About Risk Management

In its simplest form, risk is defined as the uncertainty of an outcome with potentially undesirable results¹.

Risk management is the process of identifying, evaluating, and understanding risk in a manner that helps a person or group achieve the goals of their enterprise or project and is designed to reduce or eliminate the risk of certain kinds of events from happening or having an undesirable impact.

Risk(s) can impact:

• Individuals,
• Households,
• Any type of business, and of course,
• Farm operations.

“There are known knowns; there are things we know that we know.
There are known unknowns; that is to say there are things that, we now know we don’t know.
But there are also unknown unknowns – there are things we do not know, we don’t know.”

United States Secretary of Defense, Donald Rumsfeld (February 2002)

While these infamous words were largely scorned at the time, they do lay out in a strategic manner what needs to be considered when thinking about, or anticipating, future events; this is regardless of whether the planning is to mitigate the negative impact of urban expansion next to a farm, or to seize a market opportunity by adding a processing facility. Thinking strategically is no less different for agriculture than for the military.

A framework for categorizing the future in terms of farm management would be comprised of

1. Known Knowns,
2. Known, Unknowns, and
3. Unknown Unknowns.

1- Aumell, Robert G., 2004. “Managing Farm Business Risk,” CFBMC, Ottawa, ON.

2- Adapted from http://www.whatisriskmanagement.net

3- Farm Management Canada, May 2012. “2020: Planning for the Business Management Needs of Canadian Farmers.”

4- Brinkman, George L., 1998. “Comprehensive Risk Management for Canadian Agriculture”, CFBMC, Ottawa, ON.

5- Ibid

6- Despite Record Profits, Farmers Need to be Diligent and Track Costs, Know Breakeven”. Quoting Dr. Steve Johnson, Farm & Ag Business Management Specialist, Iowa State University Extension & Outreach. cornandsoybeandigest.com, June 2012.

7- Jan Shepel, March 8, 2012. “Risk management plan should include assessing farm partner's personalities.”

8- Aumell, Robert G., 2004. “Managing Farm Business Risk”, CFBMC, Ottawa, ON

9- Ibid

10- RightRisk Education Team: Colorado State University & University of Wyoming, University of Arizona, University of Idaho, Montana State University, University of Nebraska, Oregon State University and Utah State University Extension, “Risk Preference Calculator.” http://www.optimalag.com/risknavigatorsrm/toolbox/RiskPreferenceCalculator/default.aspx

11- J. E. Grable and R. H. Lytton, 1999. “Financial risk tolerance revisited: the development of a risk assessment instrument.” Financial services review 8 (3), 163-181

12- Adapted from Wikipedia. Retrieved August 10 2014, from http://en.wikipedia.org/wiki/Insurance