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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
Diagnostic Benchmarks
Diagnostic Benchmarks
Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program
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$enseUnderstanding Bottlenecks?
PRODUCTS
Production Systems Are Pipelines
INPUTS
Bradley J. Hilty Information Management Specialist Penn State Dairy Alliance Program
Busines$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
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
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 $9.44
Busines$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 $4.85
Feed %-Milk 27.8 % 9.4 % 10.0% 37.0% 30.9 % 22.2 %
Busines$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 $226
Busines$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