Farm Business Risk Profiles

This fact sheet has been produced by GRDC and looks at developing a farm business risk profile.

A farm risk profile describes the combination of a business’ ability to incur risk and an individual’s personal risk attitude. Understanding your business’s risk profile can improve communication and result in better decision making.

The key points are:

• An individual’s risk attitude can be classified as wary, neutral or daring.

• A business’s risk capacity can be identified as low, medium or high.
• An individual’s perception of, response to and management of risk heavily influences their approach to making decisions.
• A practical and realistic approach is important so individuals, families and businesses understand their own risk profiles and the impact on the overall management of the business.

The key sections include:

• Risk capacity – is a measure of a business’s ability to incur risk, and can be categorised into one of three groups.
• Risk attitude – An individual’s risk attitude is defined by the approach they take when faced with a situation that involves risk.
• A case study
• Biases of which risk averse individuals should be aware.
• What is a risk profile? A risk profile represents the interaction between risk capacity and risk attitude.
• Ideas for improving a business’s risk capacity

In conclusion, risk attitude can be difficult to identify because it is the result of a diverse collection of personal and external influences, unique to each individual. An individual’s perception of risk will be informed partly by skills and experience.