How we approach decision-making can be the difference between managing a profitable farm business and struggling.
Decision-making ... data-backed logic or a toss of the coin?
We live by ‘rules of thumb’ and make decisions by ‘gut feel’, but are these the most legitimate ways to make decisions on-farm?
How do you make decisions?
This is a topic that few people think about and yet effective decision-making is crucial to managing a farm business.
Bill Long, principal consultant with Ag Consulting Co, has considerable experience assisting growers with making decisions and has studied the principles of decision-making. Mr Long believes it is important to understand how we make decisions and therefore how we can make better decisions for our farming businesses.
Rational decision-making can be described as an eight-stage process (Figure 1).
This process begins with identifying the problem, steps through a number of stages to generate and assess alternatives, and finishes with implementing and then evaluating the decision. It generally describes logical decision-making that is used in corporate circles and the scientific sector.
However, even when making a conscious effort to make decisions using a rational process, there is often a practical need for growers to simplify assumptions and accept limits on the availability of information and depth of analysis.
As a result, Mr Long says growers are more likely to use intuitive thinking approaches, taking into account a wide range of variables in the decision-making process. There are many management and logistical factors, as well as personal influences from family members and individual needs, which affect the decisions made by growers. This intuitive thinking approach, often called ‘gut feel’, goes beyond the rational decision-making process and uses a combination of intuition, analysis and rules of thumb to make decisions (Figure 2).
Most decisions are made intuitively without thinking much about the decision-making process. Mr Long explains that intuition is influenced by a variety of human factors such as values, beliefs and stage of life. These human factors are then blended with hands-on experience to form the intuitive part of the decision-making process.
It is this intuition that allows growers to make decisions quickly because it bypasses the longer rational decision-making processes. However, a person’s intuitive skills and thought process depend on their knowledge and past experience, explains Mr Long. Therefore, the more experience, reading, discussion and thinking about a particular subject a person has done, the better that person’s intuition.
Mr Long also says that while intuitive decisions might not always result in optimal outcomes, they usually feel right and generally satisfy emotional drivers and the passion that lies within the decision-maker.
An example of intuitive decision-making is the application of nitrogen with rainfall events. After a run of good seasons from the late 1990s to 2001, most applications of nitrogen resulted in a positive growth response and economic return. Growers began thinking ‘if it rains, I will get a positive response to nitrogen application’, with confidence exaggerated by large responses in the 2001 season. As a result, during the 2002 drought, despite the fact that there was no subsoil moisture mid-season, a single rare and small rainfall event triggered many growers to apply nitrogen expecting the crops to respond as previously.
Decision-support tools, logic and reason also play a role in the analytical part of the decision-making process. Decision-support tools are most likely to be adopted when they provide a learning experience that leads to a solution to an immediate challenge, Mr Long says. Analytical tools assist in providing some learning about a specific complex issue, resulting in a higher level of understanding than before. After the understanding has been improved through repeated use of the tool, the problem is no longer complex and the user reverts to a rule-of-thumb method.
Rules of thumb
Rules of thumb are constantly used to simplify the decision-making process. Growers, like any decision-makers, do not have endless resources or time to devote to gathering and analysing information. Rules of thumb are essential in decision-making processes to simplify everyday decisions and avoid sometimes complicated and time-consuming analysis and information gathering. They guide everyday actions and are used in all aspects of business and personal decision-making.
However, Mr Long warns that rules of thumb are not always appropriate. He suggests it is worth challenging and refining rules of thumb as they can constrain thinking and sometimes limit potential outcomes.
This is not as easy as it sounds because most decisions are made subconsciously or intuitively. Growers should ask ‘where did that rule of thumb come from?’ and consider analysing or recalibrating the rule to improve potential outcomes of future decisions. This is when a trusted adviser can sometimes provide assistance.
A farm consultant with Farmanco Pty Ltd, Ian Gibb, suggests good farm managers appear to have a mysterious capacity to make ‘best-bet’ decisions and implement them in a timely way. On closer analysis they actually follow rules to achieve their success, Mr Gibb says.
Mr Gibb describes some of the rules as follows.
- Identify critical variables and do not be distracted by non-critical variables. Experience, observation and a comprehensive ‘world view’ contribute to identifying the key variables quickly.
- Listen to the experts and their information, but do not follow them blindly as the experts may only see part of the big picture.
- Act quickly and decisively, as more often than not the good options disappear quickly.
- Make near-ideal decisions rather than over-analysing the situation, which can result in missing an opportunity that depends on getting the timing right.
- Recognise that luck and timing, which are largely outside your control, are important to good outcomes.
- Be resilient in adverse conditions. When you are passionate about what you do you will be more resilient.
Mr Gibb says that due to the unpredictable nature of the environment in which growers work, it is impossible to make the best or most profitable decision every time. A decision that turns out as such is therefore a ‘best-bet’ decision with the wisdom of hindsight.
When making decisions, it is important to know when it is time to act. Growers will not always have the opportunity to collect and analyse all information, and so must have the confidence to know when to be decisive. As in many pursuits, including sport, timing is critical.
Remember to think about how – rather than why – decisions are made. Sometimes growers will need to reason through the options and carefully analyse the possibilities, and at other times they will need to listen to their intuition or gut feel.
Figure 1 The rational decision-making process
Figure 2 How we make decisions. Grower decision-making in rain-fed farming systems – the role of consultants, farming systems groups and decision-support systems in Australia.
SOURCE: Long, W. and Cooper, I. 2011
Bill Long, Ag Consulting Co
0417 803 034
Ian Gibb, Farmanco Pty Ltd
Next: Industry making sure-footed progress, survey shows
Previous: Decision time and the battle between ‘gut feel’ and data
GRDC Project Code