A farmer decides each year which risks get a plan first, and a wrong order costs money. Texas A&M AgriLife’s 2024 budget for sprinkler-irrigated corn on the High Plains of the Texas Panhandle expects 225 bushels an acre at $5.35 a bushel. That covers the full cost of $1,190.25 an acre, with $13.50 to spare. A price 17% lower brings a loss of $191.25 an acre, and a crop 10% smaller on top brings a loss of $291.15. Take each risk’s impact from a loss in dollars, give a price drop with a short crop one line, and write an action, a name and a date for the top risks.
A risk matrix is a table that ranks what could go wrong on a farm by its chance times its impact. The usual way of filling it, multiplying two guessed ratings from one to five, gets the order wrong. The method comes from a course written for the Platform for Agricultural Risk Management (PARM), a program linked to the International Fund for Agricultural Development (IFAD), a United Nations agency. Its authors write that a simple multiple is used to calculate the values. The same course holds the two fixes this article follows: impact in money, and a line of its own for risks that arrive together.
Why does the common matrix put risks in the wrong order?
Multiplying two ratings from one to five flattens the differences, and two different risks can land on the same score. The PARM course shows it with seven risks. A pest (chance rating 3, impact rating 4) and a labor shortage (chance rating 4, impact rating 3) both score twelve. The pest has a middling chance and a heavy loss, and the shortage has a high chance and a middling loss. Nobody can tell them apart from the score, but the two ratings behind it separate them.
A second fault sits in the bands, the levels the matrix sorts risks into. Vatanpour and colleagues tested this kind of matrix in an open-access public-health study and found that its ranking can be worse than random when the most frequent risks are the least severe. In their own data the problem was small. Even so, their low band held risks whose measured harm, frequency times severity, ran from 0.003 to 3, a thousandfold gap.
Risks can also add up. A United States government guide from NIST, the federal standards institute, was written for computer systems and not for farms, but it works on the same chance and impact. It warns that several moderate risks that happen together can add up to one higher risk.
None of this makes the matrix useless. Vatanpour’s authors say the method should not be dropped, only used to inform decisions and not to drive them. It works as triage and as a way to get people talking.
List your risks first, one per line, before you rate any of them.
Where should the impact come from?
From a loss in money: how much you lose if the event happens, not a one-to-five rating someone guessed. The PARM course weights that loss by the chance and calls the result expected monetary value, the chance times the value of the impact. Its four-risk example, in dollars, changes the order of the list.
| Risk | Loss if it happens | Chance | Expected value |
|---|---|---|---|
| A sick worker | 1,500 | 60% | 900 |
| Hail | 2,000 | 25% | 500 |
| Price swing | 4,000 | 10% | 400 |
| Too little rain | 1,000 | 30% | 300 |
By loss alone, the price swing ($4,000) sits on top. Weighted by the chance, the sick worker ($900) does, and the price swing drops to third. Both orders come out of money, and guessed ratings do not guarantee either. The course adds that the impact levels must fit the farm: where margins are thin, a 15% loss can already be catastrophic, enough to end the business. Where a loss cannot be put in money, keep the one-to-five rating on a separate list, because amounts and ratings do not sort together.
Write beside each risk the loss in dollars and where the figure came from.
What does a price drop cost when the crop is short too?
More than the price drop alone, and more than a list of single risks shows. In the AgriLife budget, a price 17% lower is a loss of $191.25 an acre, and a crop 10% smaller at that price is a loss of $291.15. The step between the two is $99.90 an acre, or $99,900 on 1,000 acres, and it never appears when price and crop sit on separate lines. The budget’s author notes that if either price or yield is less than expected, the corn may not break even on its total costs.
The 17% has a basis: the budget’s corn price is itself 17% below 2023, so a drop of that size has happened. The 10% shortfall is an example size.
| Case | Yield (bushels an acre) | Price (dollars a bushel) | Revenue (dollars an acre) | Cost (dollars an acre) | Result (dollars an acre) |
|---|---|---|---|---|---|
| Budget | 225 | 5.35 | 1,203.75 | 1,190.25 | 13.50 to spare |
| Price 17% lower | 225 | 4.44 | 999.00 | 1,190.25 | loss of 191.25 |
| Price 17% lower, crop 10% smaller | 202.5 | 4.44 | 899.10 | 1,190.25 | loss of 291.15 |
Give a price drop and a short crop in the same season one line, and measure its impact by the combined loss.
Do price and yield always fall together?
Not always. For a whole country, a short crop usually brings a higher price, and the PARM course gives that link as its example of negatively correlated risks. For a single farm, the link is weaker. The Economic Research Service of the United States Department of Agriculture (ERS) explains why. Price and yield on one farm need not be related, because one farm’s output does not noticeably move the market price.
In the major producing regions of the United States, each farm’s yield moves with the national yield, so a short crop there tends to arrive with a higher price. ERS calls this offset a natural hedge. Outside those regions it is much weaker, and low yields and low prices are more likely to occur at the same time.
Your own records tell you which case you are in. Take the bad-harvest years you have on file and write beside each whether the price you sold at was above or below your usual. If the bad harvests were also bad-price years, the combined line goes on top of the list. If they were not, price and crop stay on separate lines. A short record proves little, so check again as seasons are added. The PARM course calls risks that move together correlated, or systemic when they hit the same region or value chain.
Pull out your bad-harvest years and write beside each the price you sold at.
What do you write down first, and by when?
The risks on top, each with an action, the name of the person who acts and a date. Write all of it on one risk sheet: the risks, the figures, the actions and the names.
Keep two lists. The first holds the risks with a money figure, sorted by the loss times the chance of the event in the period you are planning for. The second holds the risks with ratings only, sorted by the two ratings multiplied, and that order is less reliable. Then move up by hand any rare, heavy risk the arithmetic played down. A disaster with chance 2 and impact 5 and a nuisance with chance 5 and impact 2 both score 10, and the disaster may be the one that ends the business. Write why it moved.
On the list of ratings, this site’s risk matrix calculator uses four bands: 1 to 4 low, 5 to 9 moderate, 10 to 15 high, and 16 to 25 critical. Those cutoffs are a choice you can change, and on the money list you set the cutoffs in dollars. A critical risk gets an action now. A high risk gets one planned within the year. A moderate risk is watched and comes back at the next review. A low risk is accepted and written down, which is also a decision.
Set aside an afternoon with the people who know the operation, name the year’s worries out loud, and have someone write them down. Look for risks from outside the farm, such as prices, weather, rules and buyers, and from inside it, such as people, machines and cash.
The figures go out of date long before the sheet wears out. A drought you costed one way last year may cost more after two dry seasons. The article How bad a year can this cycle take works out how far price and yield can fall before a cycle stops covering its costs. The calculator of how far price and crop can fall does that arithmetic as percentage falls. With the risk matrix calculator, the multiplying and sorting of the ratings are done for you, and the ratings stay yours to set. Putting risks in order is one part of farm management, and other articles on getting a farm through bad years are in the library’s sustainability section.