Management Audit (Analysis)

The next step is to explore how the business, either existing or planned, will be managed. Consider how demands identified in the previous section will be met. The following outline and subsequent questions for the management audit were developed from the professional's perspective, and are based on the idea that a team of Extension professionals would analyze the business and write a report. This technique is useful for market operators desiring to complete an audit on their own. This phase of the market analysis should result in a plan that includes the objectives, organization, finances, personnel and technologies necessary to operate the farm market.

The management audit is an informal set of procedures for asking pertinent questions that relate to a given business activity. The team examines the enterprise for overall resource management. They study segments of the enterprise (facilities, technologies, organization, finances, personnel, markets) for strengths and weaknesses, both as separate elements and how each one relates to the others. Management, engineering, technological and economic principles are the criteria by which the performance of the total enterprise and its parts are judged.

Procedure for Performing a Management Audit

1.    Identify the case firm (farm) based upon a request for assistance or mutual agreement between the parties involved.

2.    Identify the management audit team (agent, specialists, individuals) with knowledge and expertise pertinent to the perceived problem at hand. Team participants should have specific roles, including the writing of a final report.

3.    Identify responsibilities of host firm (farm) such as (a) complete cooperation with the audit team in providing records and information as well as (b) responding to questions, and (c) availability of all personnel for questioning, if appropriate.

4.    Use of data and findings - all parties must understand the limits of confidentiality of data and findings.

5.    Collect descriptive data on firm (farm) before making visit to perform audit:

a.    Financial data - Profit and Loss Statements, Balance Sheets, Cash Flows (3 to 5 years).

b.    Production and Marketing data - appropriate records (3 to 5 years).

c.    Physical Description of the Business (farm) include pictures.

6.    Divide the firm (farm) into major subject matter areas and profit centers for detailed study:

a.    Subject Matter

i)   Overall management

ii)   Sales and marketing

iii)   Production

iv)   Organization

v)    Facilities

vi)   Financial

vii)  Technological

b.    Profit Centers - any major division of the business that:

i)   Requires capital

ii)   Requires separate management

iii)   Is capable of producing separate returns or profits.

Examples of profit centers might be dairy, livestock, grain, vegetables, fruit; any meaningful departmentalization for agribusiness firms.

7.    Assignment of specific responsibilities for each member of the audit team for this particular audit (a team member may have more than one assignment) should be done before the physical audit.

8.    The On-Site Phase of the Management Audit

The team should plan to spend whatever time is necessary on site making observations, asking questions and collecting pertinent information. This time period could be from one day to a week.

Note: Before leaving the site, the audit team should meet to be sure that members have all the information necessary to write their reports.

9.    The Report

The report should be prepared as soon as possible after the audit so that the situation will be fresh in the minds of participants. Designate one person to coordinate the report writing phase of the project. This person's responsibility will be to collect the contributions of team members and to integrate findings into a comprehensive, meaningful, usable report. When completed, present this report to the firm's (farm) management in a face-to-face meeting. This will allow for an interchange of views and the answering of questions on both sides.

Problem      Recommendations       Follow-up (person responsible and timing)

A summary section and an appendix for pertinent data should complete the report.

10.      Follow-up

Make provisions for follow-up activities at the end of the report presentation session. Specifics of the follow-up will depend upon the nature and severity of problems identified. It is essential that a person on the audit team and one from the firm (farm) are given the responsibility and authority to proceed with the follow-up.

Areas of Questioning for Overall Management Section

1.  Agribusiness manager's (farmer) philosophy, views and value statements.

2. Statement of objectives - goals, criteria, evaluations. A written mission statement should be developed.

3. Develop a written plan to include:  

1. a description of the overall business

2. a financial statement

3. how the business is structured - physical

4. how the business is physically organized

5. how marketing is accomplished and prevailing competition

6. technological considerations

4. Statement of policies and procedures.

5. Organization chart - areas of responsibility and authority including written job descriptions and ladder of advancement. Describe the roles of each job (perception, interaction, backup).

6. Avenues of communication - sources of information, training needs.

7. Describe any road blocks - movement of ideas, goods, instructions.

8. Morale - management and employee.

9. Procedure for handling complaints.

10. Decision making - process, effectiveness.

11. Evaluation - criteria, controls, periodic review and appraisal.

12. Identify central threads of problems and look for general solutions.

Sample Questions in the Management Area

1. What is your job? (areas of responsibility and authority)

2. What is your involvement in planning for the firm (farm)?

3. What is your involvement in policy formulation?

4. What are the objectives of this firm (farm)? Your personal objectives?

5. What decisions do you make?

6. How do you measure success of this firm (farm)?

7. Describe the avenues of communication in this firm (farm), both formal and informal.

8. What are your sources of information for managing the business?

9. What standards of performance are used to evaluate management of this firm (farm)?

10. What business are you in?

11. What training do you need to do a better job of management?

12. How does the community view the business?

13. Who is your competition?

14. Who is your back-up? Can he or she do the job?

15. What does the boss think of you? How and when are you evaluated?

16. What do you think of the boss? How do you evaluate him or her?

17. What suggestions do you have to improve this business?

18. Are there any other considerations?

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