This should not be a one-and-done approach. As you develop your scenarios, you should come away with clear protocols that should dovetail into your future training. In other words, once you have a protocol in place, practice it. Unlike an operations protocol for, say, how to treat fresh cows, these protocols are not practiced on a day-to-day basis. Use scenario training of the same type to reinforce the appropriate responses while implementing a process of continuous improvement of the protocols.
Establish a communication policy
Along with your scenario planning, make sure you pay close attention to communication. Plan for breakdowns, plan for interruptions and plan for misinformation. Be sure to create redundant communication channels with your employees. If the cell tower is down, for example, make sure you can still get your message out. And don’t forget about communication with those outside of your operation. Depending on the incident, outside communication may be necessary. That communication needs to be well thought out.
Also, be clear with your employees who is authorized to speak on behalf of the operation. One of the worst things that can happen is contradictory statements from the same operation in the middle of an incident.
So much has occurred in the last several years—extreme weather events, the pandemic, bird flu—that could not have been predicted. Those who completed a what-if analysis and planned up front have been able to survive and thrive through these events. Simply put, it pays to be paranoid!
This article originally appeared in Progressive Dairy.
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