Busines$ense Management Training for Dairy CFO's
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Transcript of Busines$ense Management Training for Dairy CFO's
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Busines$enseManagement Training for Dairy CFO’s
Bradley J.Hilty Information Management Specialist Penn State Dairy Alliance
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Busines$enseWhat is Busines$ense?
• Best Management Practices in BM & IM
• Standardization of IM Practices
• A systematic approach to business analysis– Identifying bottlenecks with benchmarks
A Dairy Alliance program to train Chief Financial Officers of dairy businesses in:
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Busines$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
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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
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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$ense (10-15 dairies)
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Busines$enseFeatures of Busines$ense
• Lecture – Topics– Characteristics of successful businesses– Standardization of IM practices– Benchmarks for measuring business
performance– Managing investments for profitability– Cost control & net margin analysis
• Analyzing incremental costs and returns
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Data CollectionObservation, measuring & recording of data
Data OrganizationProvides structure to the data set
Data ProcessingData entry & calculations
Data ReportingPresents data for interpretation
Data Integration1
Data Utilization2
The Six Steps of Information Management
Bradley J. Hilty, Information Management Specialist, Penn State Dairy Alliance
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Busines$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
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Busines$ense
• Maximize profits• Maintain adequate cash flow• Build equity• Quality of Life
– Family
– Employees
• Others??
Goals of Successful Business Owners
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Busines$ense
Goals of Successful Business Owners: Achieve Balance
Maximize profitsMaintain adequate cash flowBuild equity
Quality of Life
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Busines$ense
Goals of Successful Business Owners: Achieve Balance Maximize profits
Maintain adequate cash flowBuild equity
Quality of Life
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Busines$ense
Goals of Successful Business Owners: Achieve Balance
Maximize profitsMaintain adequate cash flowBuild equity
Quality of Life
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Busines$ense
• Very Profitable
• Generate Abundant Cash Flow
• Sound Financial Base
• Efficient in the Use of Inputs
• Capital Efficient
Characteristics of the Successful Businesses
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BUSINESS ANALYSIS- Five “Star” Financial Benchmarks
Profitability
Return on Assets(ROA) >10%
Liquidity
Term Debt & Lease Coverage Ratio (TDLCR) > 1.20
Solvency
% Equity% Equity > 60%
Financial EfficiencyOperating Expense Ratio
OER< 75%-Corp OER<65% -SP/P
Capital EfficiencyAsset Turnover Ratio
ATR >.6 Dairy & Crops
ATR> 1.0 Dairy$
Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program
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Evaluating Herd Performance with Benchmarks
ProductionMilk/Cow/Day
Herd Status DIM
Cow ManagementCull Rate
ReproductionPregnancy Rate
Udder HealthSCC
Diagnostic Benchmarks
Diagnostic Benchmarks
Diagnostic Benchmarks
Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program
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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$ense
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Key Performance Indicators
• Key Herd Performance Benchmarks– Milk/Cow/Day – Production (>70 lbs)
– Cull Rate – Total Cow Management (<30%)
– Days In Milk –Herd Status (170-175 days)
– Pregnancy Rate – 22-24%
• Heat Detection - 60%
• Conception Rate – 40%
– SCC - Milk Quality (< 200,000)
Reproduction
Busines$ense
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Cost of Production System
Busines$enseHands-On:
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Analyzing Business
Performance
Busines$enseHands-On:
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Busines$enseUnderstanding Bottlenecks?
PRODUCTS
Production Systems Are Pipelines
INPUTS
Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program
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Busines$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.
Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program
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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$ense
A systematic approach to analyzing business performance. Bradley J. Hilty – Information Management Specialist; Penn State Dairy Alliance
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Busines$enseBusiness Analysis Results:
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Busines$ense
0
2
4
6
8
10
12
14
16
18
<0 0-5 5-10 10-15 <15
ROA Range
Distribution of ROA
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Busines$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 $12.81
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Busines$ense
Indicator Average SD Min Max BST No BST
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 $9.44
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Busines$ense
Indicator Average SD Min Max BST No BST
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 $4.85
Feed %-Milk 27.8 % 9.4 % 10.0% 37.0% 30.9 % 22.2 %
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Busines$ense
Indicator Average SD Min Max BST No BST
Invst/Cow $7138 $1773 $3571 $10907 $7500 $6466
Debt/Cow $3266 $2003 $171 $8705 $3732 $2401
Machine $/Ac $205 $113 $79.00 $504 $193 $226
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Busines$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
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Busines$ense
ROA vs Milk/cow
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000
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Busines$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
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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 $/Ac
RO
A
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Busines$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
$/Cwt
Milk Production Costs/ CWT
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Busines$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