Perfect the 5 “Hows” of Risk Management

Perfect the 5 “Hows” of Risk Management

Five changes can help you be a better risk manager.

Risk management is not about being right, accurate, or perfecting some algorithm. “Right” today could be “wrong” tomorrow, and these are not the metrics of risk management. The practice of risk management is more like the “practice” of being human: We are in the process of perfecting our response to unpredictable circumstances.

In the case of production risk management, this means unpredictable markets, politics, weather, disease, technologies, labor practices, and operational shifts. Here are some factors you should be “perfecting” when it comes to risk management.

Change Your Conversation—

  • Come to risk management conversations prepared to make decisions TOGETHER; not to argue what data is correct or incorrect. Resist the temptation of seeing different recommendations or strategies as competing or conflicting; they should serve as feeder data used to co-create the best recommendation customized for your operation given your goals.

Read more: Perfect the 5 “Hows” of Risk Management


Do you practice risk management in a manner that empowers your advisors, employees, and bankers to participate in protecting your operation? This isn’t a question of “are you smart enough?” It’s a question of “how do you think and practice?” when you work with internal and external advisors.


We partner with producers and production teams characterized by vastly diverse age groups, financial capacity, professional experience, geographic location, and education. And we’ve come to an astonishing conclusion: rarely does a failure of technical understanding or intellect compromise risk management practices. Our clients are smart—mavericks, pioneers, entrepreneurs, innovators and brilliant people, and these people generally make us smarter. That’s a driving directive of our business: we are smarter together.


A Basic Description Of Call And Put Options

A Basic Description Of Call And Put Options.


1.      A CALL OPTION is the right, but not the obligation, to establish a long futures position at a specific price.  The definition is much more complicated than reality.  If you buy a $3.50 December corn call, it means you have the right to establish a long position in December futures at $3.50.  Of course, you pay for that right (the premium).  If December futures rally to $3.80, it makes sense to establish the long position in futures at $3.50, so the call premium increases.  If you paid 10¢ for the right to do so, your net entry is $3.60—the strike price plus the premium paid for the call.  If you don’t want to be long futures, you can take profits and liquidate the position.  In this example, the profit would be about 20¢.


The premium of the call option includes three variables:

Read more: A Basic Description Of Call And Put Options