Agribusiness operational decision-making tools - Agribusiness Education and Research International

Agribusiness operational decision-making tools

An effective food and agriculture manager must be able to make sound decisions. Whatever commodities, services, products, and activities an agribusiness focuses on, the manager of that organization is presented with a plethora of decisions to be made at many different levels on a daily basis. These selections can range from where to order lunch for the staff meeting to deciding where to build the next manufacturing site. And it is the manager’s obligation to make effective, timely, and sound judgments for the benefit of the company as a whole. Professional managers approach decision-making in a systematic manner. Identifying the problem, summarizing information, identifying and analyzing options, making a decision, taking action, and evaluating results are all part of the decision-making process.

Decision-making is the process of selecting between several choices in order to achieve desired outcomes.

This term will be examined in greater detail in the following sections. Process The first crucial concept here is the realization that decision-making is a process. The term process suggests activity or accomplishing something. It is critical to understand that excellent decision-making is an active process in which the management actively and directly participates. Of course, decisions can be made by default; that is, one can do nothing for so long that no decision is required. Most people are familiar with the difficulty of deferring decisions until it is too late. However, effective decision-making requires an active participant who acts on time. It is crucial to recognize that doing nothing is not always the default option. Choosing to “wait and see” could be a rational and correct decision. A default decision represents an inability to make a decision. The end result may be satisfactory, but any beneficial outcome of a default decision is entirely coincidental. Because any achievement occurs in spite of management, rather than because of it, most skilled managers do not make default decisions.

Choosing

Choosing is the second fundamental concept in the definition of decision-making. Choosing indicates that there are choices from which to choose. There is no decision to be made when there are no alternatives. Alternatives must also be viable. They must be attainable and reasonable. For example, resigning or exiting is always an option, but it is rarely a viable one. Choosing also entails selecting from among the available possibilities. Choosing the “correct” alternative is at the heart of decision-making.

Goals

Finally, decision-making is deliberate. Effective decision-making necessitates having a clear aim in mind. It is hard to evaluate performance at the end of the year if management refuses to set clear-cut goals at the start of the year. Firm performance should be evaluated in the same way that employees are. Goals or expected results should be described as quantitatively as possible to allow for evaluation of performance at the conclusion of the year. Similarly, effective choice necessitates the application of certain criteria, such as goals, to guide the selection process. Goals, like alternatives, must be achievable and precise. “My goal is to create as much profit as possible,” says no one who runs a huge vegetable farmer shipper enterprise. This is far too broad an aim to be useful. However, a defined aim, such as “generating a 15% after-tax return on investment, maintaining an annual growth rate of 5%, and providing meaningful employment for family members,” will be extremely beneficial in guiding and analyzing day-to-day decisions.

The procedure for determining decisions:

The decision-making process is basically a logical approach for finding, analyzing, and solving an issue. This can be done in a formal way, with many people involved in its many elements, working for weeks or months on study, spending a lot of money, and publishing extensive papers outlining potential solutions. Alternatively, the process can take place informally over coffee in a matter of minutes with no written report at all. The more serious the matter, the more probable it is that the procedure will be codified. In any case, successful decision-making is a methodical process that includes several critical features and processes.

The decision-making process includes three key aspects. First and foremost, decision-making is based on facts. The decision-making process becomes more complicated since there is less relevant, factual information available. Second, decision-making requires an examination of this factual data. Analysis might be a highly rigorous statistical approach involving enormous computer spreadsheets, or it can simply be a process of logical thought. In either situation, making a decision necessitates a thorough assessment of the facts. Finally, the decision-making process necessitates a subjective assessment of the circumstance based on experience and common sense. Although it is theoretically conceivable to be entirely mechanical in the decision-making process, there are rarely, if ever, enough facts or resources or time to fully examine the problem. Human judgment is an essential component of professional decision-making.

With these three aspects in mind, consider the steps involved in decision-making:

Problem Identification: This is frequently the most difficult aspect of decision-making. It’s easy to mix up symptoms and the true issue. The issue may appear to be poor profitability, but this is simply the outcome of an inefficient, high-cost distribution system. When a problem is well stated, it is usually easier to address.
Facts summary: This step brings to the surface and emphasizes information relevant to the problem and its solution. It may be important to indicate overarching company goals, the impact of the problem on the business, environmental conditions restricting feasible solutions, or technical facts influencing the conclusion.
Identifying alternatives: This process discovers and lists viable alternative solutions, allowing you to explore numerous options. Only viable alternatives should be evaluated.
Analysis: This phase may necessitate a thorough assessment of the costs and benefits of each possibility. The analysis takes into account both short-term and long-term organizational objectives. Despite the fact that the study should be objective, the final selection process should contain some subjective assessment of options.
Action: Implementing the chosen option is one of the most important elements in the decision-making process. This frequently necessitates considerable thought prior to implementation, but it is an essential step. Management responsibility is more than just making decisions; it also necessitates execution and results.
Evaluation: The final phase in this procedure takes place after action has been taken. Management must determine whether or not the action done benefits the company. If the situation has improved, there is no need for additional action. However, if the action done does not produce the anticipated results, management must repeat the process and look for new action possibilities.

Instruments for making Decisions:

There are many tools available for examining options and making management decisions, and the number is continually increasing. Some of these tools are complicated, while others are straightforward.

The decision-making process as outlined is a decision tool in and of itself. However, volume-cost or breakeven analysis is one of the more essential decision tools utilized by agribusiness managers. This is because most food and agricultural enterprises require significant capital inputs in land, plants, and equipment. Because the food and agricultural industries are so seasonal, such big investments in many enterprises can only be utilized for very short periods of time, such as planting or harvesting. The industry’s capital-intensive nature stresses the necessity of investment decisions and the optimal use of fixed assets.

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