Abilities: The abilities are availability, reliability, and maintainability.
Accountability: Being answerable for the completion of certain tasks.
Accounting values: Values of assets, incomes, costs determined by standard rules of accounting.
Actual cash flow: The cash flow that happened in reality. An actual cash flow is made after the time period is over and once the prices, quantities, and other cash flows are known with certainty.
Amortization: Allocation of a loan (or other value) over a specified number of periods and, at the same time, accounting for any interest that may also accrue.
Annuity: A series of uniform, periodic payments received (or paid) for either a fixed number of periods or in perpetuity.
Authority: The right and power to command, use, access, and so on.
Average income or expense value: Value per unit (acre, bushel, head, for example).
Bailment: A contract in which someone is entrusted with the possession of another's property, but has no ownership interest in it.
Balance sheet: Table that shows the value of assets, amount of liabilities, and a farm's net worth at a certain point in time.
Benchmarking: Identifying the best and then comparing costs and physical efficiencies between farms.
Budget: Projection of future income and expenses; used for planning.
Business life cycle: The stages that a business goes through from its beginning entry or establishment, through growth and survival, to exit or disinvestment.
Business model: A plan of how the business expects to make money.
Business plan: A structured statement of a business’ strategic plan, marketing plan, production and operations plan, financial plan and statements, and organization and staffing plan.
Business organization: Both (1) how a business is organized in terms of how owners, managers, and workers relate to each other and (2) the legal form of organization (i.e., sole proprietorship, partnership, corporation, or cooperative).
Capital: Simply put, capital is money. Capital is one of the three main broad inputs for business; the other two are land and labor.
Capital asset: An asset that is not expected to be used up during production and thus has a multi-year useful life.
Cash cost or income: A cost or expense that involves an actual cash transfer.
Cash flow budget: A statement of cash inflows and cash outflows.
Cash flow deviations: Differences between the projected cash flow and the actual cash flow.
Cash flow management: Managing the flow of cash in and out of a business and analyzing when cash is needed and available for paying farm expenses, loan payments, and living expenses, for example.
Cash flow statement: Statement that shows the annual flow and timing of cash coming in and out of a business.
Cash rent: A fixed amount of money paid by the tenant to the landowner for the use of the land and(or) buildings.
Cause-and-effect diagram: A diagram that shows a problem or opportunity and the potential causes for the problem or opportunity.
Check sheets: Forms that merely require a check made in the appropriate column or spot to indicate the frequency of certain events that relate to quality or process characteristics.
Compensation: The payment or reimbursement to a worker for performing the tasks assigned.
Competitive advantage: Having a profit rate higher than the industry average.
Competitive forces: The forces that affect the level of competition within an industry.
Compounding: The mathematical process of calculating the future value of a known, present value. Interest is calculated on both the original amount and any accumulated interest.
Contract: An agreement between two or more persons or parties to do or not to do something.
Contractee: In common agricultural use, usually thought of as the person or party who does the work of producing the product or providing the service to the buyer, that is, the company or processor. (Contractee is not always commonly used. In other usage, a contractor is the one who does the work. So care must be taken to understand who or what the word refers to in the specific situation involved.) See Contractor.
Contractor: Usually thought of as the buyer in common agricultural use––that is, the company or processor who contracts with the seller, typically a farmer, to grow, raise, or provide a specific product or service. (In other usage, a contractor is the one who does the work. So care must be taken to understand who or what the word refers to in the specific situation involved.) See Contractee.
Controlling: Comparing actual results with goals and objectives and taking corrective actions, if needed.
Conviction weights: Weights or scores based on our personal, subjective opinion as to whether a certain event will occur.
Cooperative: An enterprise collectively owned and operated for mutual benefit.
Corporation: A group of persons granted a charter to form a separate entity having its own rights, privileges, and liabilities; a corporation is usually formed to operate a business.
Cost center: An enterprise that incurs costs, such as land ownership.
Costs of quality: Costs that are associated with not meeting the customer's requirements.
Counterparty risk: The risk that the other party in a contract will not perform according to the standards and expectations of the contract.
Crafting strategy: The managerial process of deciding how to achieve the targeted results within the farm's physical and economic environment and its prospects for the future.
Cumulative probability: The increasing probability that a certain event (price, yield, weight, and so on) will occur as the range of possible occurrences increases. The cumulative probability ranges from 0 to 1.
Debt capital: Capital from a liability or other financial obligation on which interest and other fees have to be paid.
Decision criteria: A set of rules that can be used to evaluate the information available and make a decision even though the end results are not known with certainty.
Decision-making: The process of gathering information, analyzing alternatives, and choosing the best alternative.
Diagnostic analysis: The process of identifying problems behind the symptoms and identifying potential solutions.
Direct costs: Costs that are used directly by a specific enterprise.
Directing: Coordinating resources, directing and scheduling activities, and managing personnel.
Discounting: The mathematical process of calculating the present value of a known, future value by subtracting potential interest. Discounting is the opposite of compounding.
Dispatching: Deciding which jobs or tasks need to be done next.
Dominate economic traits: Those economic traits or characteristics that drive and affect an industry and the firms within that industry.
Economic engineering: Use of data from manufacturers, university reports, and other sources to prepare a budget (instead of allocating whole-farm records).
Economic environment: All the external factors that affect the economic decisions and results on a farm. These factors are grouped into four areas: resources, markets, institutions, and technology.
Economic profitability: An investment's ability to return a reasonable profit on the initial investment. It is evaluated in one of three ways: the payback period, net present value, and internal rate of return.
Economic values: Values that take into account cash values, non-cash values, opportunity costs, and other methods not included in standard rules of accounting.
Employee: A person hired to do certain tasks for a business or organization.
Employee needs: Responsibility, authority, accountability, and compensation.
Enterprise: A common name for any activity, such as corn, dairy, or machinery.
Enterprise budget: A statement of what is expected if particular production practices are used to produce a specified amount of product.
Enterprise selection: The process of choosing enterprises or products for a farm.
Entry or establishment stage: Stage at which a business is started and established on a stable foundation.
Equity capital: Capital from the owner(s) of the business as well as from partners and other investors.
Exit or disinvestment: Planning for and reaching retirement through sale and transfer of resources and responsibilities.
Expense: A charge that is made, or is expected to be made, in return for receiving a product or service.
External analysis: Looking outside the firm; studying the forces operating in the general economy and in the industry to which the firm belongs.
Fail-safe plan: A process and product design tool that looks for ways to eliminate the possibility of problems or mistakes occurring.
Financial analysis: Evaluation of a farm's financial health––that is, its financial position and performance––on the basis of its profitability, solvency, liquidity, repayment capacity, and financial efficiency.
Financial condition and performance: An evaluation of a farm's profitability, solvency, liquidity, repayment capacity, and efficiencies.
Financial control: The process of determining and implementing the necessary actions to make certain that financial plans translate into desired results.
Financial efficiency: The ability to use financial resources and expenses well to produce profit.
Financial feasibility: An investment's ability to generate sufficient cash flow to cover any debt incurred to make the investment.
Financial management: The process of obtaining, using, and controlling the use of capital, both cash and credit.
Financial objectives: Targets established for the farm's financial performance.
Financial performance: The financial results of decisions over time.
Financial position: The financial resources controlled by a farm and the claims against those resources.
Financial risk: Financial risk has four components: (1) the cost and availability of debt capital, (2) the ability to meet cash flow needs in a timely manner, (3) the ability to maintain and grow equity, and (4) the increasing chance of losing equity by larger levels of borrowing against the same net worth.
Financial statements: Reports that organize a farm's financial information into four main parts: income statement, balance sheet, statement of cash flows, and statement of owner"s equity.
Fixed cost: A cost that occurs no matter what or how much is produced.
Functions of management: Planning, organizing, directing, and controlling. (Compared to the functions of business: production, marketing, finance, personnel, and so on.)
Gantt chart: A chart showing (1) when jobs are to be done, (2) who is doing which jobs, and (3) which equipment is being used on which jobs, by whom, and on which days.
GIGO: Garbage in, garbage out.
Gross margin: Gross income minus variable costs.
Growth and survival stage: Improving and expanding the resource base and income generation while protecting the business from the risks in its economic environment.
Hazard Analysis and Critical Control Point (HACCP, pronounced “hassip”): A system to monitor and reduce contamination through preventive and corrective measures instituted at each stage of the food production process where food safety hazards could occur.
Human resource risk: Disruption in the business due to death, divorce, injury, illness, poor management, improper operation and application of production and marketing procedures, poor hiring decisions, improper training, and so on.
Income: A value that is received, or expected to be received, in return for providing a product or service.
Income capitalization: The value of real estate estimated as the present value of the future stream of income due to the productive capability of that real estate.
Income statement: Financial statement that reports income versus expenses for a specific period of time.
Information: Processed, interpreted data.
Initial analysis: A first-time analysis of a farm with the assumption of having no previous knowledge of the farm.
Input supply management: The process of identifying the quantity, timing, and source of the inputs needed to meet production output plans.
Internal analysis: Looking inside the firm; evaluating a farm's strengths, weaknesses, competitive capabilities, and its past and potential condition and performance.
Internal rate of return (IRR): The discount rate that sets the net present value of the investment to zero.
Interval probability: The probability or chance that a certain event (such as the actual price or yield being within a certain interval) will occur. An interval probability will range from 0 to 1. The sum of all the interval probabilities for a certain event will equal 0.
ISO 9000 standards: A set of guidelines (developed by the International Organization for Standards) on how to set up and operate a management system to ensure that products conform to the customer's requirements.
Job design: The process of developing jobs by combining tasks that are complementary to each other and interesting to the worker.
Legal risk: Unknown and unanticipated events due to business structure and tax and estate planning, contractual arrangements, tort liability, and statutory compliance, including environmental issues.
Liquidity: The ability of the firm to cover debt during the next 12 months from short-term assets, measured at a certain point in time.
Long-range objectives: The results to be achieved either within the next three to five years or else on an ongoing basis year after year.
Long-run: A planning horizon that is more than one year and probably many more years.
Low-cost strategy: The strategy of being the low-cost producer.
Macro environment: The four dimensions of macroeconomics: social, demographic, and the political and legal environments.
Macroeconomics: The study of economy-wide issues, including economic growth, inflation, changes in employment and unemployment, trade with other countries and the balance of payments, monetary and fiscal economic policy, the role of central banks, and so on.
Management: Making and implementing decisions that allocate limited resources in ways to achieve an organization's goals as best as possible.
Management by exception: Setting rules on what size of deviations need management's attention. These rules can be in terms of absolute deviations or percentage deviations.
Marginal input cost: The cost of an additional unit of input.
Marginal product: The product received due to an additional unit of input.
Marginal return or cost: The additional return or cost resulting from an additional unit of output.
Market pull: Make what one can sell; see the need and then fill it.
Market niche strategy: The strategy of producing a specialty product for a specific market.
Market value: The value or price assigned to real estate by the marketplace.
Market-specific production contract: A contract (also referred to as a sales contract) in which the farmer agrees to produce a specific crop or livestock and to sell the product at harvest to the contractor.
Marketing risk: Not knowing what prices will be. Unanticipated forces, such as weather or government action, can lead to dramatic changes in crop and livestock prices.
Maslow's seven basic human needs: Physiological, safety, belonging and love, esteem and self-esteem, self-actualization, cognitive understanding, and aesthetic needs.
Maximin: A decision criteria that chooses the action that, after identifying the minimum return of each possible action, has the largest minimum return. In other words, it chooses the maximum of the minimums.
Microeconomics: The study of the behavior of individual persons, individual businesses and organizations, and the markets they participate in.
Minimax: A decision criteria that chooses the action that, after identifying the maximum regret of each possible action, has the smallest maximum regret. In other words, it chooses the minimum of the maximums.
Mission: A firm's definition of its current business directions and goals; it indicates what a farm is trying to do for its customers.
Modified internal rate of return (MIRR): A modification of the IRR to account for the assumption that all returns are reinvested at the same rate of return that the original investment is providing.
Moral risk: Devious and less-than-truthful behavior by individuals and other companies as well as corrupt and criminal behavior.
Net present value (NPV): The sum of the present values of future after-tax net cash flows minus the initial investment.
Non-cash cost or income: A real income or cost that does not involve a transfer of cash, such as depreciation and intra-farm transfers between enterprises (corn to livestock, for example).
Opportunity cost: The net value that could be received from the best alternative use of a resource.
Organizing: Acquiring and organizing the necessary resources to carry out the business’ plan.
Overhead costs: Costs that are hard to assign directly to a particular enterprise.
Partial budget: Estimate of the net effects of only what changes in the business.
Partnership: Two or more parties who have joined to operate a business.
Payback period: The number of years required to recover the initial cost of the investment. The payback period can be estimated using either discounted or undiscounted future after-tax net returns.
Payoff matrix: A table of potential returns or payoffs that could be obtained if certain actions are taken and certain events occur.
Personal service contract: A contract (also referred to as a resource-providing contract) that specifies that the producer is to provide services, not commodities, to the contractor.
Planning: Determining the intended strategy and course of action for the business.
Political risk: Disruption in plans due to changing policies, both governmental and institutional (such as lending policies at a bank).
Porter's five forces: Five forces that shape the competitiveness within an industry. They are risk of entry by potential competitors, rivalry among established farms, bargaining power of buyers, bargaining power of suppliers, and substitute products.
Process: A series of actions designed to bring about a particular result.
Process control: The procedures used to monitor production for compliance with the original plan, and development of corrective actions designed to bring the process back into compliance.
Process design: Specifications for the inputs, actions, methods, jobs, machines, and steps to be used in the production process.
Process improvement: understanding the current process better and looking for potential ways to improve both the process and the product.
Process map: A description of a method or process of accomplishing a task.
Process quality: (1) How well a process produces a product within specification given by the consumer and (2) how well the process performs for the producer.
Product development: The process of choosing the specific characteristics of the items that could be produced.
Product quality: The extent to which a product meets the specifications given by the customer; it's “fitness of use.”
Production contract: An agreement between two or more persons or parties to produce a specific product or provide a specific service.
Production risk: Not knowing what actual production levels will be. The major sources of production risk are weather, pests, diseases, technology, genetics, machinery efficiency and reliability, and the quality of inputs.
Production-management contract: A contract used when the seller (i.e., farmer or producer), through production decisions, can affect the value of the product to the buyer (say, a vegetable or meat processor or seed company) or when the seller, through marketing decisions, can affect the value of the product to the buyer.
Profit center: An enterprise that brings in income, such as soybeans or hogs.
Profitability: The ability to produce a profit over a period of time.
Projected cash flow: An estimate of what the cash flow may be for a future period of time. A projected cash flow or cash flow budget is made with information available before the time period under consideration.
Quality: The extent to which customer requirements are met or exceeded.
Quality control: The steps taken to control the already selected production process for the products already chosen and designed. Two major parts of quality control are process control and process improvement.
Quality management: A holistic view of the entire production process from initial design through input purchases and actual production to the service supplied after production.
Quality of conformance: How well the production process has done in producing a product that meets the specifications of the design.
Quality of design: The extent to which the product design meets consumer needs and wants.
Real estate: Landed property; usually referring to the land plus buildings and other improvements such as drainage tile, waterways, fences, and so on.
Regret matrix: A table of potential regrets for having chosen a certain action instead of having chosen any other alternative action. A regret matrix is calculated from a payoff matrix.
Repayment capacity: The ability to cover cash outflow from cash inflows over a period of time.
Resource-providing contract: A contract (also referred to as a personal service contract) that specifies that the producer is to provide services, not commodities, to the contractor.
Responsibility(ies): The duty(ies) or task(s) that a worker is obligated or expected to do.
Risk: The outcome of events is uncertain, but we know all the possible outcomes and the objective probability of each outcome occurring.
Safety-first rule: A decision criteria that first eliminates all possible actions that violate some safety-first imperative (such as, “no losses”) and then chooses from the remaining actions using a decision rule such as the maximum expected return.
Sales contract: A contract (also referred to as a market-specific production contract) in which the farmer agrees to produce a specific crop or livestock and to sell the product at harvest to the contractor.
Scenarios: Descriptions of different views or possibilities of what the future may be like.
Scheduling: Deciding what activities are to be done, when they will be done, who will do them, and what equipment will be needed.
Sequencing: Specifying the exact order of operations or jobs.
Service after delivery: The warranty, repair, and replacement after a product has been sold.
Share rent: A percentage of the physical yield that the landowner receives in return for allowing the tenant to use the land. The value of the physical yield received by the landowner will vary with the price of the product. The landowner usually pays some of the production costs as well as receiving part of the yield.
Short-range objectives: The organization's near-term performance targets; the amount of short-term improvement signals how fast management is trying to achieve the long-range objectives.
Short-run: A planning horizon of one year or less.
Simple rate of return (SRR): The average annual net return divided by either the initial investment or the average investment.
Sole proprietorship: A business owned by one party.
Solvency: The ability to pay off all debts at a certain point in time.
Sparse data method: A method of estimating probabilities using only a few observations.
Stakeholders: The people, businesses, and institutions that have a claim or interest in the farm.
Strategic control: The process of monitoring a farm's strategic performance and its external environment and making adjustments in the strategy and its implementation as needed to accomplish the farm's objectives and vision.
Strategic objectives: Targets established for strengthening the farm's overall position and competitive vitality.
Strategic plan: A statement outlining an organization's mission and future direction, near-term and long-term performance targets, and strategy.
Strategic planning: The process of identifying stakeholders, objectives, vision, and mission; developing internal and external analysis; crafting strategy.
Strategy: The pattern of actions managers employ to achieve organizational objectives.
Strategy implementation: The full range of managerial activities associated with putting the chosen strategy into place, supervising its pursuit, and achieving the targeted results.
Structural change: Changes in the makeup of an industry: the number, size, and geographical location of buyers, suppliers, processors, producers, and all other firms as well as the physical, legal, and social network of connections between the firms in an industry.
Sunk costs: Variable costs that have become fixed once they have been used or committed to use.
SWOT analysis: A procedure that develops and analyzes a firm's strengths, weaknesses, opportunities, and threats.
Technology push: Sell what one can make; make it and then figure out how to sell it.
Time value of money: The value that money has by being used over time.
Total income or expense: income or expense summed over an entire farm or enterprise.
TQM, total quality management: A management philosophy that strives to involves everyone in a continual effort to improve quality and achieve customer satisfaction.
Trend chart: A running plot of measured quality characteristics: stored grain moisture, pigs born per litter, milk per cow per day, acres per day, bacteria or somatic cell counts, and so on.
Triangular distribution: Estimation of probabilities using only three values: most likely, lowest, and highest.
Uncertainty: The state in which we know some (or maybe all) of the possible outcomes of an event, but we cannot quantify the probabilities.
Value of additional product: The value of the marginal product.
Variable cost: A cost that changes as the volume of business changes.
Variable or flexible cash rent: Payment arrangement in which the landowner receives only cash, but the amount paid each year can vary due to changes in the physical crop yield, the productivity of the animals, or the market price. The entire payment may be variable or there may be a fixed base cash rent plus a variable portion.
Vision: The picture of what the stakeholders want the farm to look like in the future; a view of an organization's future direction and business course; a guiding concept for what the organization is trying to do and to become.
Whole farm: All of the enterprises on a farm.
Whole-farm budget: A summary of the major physical and financial features of the entire farm.
Workforce: The people who work for a business, farm, or any organization.
Economics of Farm Management in a Global Setting, Wiley 2010