Risk is a difficult and tricky concept to address because the ideas are challenging and the breadth of solutions is wide. Even where the concepts are well understood, few have mastery of the tools and skills needed to properly evaluate alternatives. Sophisticated approaches are available for specific applications, particularly where detailed data have been collected over long periods of time, e.g. stock markets, the insurance industry and the like. Application of risk analytics that are understandable and easily applied by managers of commercial agricultural businesses are few.
RightRisk has been involved in developing teaching simulations, online courses, and risk decision tools since 2001. The team’s Risk Scenario Planning (RSP) tool provides farm and ranch managers much-needed assistance in evaluating risk management alternatives. RSP utilizes a partial budgeting framework to evaluate proposed changes, including: added returns; reduced costs; added costs; or reduced returns. From these, the net financial benefit of making a change may be calculated.
Partial budgeting provides a useful approach for evaluating changes. However, it is not especially helpful in evaluating the impact of risks that may be involved. The RSP tool offers users a chance to evaluate risk scenarios by varying up to two factors. It describes possible outcomes using a cumulative distribution graph that indicates the probability of earning a net return at or below a given value. Volatility in today’s agriculture and global economy offers ample opportunity for application of the RSP tool and RightRisk Analytics for real-time risk analysis.