Reducing Budget Risk by Using Probabilities

P.J. van Blokland

No 24352, 14th Congress, Perth, Western Australia, August 10-15, 2003 from International Farm Management Association

Abstract: This paper emphasises the importance of budgeting for a family run firm. It concentrates on the inadequacy of the typical budget forecast that is shown to firm owners and lenders. This original budget is changed to a useful indicator of the firm's future by incorporating risk, using probabilities and a decision tree. Without this incorporation the firm can misallocate its anticipated net income between family salary, firm re-investment and debt reduction. The final budget, adjusted to the individual firm's risk calculations, produces a weighted net income. This number is a more realistic one for allocating salary, investment and principal.

Keywords: Agricultural Finance; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 6
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ifma03:24352

DOI: 10.22004/ag.econ.24352

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