Goal Setting

Know Your Numbers, Know Your Options Author

06/18/2020 Added

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By Jay Parsons

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[00:00:00.249](contemplative music)
[00:00:09.090]I'm Jay Parsons with Nebraska Extension
[00:00:11.410]and the University of Nebraska Lincoln
[00:00:13.260]Department of Agricultural Economics.
[00:00:15.780]Farmers and ranchers literally make hundreds
[00:00:17.950]of decisions every day.
[00:00:19.570]It's important that all of these decisions
[00:00:21.550]align with the goals and objectives established
[00:00:24.110]for the farm or ranch.
[00:00:26.070]If you haven't established goals
[00:00:27.530]and objectives for your operation,
[00:00:29.590]now is a great time to do so.
[00:00:33.700]Research has shown
[00:00:34.610]that people who set goals accomplish more.
[00:00:37.710]Why is this?
[00:00:39.770]Well, one of the reasons is that a full
[00:00:42.270]and clear set of goals and objectives
[00:00:44.240]is the key to making good decisions more consistently.
[00:00:48.400]There are many reasons why this is true.
[00:00:50.670]Some of them you may not have thought of before.
[00:00:54.490]Of course written goals and objectives keep you on track
[00:00:57.430]and focused on accomplishing things,
[00:01:00.050]but they also help identify decisions that you can
[00:01:03.220]and should be making.
[00:01:05.330]With the goals and objectives a part of your core knowledge,
[00:01:08.450]you are more readily aware of decision opportunities
[00:01:11.100]that help you achieve the things you want to achieve.
[00:01:14.650]In this way, they actually increase the frequency of easy
[00:01:18.480]but productive decisions that you make
[00:01:21.020]in running your farm or ranch business.
[00:01:24.310]A clear set of goals and objectives
[00:01:25.900]also help determine the information you need
[00:01:28.140]to make good decisions.
[00:01:30.030]This is important because we live in the information age,
[00:01:33.250]and it's easy to become overwhelmed
[00:01:35.330]with all of the information that is out there.
[00:01:38.180]Clear goals and objectives
[00:01:39.730]come with measurements of achievement.
[00:01:42.410]They will help point out exactly what it is
[00:01:44.790]that you need to know so you can spend time
[00:01:47.000]on gathering and processing the information
[00:01:49.730]that really matters to you.
[00:01:52.550]Important decisions will contribute directly
[00:01:54.850]to your ability to achieve your goals and objectives.
[00:01:58.410]This connection makes it easy
[00:02:00.030]to determine how important each decision is
[00:02:02.940]and how many resources to put into making it.
[00:02:05.980]If the decision clearly has a minimal effect
[00:02:08.490]on the achievement of your goals,
[00:02:10.320]you don't wanna spend a lot of time and money analyzing it.
[00:02:14.930]In a similar way, having goals and objectives
[00:02:17.680]will speed up the evaluation of your decision choices
[00:02:20.530]when you are making a decision.
[00:02:22.900]You will be more readily equipped to identify poor choices
[00:02:26.070]and eliminate them from your decision set
[00:02:28.690]because you can more readily see
[00:02:30.400]they don't get you where you wanna go.
[00:02:34.370]And perhaps most profoundly,
[00:02:36.240]having a clear set of goals and objectives
[00:02:38.760]will help explain your choices to others.
[00:02:41.750]After making a decision, if someone asks you
[00:02:44.940]why did you make the choice you made,
[00:02:47.100]and you start your answer to that question
[00:02:48.980]with because it will help me,
[00:02:51.450]and end it with a description of one of your goals
[00:02:54.040]or one of your objectives,
[00:02:55.740]then you have reached an important level of accomplishment
[00:02:58.700]toward being a great decision maker
[00:03:00.510]for your farm or ranch business.
[00:03:03.920]To avoid any confusion, let's pause for a moment
[00:03:06.350]to define a few things, starting with attributes.
[00:03:10.410]Attributes are things you value and measure.
[00:03:13.860]For example, profit is something you value,
[00:03:17.980]and you measure it regularly
[00:03:19.450]by subtracting your costs from your revenues.
[00:03:23.300]Debt is another example of something important to you
[00:03:25.980]that you can measure.
[00:03:26.950]You may want to know a total debt dollar value,
[00:03:30.410]or you may want to track it using something
[00:03:32.260]like a debt-to-asset ratio,
[00:03:34.540]something that you will learn more about
[00:03:36.540]later in this course.
[00:03:39.030]Some things that you value, like happiness,
[00:03:41.750]don't have clearly established objective measures
[00:03:44.560]you can use, but you can still measure them
[00:03:46.730]using subjective scales like a zero to three scale,
[00:03:50.210]where zero is extremely unhappy
[00:03:52.970]and three is extremely happy.
[00:03:55.320]You decide where you are at on that scale
[00:03:57.430]at any given point in time.
[00:04:00.090]So attributes are things that you measure.
[00:04:02.750]Objectives, then, are directions of improvement
[00:04:05.460]for those attributes.
[00:04:07.340]For example, more profit is better than less profit.
[00:04:11.990]So increasing profit is your objective.
[00:04:15.940]Improving your debt situation would be signified
[00:04:18.370]by decreasing debt based on how you are measuring it.
[00:04:22.940]Most people have many objectives in life.
[00:04:25.590]It helps, then, to organize them
[00:04:27.230]into fundamental and means objectives.
[00:04:30.170]Fundamental objectives capture the fundamental reasons
[00:04:32.810]behind your decisions.
[00:04:34.570]In a business, they capture the fundamental reasons
[00:04:37.090]you are in business.
[00:04:38.870]Most farm and ranch owners can identify three
[00:04:41.390]to five fundamental reasons
[00:04:42.840]for doing what they do day after day.
[00:04:46.110]All of the other objectives for the business
[00:04:47.910]are means objectives that can be explained
[00:04:50.660]by these fundamental reasons.
[00:04:52.550]Means objectives lead you
[00:04:54.210]toward accomplishing your fundamental objectives.
[00:04:59.230]The fundamental and means objectives can be arranged
[00:05:02.210]in what is called an objectives hierarchy.
[00:05:04.920]It helps organize your thoughts and priorities.
[00:05:08.400]This is an example of an objectives hierarchy
[00:05:10.840]for a farm or ranch.
[00:05:12.980]They have identified four fundamental objectives,
[00:05:16.410]increase net worth, reduce cash flow risk,
[00:05:20.800]they wanna pass down the farm to the next generation
[00:05:24.150]and they want to improve the lives
[00:05:25.890]of those who work on the farm.
[00:05:28.400]It's quite common to see farmers and ranchers
[00:05:30.560]identify a couple of financial fundamental objectives,
[00:05:33.970]one related to income or wealth,
[00:05:35.730]and the other related to risk.
[00:05:37.830]It is also common to see them identify one
[00:05:40.078]to two fundamental objectives related to happiness,
[00:05:43.350]or at least their view of it.
[00:05:45.730]Notice here that the objective of increasing profitability
[00:05:49.050]is actually a means objective
[00:05:51.350]that feeds into all four fundamental objectives.
[00:05:54.960]Increasing profits is obviously important to them,
[00:05:58.390]but if you ask them why it is important,
[00:06:00.460]they start to identify these other fundamental reasons.
[00:06:04.440]You know you are reaching your fundamental objectives
[00:06:06.930]when you run out of answers to the why question.
[00:06:10.900]Other means objectives might include
[00:06:13.130]decreasing the debt-to-asset ratio.
[00:06:16.070]Why do you wanna do this?
[00:06:17.990]Because it will increase your net worth.
[00:06:20.940]On the other hand,
[00:06:21.773]if you want to increase your profitability,
[00:06:23.850]there are two things you can do.
[00:06:27.020]You can decrease costs, or you can increase revenues.
[00:06:33.030]Another objective you may have
[00:06:34.810]is to reduce current liabilities.
[00:06:39.860]This will decrease interest costs, possibly,
[00:06:42.400]which would decrease overall costs.
[00:06:45.280]More importantly, it will also reduce cash flow risk,
[00:06:48.740]which is a fundamental objective.
[00:06:51.690]Branching out to a little more complicated objective,
[00:06:54.280]you may decide you want to decrease the hours
[00:06:57.150]of labor on your farm per dollar of revenue.
[00:07:01.970]Why would you want to do this?
[00:07:03.550]Because if the farm becomes less labor-intensive,
[00:07:06.750]it improves the lives of those who work on it.
[00:07:09.970]They have more time for family activities
[00:07:12.600]and other important things.
[00:07:14.890]It also may make it easier to pass down the farm
[00:07:18.330]because the next generation sees it
[00:07:20.160]as a good and healthy life for them and their family.
[00:07:24.100]This attribute of hours of labor per dollar of revenue
[00:07:27.320]can be thought of as a return on their time.
[00:07:30.998]In that sense, there are two ways to affect it.
[00:07:33.720]They can focus on decreasing labor time
[00:07:36.210]without affecting revenue,
[00:07:38.150]or they can focus on increasing revenue
[00:07:40.970]without increasing labor.
[00:07:44.290]So increasing revenue will contribute to the objective
[00:07:47.460]of decreasing hours of labor per dollar of revenue.
[00:07:52.010]In the sense that labor costs money,
[00:07:54.220]meeting this objective will also help you
[00:07:56.500]increase profitability.
[00:07:59.300]The last thing we want to define is goals.
[00:08:02.350]Attributes are things you can measure.
[00:08:04.390]Objectives give you a direction of improvement
[00:08:06.800]for those attributes.
[00:08:08.380]And goals provide an acceptable target level of achievement.
[00:08:13.050]So the objective of reducing debt
[00:08:15.660]might result in a goal of reducing the debt-to-asset ratio
[00:08:19.870]to less than 30% within five years.
[00:08:24.130]When you set goals, they need to be SMART goals.
[00:08:27.420]SMART goals are specific, measurable, attainable,
[00:08:31.600]relevant and related and time tractable.
[00:08:35.440]If you have done everything right up to this point
[00:08:37.990]in identifying your objectives,
[00:08:39.950]setting a goal boils down to setting an attainable level
[00:08:44.190]or number you want to achieve
[00:08:46.210]in a time by which you want to achieve it.
[00:08:48.700]So with an objectives hierarchy drafted,
[00:08:51.290]you can look at the objective
[00:08:52.760]of decreasing your debt-to-asset ratio.
[00:08:55.520]It is very specific, it is measurable,
[00:08:58.210]and you know it is relevant because it will help you
[00:09:00.520]increase your net worth, which is important to you.
[00:09:03.580]Given that, you look at your situation
[00:09:05.560]and set an achievable target of getting below 30%
[00:09:09.530]and set a timeframe for doing it.
[00:09:11.430]You want to accomplish this within the next five years.
[00:09:15.870]Soon you will be introduced to a case farm
[00:09:18.870]where this goal would be an appropriate
[00:09:21.070]and SMART goal to set.
[00:09:23.060]Identifying objectives and setting goals are important task
[00:09:26.090]in leading your farm or ranch business
[00:09:27.810]where you want it to go.
[00:09:29.640]In your workbook, you have the opportunity
[00:09:31.360]to write down a few fundamental goals
[00:09:33.110]for your farm or ranch.
[00:09:34.930]Start with a blank sheet of paper
[00:09:36.690]and write down a few objectives for your operation.
[00:09:39.530]Ask yourself why they are important and work your way
[00:09:42.550]toward identifying two or three fundamental objectives,
[00:09:45.970]and then goals related to those objectives
[00:09:48.350]that you would like to achieve in the next three years,
[00:09:50.830]or five years, or even 10 if that is appropriate.
[00:09:54.210]For example, if increasing your net worth
[00:09:56.730]turns out to be one of your fundamental objectives,
[00:09:59.420]what would you like to increase it to
[00:10:01.170]within the next five years?
[00:10:03.670]Once you have written down some fundamental goals,
[00:10:06.400]give some thought to the decisions you see on the horizon
[00:10:09.100]that will have an impact on your ability
[00:10:11.240]to achieve these goals.
[00:10:13.080]Keep this information in front of you
[00:10:14.630]as you work your way through the course,
[00:10:16.610]and interact with your fellow classmates
[00:10:18.650]and with your business partners at home if you have them.
[00:10:22.140]Update, add to and modify them as needed
[00:10:24.550]to keep them up-to-date as your understanding increases
[00:10:27.600]as to what is most important for you to focus on
[00:10:30.370]in your operation.
[00:10:33.520]Setting goals is just the beginning
[00:10:35.230]of a satisfying journey leading your farm or ranch
[00:10:37.930]toward a successful future.
[00:10:39.730]Good luck, and enjoy the experience.
[00:10:42.988](contemplative music)

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