PR - RISK SCENARIO PLANNING
United States farm policy enacted since 1996 has created a need for agricultural producers to better understand and manage risk. However, risk is a difficult concept to address because the ideas are challenging and the breadth of solutions is wide. Even where the concept is well understood, few have mastery of the tools and skills needed to properly evaluate alternatives.
RightRisk has been involved in developing teaching simulations, online courses, and risk decision tools since 2001. The team’s recently completed 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.
While partial budgeting provides a useful approach for evaluating changes, it is not especially helpful in evaluating the impact of any risks that may be involved. The RSP tool offers users a chance to evaluate risk scenarios by varying up to two factors. The RSP tool describes possible outcomes using a cumulative distribution graph that indicates the probability of earning a net return at or below a given value.
Keywords: Risk Analytics, Decision Analysis, Farm Management