Assessing enterprise changes and new technologies

Chang within an enterprise, or adopting new technology, can improve enterprise and business profitability. Being able to quantify the benefits of change is integral to commencing and then committing to any change.  

Changes can include simple modifications to an existing enterprise (e.g. a change in ram source), introduction of new technology, (e.g. investing in new livestock handling equipment) or complex changes affecting the whole enterprise (e.g. moving the focus from cropping to wool or lamb production). 

The potential return or benefit from on-farm investment can vary, so it is worth identifying the high-return investments, taking into account financial and non-financial benefits.  

When reviewing new business opportunities, changes or investment, consider:  

• Net change in expenses: Take account of any increased costs (cash and non-cash costs such as additional -labour requirements or depreciation on plant and equipment) and reduced costs. 

• Net change in income: Account for increased income and any trade-offs, such as lower wool income if there is an increased focus on lamb production. 

• Scale of the investment and flow-on impacts: For example, an investment in pasture improvement will need to be accompanied by an investment in additional livestock and may require increased management inputs. 

• Likely repayment period: Determine the repayment period for the investment and the cash flow implications incurred between implementing the change and realising the benefit, taking account of the economic and production risks involved. 

• Lifespan of the expected benefits from the investment: For example, an investment of $50,000 in a change that produces a benefit of $15,000 p.a. over 10 years ($150,000 in total) is better than an investment of the same amount with the same benefit but only for five years ($75,000 in total). 

• Risk management: Assess the nature of, and additional exposure to, risk associated with any new or alternative enterprise. 

• Non-financial benefits: Identify non-financial benefits, such as reduced stress or improved work-life balance from not having to train and induct casual labour.   

• Strategic business fit: Consider how the change or opportunity fits with the business’s strategic plan and future goals.  

• Alternatives: Question the alternatives or the impacts of not doing anything.  

Farm businesses most often involve multiple enterprises with complex interactions between them. To ensure returns are improved across the whole farm, carry out the calculations on a whole-farm basis. 

Two planning tools are included below that can help to assess the potential of any enterprise changes or new investments in technology. 

The Sustainable Grazing Systems (SGS) one-page planner allows qualitative information to be included. The SGS program aimed to increase enterprise productivity at the same time as improving the environment across southern Australia’s high-rainfall zone. One of the many SGS outputs was the planning framework, which draws on existing knowledge and aspirations to assess the benefits, potential flow-on effects and implementation challenges of any change being considered. 

The partial budget planning template provides a worked example (assessing a decision to renovate a pasture) with the subsequent return on investment calculation. The partial budgeting method in the template is most suited to investment decisions that include a new way of doing something that is already being done or an investment that already exists, or improving a practice (e.g. installing water telemetry systems rather than driving around to check water levels, scanning for multiples and managing ewes based on their pregnancy status instead of scanning only for pregnancy status, or installing grids to reduce the time spent opening gates when driving around the farm).  

Strategic decisions (e.g. fertiliser applications, changing grazing strategies, selecting rams, re-sowing a pasture, etc.) can have long-term flow-on effects across the system. Seek professional assistance to identify tools for whole-farm analysis across multiple enterprises to quantify the complex interactions between: 

• marginal costs 
• marginal income 
• discounted cash flow analysis 
• time to break-even point 
• lifespan of the investment 
• relative return on capital invested.