Filtering Information for Decisionmaking

Dane and Kim Mercer from Monroe County, TN, discuss the probable economic consequences of a major management decision with Bob Sliger, Extension Leader, and David Perrin, area farm management specialist (Photo by Nancy C. Cann, University of Tennessee)

Farmers and ranchers are bombarded with information. Filtering information is a process for determining which information is worth further consideration. It includes deciding which newspapers, magazines, bulletins, and "junk" mail to read, and what to throw away. Filtering information guides managers in using their time and resources to attend educational meetings, observe practices of farmers and ranchers, and participate in other information gathering activities.

Decisions must frequently be made with incomplete knowledge. Major sources of uncertainty include technological developments, weather, market conditions, and policy issues including Government programs and changes in fiscal and monetary policies. These factors and others interact, increasing risks. These uncertainties underscore the need for filtering information and improving decisionmaking.

How a farm manager decides which information to use is a complex and individual process. There is no single or "best" way to filter information. How-ever, there are certain factors that should be considered when making decisions and several tips for filtering information that can lead to improved decision-making.

Internal and External Decisions

The personal nature of decisionmaking is vividly illustrated by what constitutes an important decision for a farm family. The classification of a decision as important or unimportant is influenced by a farm family's goals. Goals are, in turn, influenced by the life cycle of the farm business. Is the manager starting, expanding, consolidating, or transferring the business to another generation?

Some managers are innovators and early adopters of technology. While some are content with "just getting along," others are attempting to maximize their net income. The importance of information and decisions will vary considerably among these individuals.

Many decisions are external to the business. As a farm manager, you should realize you have no control over some of these decisions. Concentrate on the impact these decisions will have on your business, and explore the probable consequences of alternative responses to the decisions.

Analyze Your Decisions

Decisions can be classified in many ways. Emery N. Castle and Manning H. Becker, in their book Farm Business Management, classified decisions commonly faced by managers according to importance, frequency of occurrence, urgency of action, flexibility, and available alternatives.

What difference will it make if the decision is made one way or the other? There are $10, $10,000, and $100,000 decisions. Managers should allocate their time in filtering information concerning these decisions in terms of the relative importance. For example, a decision on whether to produce one crop or another is relatively more important than deciding which recommended variety of a given crop to plant.

Some decisions are made only once or twice in a lifetime. Other decisions are made daily. Certain daily decisions, such as what and how much to feed livestock, can become routine. By developing a feeding program and continuing with it until changes are needed, the number of daily decisions can be reduced. This simplifies filtering information for decisionmaking.

However, simplification does not reduce the importance of feeding decisions. The decision for a given day is not extremely important. However, the cumulative effect of the decision is extremely important. It could easily determine the level of success of the farming operation. Farmers and ranchers should evaluate options carefully before developing the overall feeding program and monitor the three or four key factors which could justify changing the program.

Some decisions are more flexible than others. Once some decisions have been made, it can be expensive to change them. For instance, if a farm family decides to start or expand an enterprise requiring relatively expensive specialized buildings, it can be costly to reverse the decision. Generally speaking, these structures add far less to property values than their cost. This does not necessarily mean that these structures should not be built. However, pay specific attention to filtering information and determining the true goals of the family. The value of the structure will normally need to be "farmed out" of the operation. If individuals decide to simply try out an enterprise requiring specialized structures, and then decide to discontinue their use within a short period of time, the family can lose more money on the reduced value of the structures than many families expect to accumulate over a lifetime. Always consider what it will cost to reverse a decision.

Some decisions have only two alternatives. Others may have many alternatives. To properly filter information, the number of alternatives to be considered for detailed analysis should be tentatively reduced to a manageable number. When filtering information for an excessive number of alternatives, it is possible to get confused and lose sight of the decision that must be made.

Filtering Information

Decisions are made on the basis of logic, custom, habit, hunch, or just on what the manager wants to do. Probabilities for financial success are greatly improved when logic is used for decisionmaking. Excellent farm management planning tools are available to help the farm manager in applying logic to decisionmaking. However, you must obtain and evaluate relevant information. This requires time and additional resources. Planning tools such as record analysis, budgeting, and whole farm planning provide a framework for obtaining the full value from information available to the manager. Likely outcomes from alternative decisions can be evaluated, and decisions made, in light of the family's goals and objectives.

Recognizing the need for information usually means the manager is concerned about a particular problem. Problem recognition is not automatic. For example, low net farm income is often identified as the problem when in reality it is a symptom of another problem on the farm or ranch.

A wealth of information is available within and outside an existing farm or ranch business. Financial and production records internal information are among the best sources of information within the business and can serve as a tool for filtering information from outside the business external information.