Using a sensitivity analysis on your budget or plan can gain an insight into the impacts of change long before they occur. This effectively shows how robust the business is in terms of withstanding pressures imposed on it. One could refer to it as the reality check. Effectively you take the budget figures and see what the impact of individual changes would have on the final figures (both positively and negatively). For instance, what occurs to the business if milk price changes by +/- 1.0 p/l. This can be expressed as +/- £ change in profit or cash for the business. It is important to choose relevant items to look at, for instance the key performance indicators for the enterprise. This may be milk yield/cow, p/l for milk feed use and cost replacement rates in the case of dairy. For sheep it may be lamb price, lambing percentage, ewe replacement rates or feed inputs. Arable, obviously grain prices and yield will be major items, but input costs are also significant. The same attitude can be adopted with the business overheads using labour costs, contractor prices, machinery cost, rental figures and impact of interest rates to name a few. This all amounts to giving confidence in the plan and budget by showing how robust the business is and how capable it is of weathering any storms.
Contact Ian at firstname.lastname@example.org or your local FCG office, to help you plan to be as sustainable as possible!