Within any business or supply chain, there are going to be risks that come along with it. It is crucial to be able to recognize potential risks and have a plan ready to effectively reduce and manage them. Market conditions, weather conditions, meat supply or quality, and the economy all play large roles in the unpredictability of the cattle industry. These conditions act as risks in the industry because they can hinder the opportunity for goals to be achieved, which may result in profit loss.
In a Harvard Business Review: Managing Risks: A New Framework, Robert Kaplan and Anette Mike provide their insight and feature information about the importance of practical risk management and explain how a business can identify and understand their risks.
Practical risk management is known as the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. The two authors organize different types of risks into three categories: preventable risks, strategy risks, and external risks. These three types of risks should be highly considered in the cattle industry because they give perspective on where changes need to be made and monitored.
Preventable risks are internal risks that are controllable and should be avoided or eliminated. This category can be prevented by monitoring operations and by driving the behaviors of those involved in the operations, towards the desired set of norms or expectations. Examples in the cattle industry are production risks, equipment risks, and financial risks. Production risks have a range of possibilities. Major sources of this type of risk may include pests, diseases, overall animal health. Each of these sources affects the quantity and quality of production, so it is important to maintain and avoid them at all costs.
Equipment and machinery pose risks in cattle-ranching operations as overloaded or faulty equipment can result in accidents that can cause major damages to the equipment itself, livestock, or even the individuals working with the equipment. By actively monitoring and establishing a maintenance schedule on equipment or machinery, there is a reduced chance of these risks occurring.
Finances should also be monitored regularly. Actively monitoring finances in your operation is a beneficial way to mediate financial risks. These risks are harmful to operations due to the chance of losses on business ventures or investments, which results in loss of capital for the operation.
Strategy risks are undesirable risks that cannot be managed through a rule-based approach. These risks typically arise from a fundamental decision that management within an industry or business takes about specific business objectives. Within the cattle industry, the implementation of new processing and production efforts would be considered a strategy risk because they pose a risk to the company or industry and could potentially affect the outcomes of the operation. An example of a strategy risk within this industry specifically would be cattle theft. In a previous blog post, we touched on the different ways that cattle theft occurs and discussed how theft can be minimized with the use of our ranching technology. Cattle theft can be maintained and reduced by implementing our GPS livestock devices into your herd to actively monitor each animal while consistently being aware of their whereabouts.
External risks are risks that are brought about from outside events that the company has no control over. In the cattle industry, market or political risks would be external risks. Price risks, agricultural policy, supply and demand risks, or tax policies are all examples. Since the industry has no control over this type of risk, they must focus their efforts on actively identifying the risk and attempt to alleviate the negative consequences. A prevalent example of an external risk that no industry was prepared for is the COVID-19 pandemic. Within the cattle industry specifically, the market has been negatively impacted due to changes in beef prices, input costs, distributions in the supply chains, shortages in the workforce, and changes in supply and demand due to shutdowns/shock, whic