A Quick and Simple Version of Holistic Management

*Originally posted on sheldonfrith.com.

I have created a simplified version of Holistic Decision Making and Holistic Financial Planning which can be used when there is not enough time to complete the full process or when the people involved are resistant to completing the full process.

Undergoing the whole process of Holistic Decision Making and Holistic Financial Planning with a group can take a long time. Sometimes we just don’t have the time. This year, for example, I am going to be working with a farm but I will have only one day to meet with the farmers before the growing season starts. On top of that, the farmers are completely unfamiliar with Holistic Management and probably will not be interested in putting in the many hours necessary to craft a complete financial plan. My solution to this problem is to use this simplified version of Holistic Management this season, with the goal of completing the full process next winter when we will have more time and when the farmers will have some idea of the benefits of Holistic Management.

Using this simplified version of Holistic Management is much better than not doing anything at all, but it should only be used when it is not feasible to go through the whole process. Going through the full process will give you better results. The larger your operation, the more people and money involved, the more essential it is to complete the full process.

You can find the complete process of Holistic Decision Making and Holistic Financial Planning in the excellent books:  “Holistic Management” and the “Holistic Management Handbook.” I have borrowed heavily from these books to create this simplified version of Holistic Management.

Ranger

Create Your Simplified Holistic Context/Goal

  1. Make sure all decision makers are included in this process.

  2. Have each person write a paragraph about their ideal quality of life. Include a sentence or two about economic wellbeing, social wellbeing, relationships, personal growth, and contribution to others. What do you value most?

  3. Now combine these individual statements into a group statement which represents the shared values of everyone involved, reach a consensus.

  4. For each item in the group statement, figure out what must be produced to make that thing a reality. Try to avoid descriptions of how to produce something. For example, if extra income must be produced in order to meet a quality of life goal, do not start describing methods for producing that extra income. The specific methods will be determined later.

  5. Now collectively describe what the group’s resource base must be like far into the future in order to sustain the desired quality of life. If the group relies on any area of land (most do) you should include a description of what the land must look like to sustain the group, and you should also describe any services provided by the external community that will need to be available far into the future.

  6. Combine 3, 4 and 5 into a single document. This is your Holistic Context/Goal. Keep it handy, put it in a visible location, and use it constantly to guide your decisions.

Tips For Making Decisions Holistically

  1. Have regular brainstorming sessions. If possible, get outsiders involved, as they can often think of things you would not. Try to keep your brainstorming sessions fun and relaxed. Encourage irreverence and radical ideas.

  2. Always make choices which will move you towards your Holistic Context/Goal, not away from it. Take the action which gives you the biggest return, in terms of your Holistic Context, for the least investment.

  3. When trying to solve a problem, ensure that the solution you choose addresses the root cause of the problem. Take some time to determine what the real cause of the problem is, because it is not always obvious.

  4. If you are trying to either decrease or increase a living organism, make sure that the action you take addresses the weakest point in that organism’s life cycle.

  5. Be aware of where the energy and money you use are coming from. Is the source of energy or money in line with your Holistic Context/Goal? Favor energy from sources which are abundant and sustainable. And favor actions which do not require getting money from outside sources.

  6. Is the way in which energy or money to be used going to lead towards your Holistic Context/Goal? Avoid uses of energy/money which have no lasting positive effect, are addictive, or which, once initiated, will require repeated reinvestment of energy or money. And make sure that your uses of money and energy are supporting the people or community services you rely on.

  7. Most land managers or farmers should make soil health a primary area of investment. A healthy soil, combined with sunlight, produces plants for free. Without healthy soil biology you will need to apply expensive and unsustainable inputs constantly in order to harvest your sunlight.

  8. When making any decision which involves spending money, always do a “gross-profit analysis” (see below) to make sure that it makes financial sense compared to the alternatives.

  9. Always make decisions as a group. Allow everyone to participate. Strive to achieve a consensus on every decision.

  10. When you decide to take an action or implement a plan make sure you monitor the results. Make this a habit. Even the best laid plans rarely go as expected. Figure out what exactly you need to monitor to see if you are succeeding or not. As soon as you detect something going wrong take action to fix it. This may require going back to the drawing board and coming up with an entirely new plan.

Me branding at B-C Ranch.

Me branding at B-C Ranch.

Gross Profit Analysis

When choosing between different enterprises, or making any decision which involves spending money, you should do a gross profit analysis. Gross profit analysis separates fixed costs from the costs directly incurred from production. When analyzing an enterprise using a gross profit analysis, exclude any costs which you would incur anyways, regardless of whether you engage in that enterprise or not (land payments, salaries, debt payments, living expenses, etc). These are commonly called “overhead” costs.

To do a gross profit analysis:

  1. List all of the revenue which will be generated as a result of the enterprise/action.
  2. List all of the costs which will be incurred solely due to the specific enterprise/action and which would be avoided if you stopped the enterprise or did not take the action.
  3. Subtract the costs from the revenue. The result is your “gross profit.”

Create Your Business Strategy

  1. Throughout this process keep your Holistic Context/Goal in mind. And make sure all of the decision makers in your group are involved in this process.

  2. Determine if there is a “logjam” blocking your progress towards your Holistic Context. Overcoming this logjam is the most important thing to invest your money in.

  3. Are there any other things, besides your logjam, which are adversely affecting your operation as a whole? Things like a lack of training, lack of expertise, lack of leisure time, lack of communication, etc?

  4. Decide on the enterprises which you will engage in over the next year:

    1. First, brainstorm 20-50 new sources of income. Narrow down the list. Discard any ideas which don’t move you towards your holistic context. Discard any ideas which conflict with the decision making tips given above. Discard any ideas which fail the gross profit analysis. You might discard all of the ideas you came up with, that is okay.

    2. Now look at your current enterprises. Do a gross profit analysis for each. Are they each profitable? Are you relying too much on a single enterprise to produce your income? Do they all align with your Holistic Context/Goal?

    3. Choose which of your current enterprises you will continue, and which you will drop. And decide if you will start any new enterprises in the next year, and what they will be. Use the gross profit analysis to double check that they are all profitable.

  5. For each enterprise, determine the weak link in the chain of production. The chain of production has three links; Resource Conversion, Product Conversion, and Marketing. For each enterprise, which of the three links is the weakest?

      1. Resource Conversion is your ability to turn your raw material (sunlight, if you are a farming operation) into some product (like a tomato plant, for example).

      2. Product Conversion is your ability to take the product produced and turn it into a marketable form. (tomatoes must be harvested, cleaned, stored, processed, transported, etc).

      3. Marketing is your ability to turn your finished product into dollars (your tomatoes need customers who will pay money for them).

  6. When investing in any of your enterprises always prioritize investments which directly address the weak link for that enterprise. Be aware that the weak link for each enterprise will be constantly changing. Make sure that you are aware of when the weak link has changed and make sure your actions always address the current weak link.

Regenerating the land is profitable... capitalize on the opportunity with a Financial Plan.

Regenerating the land is profitable… capitalize on the opportunity with a Financial Plan.

Craft Your Annual Financial Plan

  1. Calculate your total gross income for the coming year. Include all of the enterprises you plan to engage in this year.

  2. Make a plan to address any logjam in your operation. A logjam is, by definition, blocking your progress so it must be addressed first. Allocate whatever funds are necessary to solve the logjam and subtract them from the total income you just calculated.
  3. Now set aside a percentage of the remaining income as planned profit. 50% is a good starting point for many operations. The higher the portion of your planned income that you set aside as profit, the more you will be challenged to creatively cut your expenses. Planning your profit first forces you to stringently cut back on your expenses while still maintaining production. It helps you avoid the common trap of allowing production costs to always rise to your match your anticipated income.

  4. Now you must plan your expenses. This stage takes persistence and creativity. Do your best to keep your expenses low enough to provide the profit you planned above. In the rare occasion where the planned profit turns out to be totally impossible, you should simply start over with a slightly lower planned profit percentage. Be very detailed when accounting for your expenses; don’t leave anything out. Put all of your expenses into one of these three categories:

    1. Inescapable Expenses are fixed, non-negotiable expenses which you are legally or morally required to meet. This category will be small, but you should allocate funds for these expenses at the very beginning of the expense-planning process.

    2. Wealth Generating Expenses are expenses which will either increase your income or your social and biological capital. Expenses used to solve a logjam are wealth generating expenses. Any money used to strengthen the weak link of an enterprise is also wealth generating.

    3. Maintaining Expenses are expenses essential to running your business but which will not increase your wealth or income. Most expenses fall into this category. This category would include living expenses, wages, fuel, insurance, etc. This is the area in which you should strive to make cuts.

  5. Now put it all together, and make sure that all of the numbers check out. Are your expenses going to be covered by your income throughout the whole year (cash-flow)? Are you going to make the profit you have planned. Keep reworking your plan as necessary.

  6. Determine where to invest your profit, after living expenses are accounted for. Some good ways to invest your profit are:

      1. address a logjam

      2. address a weak link

      3. grow your business

      4. create a depreciation fund to avoid going into debt when assets must be replaced

      5. invest outside your business to maintain liquidity or spread your risk

  7. Monitor your finances on a monthly basis to ensure that you are following the plan. If there are any extra expenses which were unaccounted for in your plan immediately find a way to cut expenses in the coming months to bring your finances back on track. Monitoring will require that all income, expenses and inventory consumption is recorded and kept well organized. You should probably assign the task of financial monitoring to a specific person to ensure it actually happens.

Leave a Reply

Your email address will not be published. Required fields are marked *