A Different Way to Examine Cost Versus Benefit

After completing your 2019 budget, pull it out every month and have everyone in the operation look at every single line item, experts suggest. ( iStock )

Get your game face on. Seed and chemical sales reps are pounding the pavement hoping to sell you their latest and greatest technology. While it might bring yield benefit, you need to do a cost analysis to see if it not only brings in higher yield, but higher revenue as well.

“You want to invest with intent,” says Mitch Blair, BASF product manager. “If you spend a dollar you want to get three [back].”

Before trying the next new product that someone brings to your doorstep, compare the benefits to costs. Purdue University Agriculture Economics Professor Michael Langemeier suggests using partial budgeting to make an informed decision.

Unlike enterprise budgets, partial budgeting focuses solely on changes in revenue and costs, Langemeier says. This method can be used to analyze potential changes involving one or several enterprise budgets by showing change in profit.

There are four key questions to ask before trying a new practice or product, Langemeier explains:

  • What new or additional costs will be incurred?
  • What current costs will be reduced or eliminated?
  • What new or additional revenue will be received?
  • What current revenue will be lost or reduced?

Also identify physical changes such as yield. For example, if fungicide is the new practice or product you are considering, take into account the average yield impact for application.