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UBC Theses and Dissertations

Review of planning and evaluation models as a basis for the simulation of a forest firm Birchmore, Michael John 1972

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A REVIEW OF PLANNING AND EVALUATION MODELS AS A BASIS FOR THE SIMULATION OF A FOREST FIRM  by  MICHAEL JOHN BIRCHMORE B.Sc. ( E c o l o g i c a l S c i e n c e ) h o n o u r s  Resource Management)  U n i v e r s i t y o f E d i n b u r g h , 1970  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF FORESTRY  i n the Faculty of Forestry  We a c c e p t t h i s t h e s i s as conforming t o t h e required  standard  THE UNIVERSITY OF BRITISH COLUMBIA September, 1972  In p r e s e n t i n g  t h i s t h e s i s in p a r t i a l  f u l f i l m e n t o f the  requirements f o r  an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree the L i b r a r y s h a l l make i t f r e e l y  a v a i l a b l e f o r r e f e r e n c e and  I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e f o r s c h o l a r l y purposes may by h i s r e p r e s e n t a t i v e s .  be g r a n t e d by  written  gain  permission.  Department o f  ^ce^r^  The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada  Date  shall  not  thesis  Department o r  I t i s u n d e r s t o o d that c o p y i n g o r  of t h i s t h e s i s f o r f i n a n c i a l  study.  copying of t h i s  the Head of my  that  publication  be a l l o w e d w i t h o u t  my  i.  ABSTRACT  Forest planning  i s c h a r a c t e r i s e d by t h e n e c e s s i t y t o s a t i s f y a  s e r i e s o f l o n g term o b j e c t i v e s and y e t s t i l l term o b j e c t i v e s .  t o meet a s e r i e s o f s h o r t  T h i s problem o f c o n f l i c t s i s p a r t i c u l a r l y  pertinent  to the Province  o f B r i t i s h . Columbia where t h e f o r e s t ownership and t h e  f o r e s t operator  a r e each, p r i m a r i l y concerned w i t h d i f f e r e n t time  Further,  t h e demands t h a t a r e b e i n g made on t h e f o r e s t  spectra.  resource  a r e becoming e v e r more s t r i n g e n t and demanding as t h e p o l i t i c a l and e n v i r o n m e n t a l awareness o f t h e p u b l i c The  increases.  need t o c o n s i d e r m u l t i p l e o b j e c t i v e s i n the p l a n n i n g  process  causes t h e i n a d e q u a c i e s o f many o f t h e e a r l i e r models t o be h i g h l i g h t e d . A new s e r i e s o f models f o r f o r e s t p l a n n i n g ment o f o p e r a t i o n s  i s called for.  The d e v e l o p ^  research, t e c h n i q u e s and improved computers has f a c i —  l i t a t e d t h e i n t r o d u c t i o n o f a new s e r i e s o f p l a n n i n g  models.  Many models have been d e v e l o p e d u s i n g t h e o p t i m i s i n g  techniques  o f l i n e a r and dynamic programming f o r example, b u t t h e t e c h n i q u e t h a t , t h r o u g h i t s f l e x i b i l i t y and l a t i t u d e f o r v a r i a t i o n i n t h e b a s i c  assump-  t i o n s , h o l d s t h e most promise i s s i m u l a t i o n . Under t h e c o n d i t i o n s o f B r i t i s h Columbia, t h e f o r e s t f i r m , which, i s t h e main i n f l u e n c e on the f o r e s t r e s o u r c e  and l i n k s t h e n a t u r a l  environment w i t h the socio-economic environment, i s t h e n a t u r a l unit.  The f i r m i s c o n s t r a i n e d  planning  by t h e s u p e r i o r environments and i t i s  the r e s p o n s e s o f t h e f i r m t o changes i n e i t h e r t h a t a f f e c t s t h e f l o w o f goods and s e r v i c e s from t h e f o r e s t .  ii.  An  a n a l y s i s o f t h e f i r m shows t h a t i f a systems approach i s adopted  the p l a n n i n g  and p r o d u c t i v e  s t a g e s o f t h e f i r m may be d e f i n e d  in a  s u i t a b l e manner f o r t h e c o n s t r u c t i o n o f a computer s i m u l a t i o n model. The model may have s e v e r a l s t a g e s o f o p e r a t i o n a l development and may be used f o r d i f f e r e n t p u r p o s e s as i t i s d e v e l o p e d towards operational use.  The u l t i m a t e  s t a g e o f development w i l l o n l y be known  when the d e t a i l e d c o n s t r u c t i o n o f t h e model i s u n d e r t a k e n . o u t l i n e s t h e need f o r t h e model and d e v e l o p s i t t o a stage.  pre-construction f o r con-  development stage a r e o u t l i n e d .  The  development stage i s t h a t o f a f o r e s t management game. The  and  This thesis  The m a j o r s t e p s and p r o c e s s e s t h a t must be d e s c r i b e d  s t r u c t i o n o f t h e model t o t h e f i r s t first  full  s o u r c e s o f t h e d a t a and t h e i n i t i a l  l i m i t a t i o n s o f t h e model  t h e o u t p u t a r e g i v e n and t h e subsequent development s t a g e s  described.  "And t h e r e f o r e a g e n e r a l  custom o f s i m u l a t i o n  i s a vice r i s i n g either of a natural  falseness  o r f e a r f u l n e s s , o r o f a mind t h a t h a t h some main f a u l t s ,  which because a man must needs  d i s g u i s e , i t making him p r a c t i c e i n other  simulation  t h i n g s , l e s t h i s hand s h o u l d  be o u t  of use."  F r a n c i s Bacon (1561-1626) "Of S i m u l a t i o n  and  Dissimulation"  iv.  ACKNOWLEDGEMENTS  I would l i k e t o thank Dr. f o r h i s g r e a t h e l p and My and  Dr.  H a l e y , Chairman o f my  Academic Committee,  a s s i s t a n c e i n the p r e p a r a t i o n o f t h i s  thanks a r e a l s o due  J . H. G.  D.  Smith and Mr.  t o Dr. M. G. G.  thesis.  A. Goldberg o f the F a c u l t y o f Commerce,  Young o f the F a c u l t y o f F o r e s t r y ,  who  r e v i e w e d t h i s t h e s i s and p r o v i d e d many h e l p f u l comments. I am  a l s o indebted  the o p p o r t u n i t y  and  f i n a n c i a l a s s i s t a n c e t o c a r r y out t h i s  To M i s s Kathy P l e t t f i r s t d r a f t and  t o the F a c u l t y o f F o r e s t r y f o r p r o v i d i n g me  I owe  study.  a debt o f g r a t i t u d e f o r t y p i n g much o f  a l s o t o M i s s Penny Lewis f o r h e r  the f i r s t d r a f t and  with  f o r t y p i n g the f i n a l copy so  M.  sterling assistance magnificently.  J . Birchmore  the  with  V.  CONTENTS  Page  1.  Introduction  . . . . .  .  1  1.1  Objective  2.  F o r e s t p l a n n i n g models  .12  2.1  S i l v i c u l t u r a l models . ,  15  2.1.1  Physical constraints . . . . . . . . .  2.2  Economic models  2.2.1  Zero i n t e r e s t models  2.2.2  Non-zero i n t e r e s t models  2.2.2.1  Present  2.2.2.2  I n t e r n a l r a t e o f r e t u r n models  27  2.2.3  The problem o f t h e d i s c o u n t  28  2.2.4  The e f f e c t o f the i n t e r e s t r a t e s e l e c t i o n on t h e  o f the t h e s i s  10  .  15 22  ,  22 . . . .  23  .  24  v a l u e models . . . . .  rate  r o t a t i o n length  ,.  2.3  Cost-benefit analysis  2.4  Conclusions  3.  Operations research techniques  3.1  Calculus  3.2  Iterative optimisations  ,.  39  3.3  Simulation  ,.  42  3.4  A p p l i c a t i o n o f operations forest planning  . . . . . . .  . . . . . . . . . .  .  33  i  33 35  and f o r e s t p l a n n i n g  . . . .  37 38  research techniques ,  to 44  vi.  Page 4.  A n a l y s i s o f the f o r e s t f i r m .  4.1  C h a r a c t e r i s t i c s o f the firm's o r g a n i s a t i o n  52  4.2  Systems o f t h e f i r m  53  4.2.1  H i e r a r c h i c a l systems  55  4.2.2  D e c i s i o n making sub-systems  56  4.3  G o a l s and o b j e c t i v e s  60  4.3.1  Strategic objectives  60  4.3.2  Tactical objectives  4.4  Planning horizons,  4.5  Firm's c o n s t r a i n t s  66  4.6  Summary  68  5.  A p p l i c a t i o n o f s i m u l a t i o n t o elements o f t h e f o r e s t f i r m  5.1  Sensor sub-system  5.2  D a t a s t o r a g e sub—system . . . . . . . . . . .  5.3  Data p r o c e s s i n g  and p l a n n i n g sub-systems  70  5.4  D e c i s i o n making  sub—systems  74  5.5  C o n t r o l and f u n c t i o n i n g sub-systems  80  5.6  Summary  80  6.  O u t l i n e d e s c r i p t i o n o f a model o f t h e f o r e s t f i r m . . . . .  81  6.1  Objective  82  6.2  Desired  6.2.1  L i m i t a t i o n s t o t h e model o u t p u t  84  6.3  Form o f t h e model  85  6.3.1  Phase c h a r t o f t h e model  91  6.4  Assumptions o f t h e model  93  operational  ,  scope and t h e f o r e s t f i r m  o f t h e model  o u t p u t from t h e model  49  .  65  .  65  .  69 69  , .  70  83  vii.  Page 6.5  V a r i a b l e s o f t h e model  94  6.5.1  Exogenous v a r i a b l e s  94  6.5.2  Endogenous v a r i a b l e s  96  6.5.3  Data  96  6.6  I n i t i a l model s t a t u s  101  6.7  Planning processes  103  6.8  D e s c r i p t i o n s o f t h e elements o f p r o d u c t i o n  105  6.8.1  Symbols and v a r i a b l e s names used i n f l o w diagrams . . . . .  106  6.8.2  A c q u i s i t i o n of f i n a n c i a l resources  108  6.8.2.1  Engagement o f l a b o u r  6.8.2.2  S e t t i n g the p r o d u c t i v e c a p a c i t y  6.8.3  P r o d u c t i o n systems  113  6.8.3.1  F i x e d investment  115  6.8.3.2  Harvesting  6.8.3.3  Thinning  122  6.8.3.4  Planting  122  6.8.3.5  Maintenance and overheads  123  6.8.4  P o s t - p r o d u c t i v e systems  6.8.4.1  Log c o n v e r s i o n and s a l e s  124  6.8.4.2  Capital depreciation  126  6.9  F i n a n c i a l p o s i t i o n o f the f i r m  133  6.10  Game e v a l u a t i o n  138  6.11  F u t u r e development o f t h e model  139  6.12  Initial  141  7.  Conclusion  and d e c i s i o n making  110 I l l  .  .  ,  and p o t e n t i a l u s e o f t h e model  References  .  . . . . .  120  124  145 3_4g  viii.  FIGURES  Page 1.1  The f o r e s t f i r m l i n k i n g t h e n a t u r a l and s o c i o - e c o n o m i c environments  3.1  . °  Flow c h a r t o f the model development approach  (modified  using  the  7  systems  from Smith, 1970)  4.1  The system o f the f i r m  4.2  The p l a n n i n g  4.3  A l t e r n a t i v e average and m a r g i n a l c o s t c u r v e s under  47 -  system  57 58  d i f f e r i n g market c o n d i t i o n s  62  4.4  A l t e r n a t i v e production  64  4.5  Environment o f the f i r m  6.2  Depreciation  6.3  Alternative productive  c o s t s c h e d u l e f o r the f i r m  67  streams o f m o v i l e i n v e s t m e n t s c a p a c i t y streams  130 131  ix.  FLOW DIAGRAMS  Page 1.  F i n a n c i a l resources  109  2.  Labour a c q u i s i t i o n  112  3.  Production function . . . . .  116  4.  F i x e d investment  119  5.  Harvesting  6.  Log c o n v e r s i o n and s a l e s  7.  Capital depreciation  »• . . . . . .  121 127 132  TABLES  6.1  Production f e a s i b i l i t y  6.2  I n t e r i m statement  6.3  D i v i d e n d payment  and c o s t d a t a  o f accounts  114 136 137  1.  INTRODUCTION  C o n f l i c t between r e s o u r c e u s e s has r e c e n t l y been t h e s u b j e c t o f c o n s i d e r a b l e debate and d i s c u s s i o n .  Much o f t h e debate has c e n t e r e d  around t h e use o f t h e r e s o u r c e i t s e l f and t h e making o f the b e s t use o f t h e r e s o u r c e i n t h e c o n t e x t o f the t o t a l environment.  As an example o f  the t r e n d t o t h e d i s c u s s i o n o f r e s o u r c e c o n f l i c t s t h e t h e s e s o f Smith (19701 and Hogg  (19721 may  be c i t e d .  Both a u t h o r s r e f e r r e d t o t h e need  t o i n t e g r a t e t h e use o f the f o r e s t r e s o u r c e w i t h i n t h e c o n t e x t o f t h e t o t a l system o f our s o c i e t y , which comprises t h e n a t u r a l and t h e s o c i o - e c o n o m i c environment.  environment  The n a t u r a l environment i s t h e  p h y s i c a l and b i o l o g i c a l system i n which man,  as an i m p o r t a n t and e v e r  more s i g n i f i c a n t p a r t o f t h e ecosystem, e x i s t s and t h e s o c i o - e c o n o m i c environment which i s t h e system o f human i n t e r a c t i o n communication  both f o r personal  and t h e p r o d u c t i o n and d i s t r i b u t i o n o f goods and  As t h e impact o f man  on t h e environment d r a m a t i c a l l y  and t h e p u b l i c c o g n i t a t i v e p r o c e s s e s o f p o l i t i c a l ,  services.  increases  s o c i a l and  m e n t a l spheres become more f i n e l y honed, t h r o u g h both, improved  environeducational  f a c i l i t i e s and t h e d i s s e m i n a t i o n o f i n f o r m a t i o n , t h e r e s p o n s i b i l i t i e s o f t h e e n v i r o n m e n t a l manager become more demanding. manager i s o f t e n the f o r e s t manager, as t h e man the r e s p o n s i b i l i t y f o r a c t i o n .  The e n v i r o n m e n t a l on the ground and w i t h  The manager must pay a t t e n t i o n t o the  whole range o f system p e r t u r b i n g a c t i v i t i e s o f the f o r e s t o r r e s o u r c e u s e r , w i t h i n t h e c o n t e x t o f b o t h the n a t u r a l and the socio-economic s y s tems.  The r e q u i r e m e n t s f o r improved w e l f a r e , economic  stability,  and  2.  full  employment must be b a l a n c e d w i t h the impact on t h e f o r e s t  i t s d i s t u r b a n c e and the d i s r u p t i o n o f the f i s h , w i l d l i f e and  resource,  water  r e s o u r c e s , be they e i t h e r b e n e f i c i a l o f d e t r i m e n t a l t o e i t h e r  system.  C o n s i d e r a t i o n s o f t o t a l system impact a r e p a r t i c u l a r l y to  pertinent  the management o f t h e f o r e s t r e s o u r c e o f B r i t i s h Columbia, where so  much o f t h e p r e s e n t a f f l u e n c e i s a t t r i b u t a b l e t o the u t i l i s a t i o n o f t h e forest.  Indeed, the f o r e s t - b a s e d i n d u s t r i e s account f o r 45% o f t h e Gross  P r o v i n c i a l P r o d u c t and a r e by f a r t h e most i m p o r t a n t segment o f t h e e c o nomy CGovernment o f t h e P r o v i n c e o f B r i t i s h Columbia, 19701. cut  The a n n u a l  o f t h e f o r e s t has been expanding a t a r a t e o f 4.6% p e r annum and i t  has been p r e d i c t e d t h a t t h i s r a t e o f e x p a n s i o n c o u l d c o n t i n u e u n t i l  1990  (Smith and Kozak, 1970 a & b l , and a g e n e r a l optimism f o r the i n d u s t r y been e x p r e s s e d by b o t h Haley  C1971al and D r y s d a l e  has  (19691.  The need f o r managers t o o p e r a t e w i t h i n e v e r more s t r i n g e n t c o n s t r a i n t s was  commented upon by Asher  (1960, p. 238) who  wrote:  " W i t h i n t h e c o r p o r a t i o n , between t h e c o r p o r a t i o n and i t s n a t u r a l environment, and v i s - a - v i s the w o r l d around us, tomorrow's managers w i l l f a c e new c h a l l e n g e s , new p r o b lems, and v a s t new o p p o r t u n i t i e s . A t each l e v e l we see a w o r l d o f dynamic change. A t each l e v e l the manager must cope i n c r e a s i n g l y w i t h new demands p l a c e d upon him and h i s c o r p o r a t i o n by t h e d i v e r s e groups w i t h i n h i s o r g a n i s a t i o n and i n t h e s o c i e t y which p r o v i d e s h i s environment." The c o r p o r a t e environment o f t h e f i r m extends t o i n c l u d e t h e n a t u r a l environment, which p r o v i d e s i t s raw m a t e r i a l , socio-economic environment, which r e c e i v e s t h e goods and s e r v i c e s g e n e r a t e d , n e i t h e r o f which independently o f the o t h e r .  No s i n g l e measure o f u t i l i t y  the  whole system.  may  sub^-optimise o v e r the whole.  will  serve f o r  The m a x i m i s a t i o n o f a b e n e f i t f u n c t i o n i n one  a single objective function,  function  system  I s h a l l term models t h a t a r e based on  " f i r s t generation  models".  The economic b e n e f i t i s the one most u s u a l l y p e r c e i v e d , b u t as Keynes (.1936, p. 157) wrote: "There i s no c l e a r e v i d e n c e from e x p e r i e n c e t h a t t h e p o l i c y which i s s o c i a l l y advantageous c o i n c i d e s w i t h t h a t which i s most p r o f i t a b l e . " The achievement o f g o a l s o t h e r than s o l e l y economic  ones was a l s o  r e f e r r e d t o by S l o a n C1956, v o l . 1, p . 342}, who wrote: " I t seems t o me t h a t t h e time h a s come when t h e s a l e and d i s p o s a l o f Crown timber must be t h e i n s t r u m e n t and r e f l e c t t i o n o f a Government p o l i c y i n which t h e i n d i r e c t v a l u e s , s u c h as t h e s t a b i l i t y o f communities and t h e g e n e r a l w e l f a r e o f t h e p e o p l e a t l a r g e , must be t h e d o m i n a t i n g f a c t o r s . " Many o f t h e elements o f b o t h o f man's environments a r e i n t a n g i b l e and d i f f i c u l t  to quantify.  However, t h e v a l u e o f t h e i n t a n g i b l e s i s n o t  i n f i n i t e and each, i n p u t t h a t i s d e v o t e d t o t h e enhancement, maintenance o r p r e s e r v a t i o n o f an i n t a n g i b l e may r e s u l t i n a r e a l l o s s elsewhere i n t h e system, and f u r t h e r , c o n s i d e r a t i o n o f a s i n g l e element w i t h i n t h e system w i t h o u t due r e g a r d t o t h e remainder i s a f a l l a c i o u s approach t h a t will  lead t o a misallocation o f scarce resources.  Y e t , many o f t h e models  t h a t form t h e bases o f p l a n n i n g d e c i s i o n s under the p r e s e n t c i r c u m s t a n c e s a r e based on s i n g l e o b j e c t i v e  functions.  The i n d u s t r i a l p r o d u c t i v e system i s concerned w i t h t h e s u p p l y o f goods and s e r v i c e s and t h e i r d i s t r i b u t i o n .  The f o r e s t f i r m conforms t o  t h i s norm and i s u n u s u a l o n l y i n t h e n a t u r e o f i t s r e s o u r c e base, i s renewable o v e r a l o n g p e r i o d o f time and i s s i g n i f i c a n t l y by t h e a c t i o n o f t h e f i r m .  which  influenced  The f o r e s t f i r m must c o n t i n u e t o o p e r a t e  w i t h i n t h e d i c t a t e s o f p r o d u c i n g economic  satisfaction.  The f o r e s t f i r m must be c o n s i d e r e d t o be t h e i m p o r t a n t l i n k i n the c h a i n o f p r o d u c t i o n w i t h i n t h e P r o v i n c e o f B r i t i s h Columbia, f o r  4.  a l t h o u g h the f o r e s t r e s o u r c e  i s i n p u b l i c ownership  l a n d area) the wood p r o c e s s i n g o f the economy. l e a s e s and Service was  Industry  tenures  i n d u s t r y i s f i r m l y i n the p r i v a t e s e c t o r  i s given access  which a r e a d m i n i s t e r e d  CB.C.F.S.).  The  formula,  C h a p t e r 2.  by the B r i t i s h Columbia  o f the f o r e s t r e s o u r c e  Forest  tenures  has  o f a p h y s i c a l model^ namely the H a n z l i k  i t s advantages and The  by a s e r i e s o f  (19701.  T r a d i t i o n a l l y , the r a t e o f use  The  t o the r e s o u r c e  h i s t o r i c a l e v o l u t i o n o f the l e a s e s and  d i s c u s s e d a t l e n g t h by Nagle  r e g u l a t e d by the use  (95% o f the f o r e s t  d i s a d v a n t a g e s are d i s c u s s e d  been  formula. in detail in  s h o r t c o m i n g s o f t h e p h y s i c a l model a r e i r r e l e v a n t p r o -  v i d e d the volume o f wood demanded by i n d u s t r y i s l e s s t h a n the model stipulates. However, once the volume demanded c o i n c i d e s with, o r exceeds allowable  c u t , even on a l o c a l i s e d s c a l e , the  o f r e g u l a t i o n become c r i t i c a l . w i l l be e x e r t e d  inadequacies  I t i s then t o be  of t h i s  expected t h a t  abandonment o f i t s management p r i n c i p l e s and t o r y model i n use  cut.  would r e q u i r e a p u b l i c  an a d m i s s i o n t h a t the  these a c t i o n s should  be viewed as  regula—  embarrassing  t o the F o r e s t S e r v i c e , c o n s i d e r i n g the changes t h a t have o c c u r r e d first  instigated.  However, the a d o p t i o n  o f an  since  economic  -model by a government agency, such as the F o r e s t S e r v i c e , i m p l i e s  ^  For  i s unsatisfactory.  There i s no r e a s o n why  the p o l i c y was  form  pressure  on the F o r e s t S e r v i c e t o i n c r e a s e the a l l o w a b l e  the F o r e s t S e r v i c e t o y i e l d t o t h e s e p r e s s u r e s  the  the  W i t h i n t h i s t h e s i s the term " p h y s i c a l model" r e f e r s t o models based on the p h y s i c a l c h a r a c t e r i s t i c s o f the r e s o u r c e , whereas the term "economic models" r e f e r s t o models based on the economic v a l u e s o f the r e s o u r c e .  5.  a d o p t i o n o f an e n t r e p r e n e u r i a l does not  automatically  role;  a r o l e f o r which the  have a mandate from the p e o p l e .  Government  The  entrepre-  n e u r i a l r o l e i s i m p l i e d by n a t u r e o f the model which would have t o adopted. and  An  economic model, by the n a t u r e o f the c o n t r o l l i n g f u n c t i o n s  b a s i c d a t a i s , p e r f o r c e , more l i a b l e t o s h o r t term e r r o r i n i t s  predictions. s h i p t o the  The  As  predicted value  s t a t e o f the  p o l a t i o n from the  however, b e a r a g r e a t e r  state of f o r e s t  indirect  relationextra-  resource.  an a l t e r n a t i v e t o the F o r e s t S e r v i c e p l a c i n g i t s e l f  resource,  i n the  p u t t i n g i t s c a p i t a l , i . e . the f o r e s t  i n a s t a t e o f r i s k , the r e s p o n s i b i l i t y f o r management can  p a s s e d t o the f o r e s t i n d u s t r y . i t s own  unacceptable devolution  The  f u t u r e s u p p l i e s o f raw  Further  evolved.  will,  s o c i o - e c o n o m i c system than an  p o s i t i o n o f e n t r e p r e n e u r and  for  be  a l i e n a t i o n o f the  (Nagle, 1970)  and,  i n d u s t r y then assumes r e s p o n s i b i l i t y material.  l a n d from p u b l i c ownership i s p r e s e n t l y t h e r e f o r e , t o implement a p o l i c y o f  o f r e s p o n s i b i l i t y , a system o f Tree Farm L i c e n s e s C o n t r o l o v e r the f o r e s t i s r e t a i n e d d i r e c t l y by the  t h a t a l l management p l a n s  are approved by the B.C.F.S. and  taxation  Jones, 1969).  (Johnson, 1962;  has  Service^" i t i s p o s s i b l e t o f o r e s e e  a new  element i n the p r o d u c t i v e  terras o f the p r o d u c t i o n remarkably l i t t l e  been  requirement  indirectly  With the r e s p o n s i b i l i t y f o r management d i v e s t e d from the  upon the key  be  by  Forest  e r a i n f o r e s t management, where-  p r o c e s s e s i s the  p r o c e s s i n B r i t i s h Columbia has  f i r m , which i n been  given  attention.  From Nagle's (1970) d a t a i t i s e s t i m a t e d t h a t 23% o f the P r o v i n c i a l A l l o w a b l e Cut comes from T r e e Farm L i c e n s e s and p r i v a t e l a n d s .  6.  On  the b a s i s o f the  r o l e i n the ments  f o r e s t f i r m h a v i n g an ever more i m p o r t a n t  i n t e r a c t i o n between the  (see F i g . 1.11,  socio-economic and  natural  environ-  changes i n e i t h e r system which have a b e a r i n g  the o t h e r w i l l be d i s p l a y e d by a system m o d i f y i n g p r o c e s s w i t h i n firm that w i l l  spawn a compensatory r e a c t i o n w i t h i n the o t h e r  Changes i n the r e s o u r c e  the  system.  base, i . e . the f o r e s t , e i t h e r t h r o u g h n a t u r a l  r e s p o n s e s o r man-rinstigated  activities,  w i l l r e s u l t i n changes i n p r o f i t  and  jobs  f o r example w i t h i n the f i r m and,  due  say t o a h a r d e n i n g o r s o f t e n i n g o f the demand f o r lumber w i l l  conversely,  the f i r m t o r e s p o n d by a l t e r i n g i t s r a t e o f r e s o u r c e We must be  are  a change i n p r o f i t s  f a c e d w i t h a complex problem o f l i m i t e d r e s o u r c e s  s a t i s f a c t i o n o f the d i v e r s e elements o f the n a t u r a l and environments c a r e f u l p l a n n i n g  Simon  and  cause  use. that  a l l o c a t e d t o s a t i s f y m u l t i p l e o b j e c t i v e s . To ensure the  called for.  on  optimum  socio-economic  d e t a i l e d e v a l u a t i o n o f the p l a n s  is  Many models f o r d e c i s i o n making have been advanced but  as  (1959) wrote: "The d e c i s i o n maker's model o f the w o r l d encompasses o n l y a minute f r a c t i o n o f a l l the r e l e v a n t c h a r a c t e r i s t i c s o f the r e a l environment and h i s i n f e r e n c e s e x t r a c t o n l y a minute f r a c t i o n o f a l l the i n f o r m a t i o n t h a t i s p r e s e n t i n h i s model."  Many o f the p r e s e n t models t h a t a r e a v a i l a b l e have s e r i o u s for  inadequacies,  the a n a l y t i c a l p r o c e s s e s employed do not p e r m i t m u l t i p l e  f u n c t i o n s t o be  evaluated  d e c i s i o n s t o be a s s e s s e d .  and  the  t o t a l consequences o f the  Indeed, Thompson  objective planning  (1966) c o n c l u d e d t h a t  the t r a d i t i o n a l f o r e s t r e g u l a t i o n model i s an  inappropriate  guide f o r  many f o r e s t managers, c o m p l e t e l y adequate s u b s t i t u t e s are not available".  "while  presently  SOCIO-ECONOMIC  ENVIRONMENT  Jobs  Wood Production  Services As  FOREST RECREATION  PRODUCTIVE  VISUAL IMPACT  SYSTEM Average Stand Diameter  Other Land Demands  Access  Volume/Acre  NATURAL  ENVIRONMENT  F i g u r e 1.1  THE FOREST FIRM LINKING THE NATURAL AND THE SOCIO-ECONOMIC  ENVIRONMENTS  8.  The  i n a d e q u a c i e s o f t h e p l a n n i n g models a r e becoming more  a t a time when the need f o r p l a n n i n g i s becoming more p r e s s i n g .  apparent Dis-  i l l u s i o n m e n t w i t h t h e f r e e market system and i t s a b i l i t y t o p r o v i d e f o r non-market f a c t o r s , be i t e i t h e r economies o f t h e supply o f s e r v i c e s o r t h e diseconomies  o f the c r e a t i o n o f u n d e s i r a b l e e x t e r n a l i t i e s , i s  b r i n g i n g about c e n t r a l i s e d , p o s i t i v e economic p l a n n i n g .  Much o f t h e  p l a n n i n g c o n t i n u e s t o be n e g a t i v e , t h a t i s t h e "thou s h a l t n o t " t y p e , but p o s i t i v e p l a n n i n g i s b e i n g more f r e q u e n t l y used, encompassing  such  methods as t a x i n c e n t i v e s and c a p i t a l g r a n t s t o p r o v i d e s p e c i f i c i n v e s t ment  stimuli. The  f o r e s t resource i s not escaping the planner.  However, many  o f t h e models t h a t a r e i n use f o r f o r e s t p l a n n i n g a r e l i m i t e d i n t h e i r applications.  There i s a need f o r a s e r i e s o f new models w i t h a t o t a l  system and m u l t i - d i s c i p l i n a r y approach.  I s h a l l term t h e s e ,  "second  g e n e r a t i o n models". T h i s t h e s i s i s w r i t t e n t h e r e f o r e t o advance the p r o p o s i t i o n t h a t the new t e c h n i q u e s  a v a i l a b l e i n o p e r a t i o n s r e s e a r c h , and f a c i l i t a t e d by  the advent o f the e l e c t r o n i c computer, p e r m i t the development o f complex models t h a t g i v e c o n s e q u e n t i a l i n f o r m a t i o n about system p e r t u r b i n g actions.  Thus, t h e r a m i f i c a t i o n s o f d e c i s i o n s may be i n v e s t i g a t e d i n  g r e a t e r d e t a i l than p r e v i o u s l y w i t h o u t the r e a l system.  r e c o u r s e to e x p e r i m e n t i n g  with  The u n c e r t a i n t y t h a t i s a s s o c i a t e d w i t h t h e p l a n n i n g  p r o c e s s can never be t o t a l l y e l i m i n a t e d b u t , as the s o p h i s t i c a t i o n o f the models improves, t h i s u n c e r t a i n t y can be reduced, r a d i c a l changes a r e p r o p o s e d .  p a r t i c u l a r l y when  The l e a s t three  e f f e c t i v e c o n t r o l o f the t h i n g s about the  1)  where the  2)  what the the  31  system, namely:  system a c t u a l l y i s a t the p r e s e n t  time;  l e v e l s o f the c r u c i a l exogenous v a r i a b l e s w i l l be  s t r u c t u r e o f the  e s t i m a t e the e f f e c t s on  All  at  in  f o r e c a s t p e r i o d o f i n t e r e s t t o the c o n t r o l l e r ;  what the  mix  system r e q u i r e s a knowledge o f  system i s , so t h a t i t i s p o s s i b l e  the t a r g e t v a r i a b l e s o f any  to  given p o l i c y  o f changes i n the c o n t r o l v a r i a b l e s .  three questions  are fundamentally q u a n t i t a t i v e i n nature.  It i s postulated  that simulation  be used i f a p p l i e d t o the  t e c h n i q u e w i l l most p r o f i t a b l y  forest firm.  D e t a i l e d , systematic  a n a l y s i s o f the f i r m w i l l p e r m i t the  for-  m u l a t i o n o f the b a s i s o f a computer s i m u l a t i o n model o f the f i r m . a p p r o a c h such as t h i s and s e v e r a l immediate and The 1)  the f o r m u l a t i o n  concise  are: framework f o r c o n s i d e r i n g  i m p l i c a t i o n s of resource 2)  have  l o n g term b e n e f i t s .  immediate b e n e f i t s  a l o g i c a l and  o f the model b a s i s w i l l  An  the problems  conflicts;  the h i g h l i g h t i n g o f the d a t a r e q u i r e m e n t s f o r t h e s e r e s o u r c e flicts,  and  the n a t u r e o f the d a t a r e q u i r e d and  the p r e s e n t  con-  status  of  the d a t a c o l l e c t e d ; 3)  i d e n t i f i c a t i o n o f the r e l e v a n t v a r i a b l e s and resource The  parameters f o r t o t a l  planning.  b a s i s t h a t i s formed may  to a s s i s t the t o t a l resource model base i s o u t l i n e d and  be d e v e l o p e d i n s e v e r a l d i r e c t i o n s  planner.  discussed  The  f u t u r e development o f  a t l e n g t h i n s e c t i o n 6.11  the  below.  10.  A general  survey t h a t d i s c u s s e d  ment, p r e c o n d i t i o n s and  1.1  f o r r a t i o n a l planning,  t h e economics o f y i e l d p l a n n i n g  published  the terminology, h i s t o r i c a l  by Grayson and Johnson  develop-  i n c l u d i n g t h e u s e o f computers,  and s i l v i c u l t u r a l t r e a t m e n t s has been  C19701.  OBJECTIVES OF THE THESIS  There i s a need f o r p l a n n i n g of multiple goals  models t h a t c o n s i d e r  the i m p l i c a t i o n s  and o b j e c t i v e s f o r t h e r e s o u r c e base, w i t h a broad and  d i v e r s e d a t a and c o n s t r a i n t i n p u t . We may s t a t e t h e o b j e c t i v e s o f t h i s t h e s i s as f o l l o w s : 1)  t o review the present planning  models and t o a s s e s s t h e i r l i m i t a -  tions; 2)  t o i n v e s t i g a t e the p o t e n t i a l use o f operations planning  3)  research  f o r resource  models;  t o i n v e s t i g a t e t h e system o f t h e f i r m as a b a s i s f o r a  simulation  model; 4)  t o r e v i e w t h e l i t e r a t u r e as r e g a r d s s i m u l a t i o n  models w i t h i n  f o r e s t r y and t o a p p l y t h e s e models t o t h e f o r e s t f i r m ; 5)  t o p r e p a r e t h e b a s i s f o r a s i m u l a t i o n model o f t h e f o r e s t f i r m as i t might be used f o r f o r e s t r e s o u r c e p l a n n i n g f a r as p o s s i b l e  and t o determine as  t h e p o t e n t i a l o f such a model and t o o u t l i n e t h e  p o s s i b l e means o f development o f t h e model. These o b j e c t i v e s chapters.  are d e a l t with systematically  The t h e s i s has been w r i t t e n  i n t h e subsequent  t o have as g e n e r a l  i s f e a s i b l e without the i n t r o d u c t i o n o f b l a t a n t e r r o r s , and  frequent  a p p l i c a t i o n as contradictions  r e j o i n e r s , b u t i t i s i n t e n d e d t h a t the comments a p p l y  parti-  cularly  t o B r i t i s h Columbia and where examples a r e r e q u i r e d f o r  c a t i o n o r e l a b o r a t i o n these to t h i s Province. bility  are drawn from i n f o r m a t i o n and  facts relevant  Such a model as i s d e s c r i b e d i s o f g e n e r a l  though the d a t a  sources  l i s t e d are to permit  the model f o r B r i t i s h Columbia c o a s t  regions.  clarifi-  applica-  the v e r i f i c a t i o n  of  12.  CHAPTER 2  FOREST PLANNING MODELS  Many models have been p r o p o s e d f o r f o r e s t p l a n n i n g analysis.  These models have ranged from the p u r e l y  t o p u r e l y f i s c a l models.  The  and  investment  s i l v i c u l t u r a l models  former were d e s i g n e d t o r e g u l a t e  the  o f wood o f a p a r t i c u l a r type o r q u a l i t y t o the market p l a c e , and were d e s i g n e d t o maximise the  the  latter  profit.  The models were a p p l i c a b l e t o d i f f e r e n t s e t s o f The  flow  circumstances.  s i l v i c u l t u r a l m o d e l s were a p p l i c a b l e t o p u b l i c o r p r i v a t e f o r e s t  e n t e r p r i s e s under c o n d i t i o n s  o f z e r o economic growth, z e r o  r a t e s , c o n t i n u o u s f o r e s t ownership and s t a n c e s the o b j e c t i v e  i s the  The  the r e s o u r c e ,  discount  rates  neo—Keynesian sense) and  s t a b i l i t y o f demand or the  no c o n d i t i o n s  models may  be  The  scarce  of scarce  r e s o u r c e may  as t o  be  The  either  is  land the  scope o f  f u n c t i o n w i l l depend upon whether the model i s b e i n g a p p l i e d by sector.  the  resources  a p p l i e d d i f f e r e n t l y depending upon  scope o f the b e n e f i t f u n c t i o n t h a t i s b e i n g a p p l i e d .  or p r i v a t e  neo-  c o n t i n u i t y o f ownership, but where t h e r e  economy as a whole. The  forests  ( e i t h e r i n the  a r e q u i r e m e n t t o o p t i m i s e the e f f i c i e n c y o f the use  or c a p i t a l .  use  o r the optimum redeployment  economic models a r e a p p l i c a b l e t o p u b l i c o r p r i v a t e  c l a s s i c a l sense or the  the  efficient  economy.  w i t h non-zero economic growth and  within  Under t h e s e circum-^  f l o w o f goods r a t h e r than the  o f the c a p i t a l d e p l o y e d w i t h i n o f the c a p i t a l w i t h i n the  s t a b l e demand.  discount  the  the public  A whole spectrum o f models e x i s t s between the many are o f t e n i n v a l i d e i t h e r because o f the o b j e c t i v e s o r because o f the r e s u l t i n g from c o n f l i c t i n g  two  extremes,  i n c o m p a t i b i l i t y of  and  i t may  assumptions.  be u s e d i n e i t h e r o f two  the p r e c o n d i t i o n s  The  be  ways.  planning  E i t h e r the g o a l i s s e t  r e q u i r e d t o a c h i e v e t h i s outcome a r e  o r a l t e r n a t i v e l y the r e v e r s e c o n d i t i o n s may  s e t and  p r o c e s s may-  the outcome and  be  followed,  ascertained,  whereby the  f i n a l system s t a t e  approaches have a p p l i c a t i o n s a t d i f f e r e n t s t a g e s o f the  process.  the  i n t e r n a l i n c o n s i s t e n c i e s w i t h i n the model  Having e s t a b l i s h e d w h i c h model i s t o be u s e d i n the process,  but  G o a l o r i e n t e d models and p r o c e d u r e s are o f v a l u e  i m p l e m e n t a t i o n , whereas c o n s e q u e n t i a l  pre-  predicted. planning  p r i o r to  a n a l y s i s becomes o f v a l u e  during  the enactment o f the p o l i c y t o t e s t the e f f e c t s o f changes i n parameters o r v a r i a b l e s and  t o i n d i c a t e the need f o r changes i n the  system o r  goal. L e t us a c c e p t a t t h i s j u n c t u r e to several general 1)  that consideration  should  be  a r e a s o f f o r e s t p o l i c y , which a r e :  the p r o v i s i o n o f s a t i s f a c t o r y incomes from p u b l i c l a n d s ,  either  by p u b l i c o r p r i v a t e e x p l o i t a t i o n w i t h the payment o f l a n d logging taxes, 2)  stumpage charges o r  cessing  rents,  royalties;  the p r o v i s i o n s o f s u i t a b l e employment o p p o r t u n i t i e s and generation  given  the  o f p r i v a t e incomes w i t h i n the wood p r o d u c i n g o r  pro-  i n d u s t r i e s , which under the c a p i t a l i s t system means  a v a i l a b i l i t y o f adequate p r o f i t s t o a t t r a c t and w i t h i n the  industry;  retain capital  14.  3)  the g e n e r a t i o n o f secondary the f o r e s t based  4)  economic and s o c i a l b e n e f i t s from  industries;  the p r o v i s i o n o f a l e g a c y o f u t i l i s a b l e f o r e s t r e s o u r c e t o subsequent g e n e r a t i o n s ;  5)  m i n i m i s i n g t h e impact  o f t h e f o r e s t o p e r a t i o n s on t h e r e s o u r c e  and  t h e r e s o u r c e r e l a t e d a s p e c t s o f t h e n a t u r a l environment.  The  importance t h a t i s a t t a c h e d t o each p o i n t i s a m a t t e r o f  political  d e c i s i o n , but u n l e s s the weighting  t h a t i s a t t a c h e d t o any o f  the f i v e i s z e r o , then t h e r e i s a m u l t i p l e o b j e c t i v e f u n c t i o n t o t h e forest policy.  The p o l i c y based on t h e s e p o i n t s w i l l undoubtedly c o n t a i n  anomalies and c o n t r a d i c t i o n s t h a t w i l l r e q u i r e t r a d e - o f f s t o be made a t t h e implementation The of  stage.  anomalies and c o n f l i c t s s t i l l  e x i s t w i t h i n the f o r e s t  B r i t i s h Columbia a s debate p e r s i s t s as t o t h e w e i g h t i n g  be g i v e n t o v a r i o u s a s p e c t s o f t h e p o l i c y  policy  that should  (Pearse, 1967).  C l e a r l y , t h e s o r t s o f models d i s c u s s e d so f a r , h a v i n g noted  their  l i m i t e d o b j e c t i v e f u n c t i o n and r e s t r i c t e d o p e r a t i n g c o n d i t i o n s , p r e s e n t difficulties policy.  when a t t e m p t i n g  t o ensure an o v e r a l l o p t i m i s a t i o n f o r a  The i n f o r m a t i o n y i e l d e d as t o the r e a l o r o p p o r t u n i t y c o s t s o r  b e n e f i t s a s s o c i a t e d w i t h a g i v e n p o l i c y i s g e n e r a l l y o f an nature.  The i n f o r m a t i o n as t o m a r g i n a l  inadequate  r a t e s o f c o s t o r b e n e f i t sub-  s t i t u t i o n i s s p a r s e , t h e assumptions a r e u s u a l l y v i o l a t e d and t h e t o t a l impact  o f changes i n p o l i c y a r e unknown. D e s p i t e t h e s e l i m i t a t i o n s , t h e models a r e b e i n g used f o r f o r e s t  planning.  P r e s e n t l y , t h e r e a r e no s u i t a b l e a l t e r n a t i v e s .  c h a p t e r two l i n e s o f debate w i l l  be f o l l o w e d .  In t h i s  The p h y s i c a l and economic  models w i l l be failure  explored  i n greater d e t a i l f i r s t l y  to a s s i s t w i t h the  ment o f the  s e t t i n g o f the p r e c o n d i t i o n s  stated p o l i c y goals,  t o a s s i s t i n the d e t e r m i n a t i o n reguired  and  o f the p l a n n i n g  stated  achieve-  and  operational  failure controls  goals.  the v a l i d i t y o f the model i s the u s e f u l n e s s  2.1  f o r the  be n o t e d t h a t the o n l y v a l i d c r i t e r i o n f o r  p l a n n e r t o a c h i e v e the  their  s e c o n d l y i n terms o f t h e i r  f o r the achievement o f t h e s e  I t should  i n terms o f  assessing  o f the model i n a i d i n g  the  goals.  SILVICULTURAL MODELS  One  o f the most e f f e c t i v e mechanisms f o r r e g u l a t i n g the f o r e s t  i n d u s t r y and and  the  the r a t e o f use  o f the f o r e s t r e s o u r c e ,  short  l o n g term, i s the r e g u l a t i o n o f the f l o w o f raw m a t e r i a l t o  market p l a c e by the use t i o n may  of administrative procedures.  a c h i e v e i t s ends by  the r a t e o f use  o r by  the  the f i s c a l p r o c e d u r e s .  f o r e s t whereas the f i s c a l  The  the  administra-  imposition of p h y s i c a l l i m i t a t i o n s to  c a l c u l a t e d on the b a s i s o f a model r e l y i n g on o f the  b o t h i n the  The  physical limits  are  the p h y s i c a l a t t r i b u t e s  c o n s t r a i n t s are  imposed on  the  economic  system.  2.1.1  PHYSICAL CONSTRAINTS  The on  p h y s i c a l c o n s t r a i n t s are  the amount o f wood t h a t may  be  simply  l i m i t s , b o t h upper and  removed each y e a r o r p e r i o d .  r e q u i r e s a model based on the p h y s i c a l c r i t e r i a t i o n o f the v a l u e procedure.  The  t o p e r m i t the  o f the l i m i t t h a t i s used i n t h i s  word " p o l i c y " has  lower,  This determina—  administrative  been c a r e f u l l y a v o i d e d because i t must  16.  be remembered t h a t the p h y s i c a l model used s o l e l y a means t o an end The  i s not an end i n i t s e l f  but  (Hummel, 1969).  f o r e s t l i t e r a t u r e abounds w i t h a p l e t h o r a o f models f o r the  r e g u l a t i o n o f the f o r e s t and the more commonly used a r e summarised i n the F o r e s t r y Handbook f o r B r i t i s h Columbia  (U.B.C. F o r e s t C l u b , 1971).  In the e a r l y days o f f o r e s t p l a n n i n g the p h y s i c a l models were the o n l y p r a c t i c a l ones as they d e a l t w i t h the e a s i l y d e f i n a b l e and m e a s u r a b l e a s p e c t s o f the f o r e s t . c u t , was  The r a t e o f use, o r a l t e r n a t i v e l y , the a l l o w a b l e  based on the f o r e s t a r e a , the volume o f s t a n d i n g timber o r the  r a t e o f growth o f the f o r e s t , o r any c o m b i n a t i o n  of a l l three.  These  models, r e f e r r e d t o above as s i l v i c u l t u r a l models, were g e n e r a l l y d i r e c t e d towards the a t t a i n m e n t o f the normal f o r e s t and the p r o v i s i o n o f continuous production i n p e r p e t u i t y . t o t h e s e models were reviewed  The p h y s i c a l c r i t e r i a  pertaining  and d i s c u s s e d a t l e n g t h by Richmond  (1969).  Models o f t h i s type c o n t i n u e t o be a p p l i c a b l e f o r f o r e s t management and a d m i n i s t r a t i o n i n some a r e a s , such as newly d e v e l o p i n g a r e a s w i t h o u t a d e v e l o p e d market system  (Moss, 1970).  In B r i t i s h Columbia, a d e v e l o p e d market system,  d e s p i t e p a s s i n g from t h i s s t a g e and a p h y s i c a l model i s s t i l l  i n use.  having  The  B.C.F.S. c o n t r o l s the r a t e o f e x p l o i t a t i o n by the use o f a m o d i f i e d Hanzlik formula  (Young, 1969): AAC  = m R V  +  where AAC = a l l o w a b l e annual c u t R = rotation V_ = volume o f mature timber  1  17.  I = mean annual increment a t the r o t a t i o n age o f second r o t a t i o n stands f o r each i n d i v i d u a l growth type  The c u t i s i n f a c t s u b j e c t e d t o f u r t h e r c o n s t r a i n t s . recommendation o f R o y a l Commission o f 1945 i n "The P u b l i c Act:  Report o f t h e Commissioner  B r i t i s h Columbia", committed  On t h e  Enquiries  r e l a t i n g t o t h e F o r e s t Resources o f  (commonly r e f e r r e d t o as t h e Sloan Report) t h e P r o v i n c e  i t s e l f t o t h e concept o f maximum s u s t a i n e d y i e l d as t h e manage-  ment o b j e c t i v e , which was o r i g i n a l l y d e f i n e d i n the F o r e s t A c t (1947) as t h e "growing c o n t i n u o u s l y and p e r p e t u a l l y s u c c e s s i v e c r o p s o f f o r e s t p r o d u c t s t o be h a r v e s t e d i n a p p r o x i m a t e l y e q u a l annual o r p e r i o d i c c u t s adjusted to a sustained y i e l d capacity."  Thus  A  A  C  =  A A C  t  (subsection  (21 o f s e c t i o n 331.  t+l  where t denotes a d i s c r e t e time p e r i o d  In p r a c t i c e t h i s c o n d i t i o n i s r e l a x e d such t h a t i n any y e a r t h e amount a c t u a l l y c u t may v a r y by 50% from the p l a n n e d c u t and the t e n y e a r c u t may v a r y by 10%. The use o f t h e p h y s i c a l model has been c r i t i c i s e d by many a u t h o r s on many a c c o u n t s .  The o b j e c t i o n s have been reviewed by Pearse  and t h e l i t e r a t u r e  s p e c i f i c a l l y concerned w i t h s u s t a i n e d y i e l d ,  the c o n s t r a i n e d model, was a p p e r c e i v e d by Smith and Haley  (1970) that i s  (1970).  L e t us  f i r s t c o n s i d e r t h e o b j e c t i o n s t o t h e use o f t h e p h y s i c a l model p e r se, u s i n g t h e H a n z l i k model f o r an example. the c o n s t r a i n t s w i l l be c o n s i d e r e d .  Secondly t h e i m p l i c a t i o n s o f  18.  Fedkiw  (1961) asked  as t o the a r e a o f a p p l i c a t i o n o f such models.  The model i t s e l f makes no r e f e r e n c e t o the a r e a , o r working c i r c l e ,  to  which i t i s t o be a p p l i e d .  then  I f the a r e a c o n s i d e r e d i s t o o e x t e n s i v e  l o c a l d i s e q u i l i b r i u m s o f s u p p l y and demand may  arise\ causing  local  p r i c e f l u c t u a t i o n s independent o f the p r e v a i l i n g i n d u s t r y p r i c e .  The  e x t e n t t o which t r a n s p o r t a t i o n can r e c t i f y the l o c a l s h o r t a g e s o r  ex-  cesses i s l i m i t e d .  A t the o t h e r extreme, i f the area i s t o o s m a l l the  economic e x p l o i t a t i o n o f the r e s o u r c e may  be p r e c l u d e d .  In e s t a b l i s h i n g  the r e g i o n o f e x p l o i t a t i o n , c o n s i d e r a t i o n must be g i v e n t o t e c h n o l o g i c a l changes i n the h a r v e s t i n g and wood u s i n g i n d u s t r i e s , w h i c h e f f e c t p r a c t i c a l working c i r c l e , and  t o s h i f t s i n the p o p u l a t i o n and  the  industrial  c e n t r e s , which e f f e c t s the catchment a r e a o f the r e s o u r c e demand. The model may economic f a c t o r s .  be c r i t i c i s e d  No  f o r i t s lack of consideration of  r e f e r e n c e i s made t o c a p i t a l v a l u e o f the  timber.  With r e g a r d s t o the o l d - g r o w t h  accounts  f o r 48% o f the r e s o u r c e ^ and w i t h the a d o p t i o n o f what  standing  t i m b e r , which i n B r i t i s h Columbia may  l o o s e l y be c a l l e d a n e o - c l a s s i c a l approach, then the c a p i t a l v a l u e i s z e r o , as no investment  ( i . e . e f f o r t ) has been expended on the  resource.  E q u a l l y , by the neo-Keynesian p h i l o s o p h y , the c a p i t a l v a l u e o f the r e s o u r c e i s a l s o z e r o , as the f u t u r e e a r n i n g s o r p r o f i t s o f the  standing  t i m b e r , which i s more growth, i s z e r o . On  the b a s i s o f the v a l u e o f the s t a g n a n t  resource having  c a p i t a l v a l u e o f z e r o , the f o r e s t becomes e q u i v a l e n t t o a mine.  a The  un-  c o n s t r a i n e d model i n d i c a t e s the e l i m i n a t i o n o f the o l d growth, i f i n c r e -  F o r e s t I n d u s t r y S t a t i s t i c s o f B r i t i s h Columbia, V i c t o r i a  1969  for  1970.  merit i s z e r o , o v e r t h e r o t a t i o n p e r i o d .  However, a s the increment  i n c r e a s e s , t h e r a t e o f d e p l e t i o n o f the o l d growth i n c r e a s e s , the annual c u t i s removed from t h e o l d growth. criticised  full  i f all  0-965) however,  such a p o l i c y and showed t h a t i n some c a s e s i t i s b e t t e r , i n  the economic sense, t o b e g i n h a r v e s t i n g the  Palmer  CD  d e p l e t i o n o f the old-growth  second r o t a t i o n c r o p s  before  resource.  The model t e l l s us t h a t r a t e o f removal o f o l d growth i n c r e a s e w i t h time.  Also there being  sions the production  i n any g i v e n p e r i o d i s n o t independent o f p r o d u c -  t i o n i n any o t h e r .  a resource  should  I n t h e normal p r o d u c t i o n  o f f i x e d s p a t i a l dimen-  process,  t h e optimum r a t e  i n any p e r i o d i s s e t a t t h e p e r i o d i c p r o f i t m a x i m i s i n g p o i n t ,  namely  where m a r g i n a l c o s t equates w i t h m a r g i n a l revenue, any l o s s o f p r o d u c t i o n i n that period i s production  lost forever.  F o r t h e mine however,  the p r o d u c t i o n  foregone today can always be produced tomorrow.  any  today i s a l o s s o f f u t u r e p r o d u c t i o n  production  imposed on t h e r e s o u r c e the o p p o r t u n i t y and  Gaffney The  Nautiyal  user  and a u s e r c o s t i s  ( S c o t t , 1953, 1955, 1967).  cost o f production  Indeed,  This  o v e r time as d i s c u s s e d  represents  by B a i n  (1937)  (1965). p a r a l l e l between t h e mine and t h e f o r e s t was a l s o drawn by  (1966, 1970) when he a p p l i e d the concept o f u s e r c o s t t o t h e  optimum r a t e o f h a r v e s t i n g .  He showed t h a t t h e i n i t i a l  rate of harves-  t i n g would d e c r e a s e w i t h time, assuming a p o s i t i v e r a t e o f i n t e r e s t , i f the u s e r c o s t were c o n s i d e r e d . however, o v e r l y c a u t i o u s  The s o l u t i o n t h a t N a u t i y a l p r e s e n t e d was,  because he i g n o r e d  opportunity  c o s t o f t h e new  growth by r e t a i n i n g t h e o l d growth and assumed t h a t t h e f u t u r e f o r e s t existed with c e r t a i n t y .  A l l o w a n c e f o r t h e s e f a c t o r s shows an i n c r e a s e d  r a t e o f r e s o u r c e removal.  Thus, by a d o p t i n g two a l t e r n a t i v e approaches  t o t h e removal o f t h e o l d growth, one based on t h e p h y s i c a l model and the o t h e r on t h e concept o f t h e u s e r c o s t , c o n f l i c t i n g r a t e s o f removal are  suggested. The model does n o t ensure t h e achievement o f market  equilibrium  f o r t h e s u p p l y o f e i t h e r o l d growth o r second growth t i m b e r t o t h e market  ( f o r a f u r t h e r comment on t h i s p o i n t  see Haley, 1966).  I f t h e c o n s t r a i n t s t h a t were mentioned a r e now i n t r o d u c e d the model a f u r t h e r s e r i e s o f c o m p l i c a t i o n s  arise.  Ultimately  into  t h e model  must t e n d towards t h e s t a t e o f :  AAC  = I  where i n t h i s c a s e , I , t h e mean annual increment, i s a maximum. C r i t i c a l t o t h e model as a whole, r e g a r d l e s s the  choice  o f t h e r o t a t i o n age.  optimum c h o i c e condition.  o f the constraint i s  No i n d i c a t i o n i s g i v e n  regarding the  as t h e model does n o t s p e c i f y a m a x i m i s i n g o r m i n i m i s i n g  However, t h e i n t r o d u c t i o n o f t h e c o n s t r a i n t o f maximum s u s -  t a i n e d y i e l d p r e s e n t s an o b j e c t i v e f u n c t i o n t o t h e model.  There i s  l a t i t u d e f o r debate as t o i t s v a l i d i t y , b u t on the b a s i s o f t h i s  objec-  t i v e t h e r o t a t i o n age s h o u l d be t h a t which maximises the mean annual increment.  The o b j e c t i v e o f maximum s u s t a i n e d  yield i s criticised  below.  There i s no i n d i c a t i o n as t o t h e time p e r i o d o v e r which t h e model s h o u l d be a c h i e v e d and i t i s a q u e s t i o n a t t e n t i o n , though N a u t i y a l  and Pease  to optimise the conversion  within  A literal  t h a t has r e c e i v e d  little  formal  (1967) a p p l i e d t h e l i n e a r programming  the confines  i n t e r p r e t a t i o n o f the constrained  o f economic o b j e c t i v e s .  model i m p l i e s an economic  21.  growth r a t e o f z e r o a t the p r e s e n t o f the  time w i t h a growth o r i e n t e d economy.  zero-economic growth r a t e and  economy,  (e.g. Mishan, 1967;  m i g h t be a c h i e v e d are  CHardin, 1968), which i s c l e a r l y a f a l l a c i o u s  still  but  some day  small voices  advocates  t u r n i n g t o a s o l e l y replacement  Boulding,  but  There are  approach  1966).  This state of  affairs  as y e t t h e s e p r o p h e t s o f M a l t h u s i a n doom  i n the w i l d e r n e s s ,  venting  t h e i r words o f  wisdom on a growth o r i e n t e d economy. We  may  extend the c o n c e p t o f z e r o growth t o the  implications of stable conditions.  f o r e s t firm, with  P r i c e f l u c t u a t i o n s do o c c u r  of Forest  I n d u s t r i e s , 19721  i n d i c a t i n g an u n s t a b l e  operating  w i t h i n a dynamic s o c i o - e c o n o m i c system and must pay  the changes o f t e c h n o l o g y and market demands. the  sustained  y i e l d p o l i c y and  The  (Waggener, 1969).  An  has  i n d i c a t i o n t h a t the use  f r u s t r a t e the a t t a i n -  o f the model i s  "allowable  (Pearse,  cut e f f e c t " .  by Pearse on  causing  1965).  c u t , as  cal-  T h i s i s what  A l t e r n a t i v e explanations  t h i s p o s i t i o n , such as the d e s i r e f o r backward i n t e g r a t i o n by firms are discounted  resources  i n f l a t e d p r i c e s p a i d f o r young  formula, i s i n c r e a s e d  been termed the  heed t o  s t r i c t application of  some f o r e s t owners such t h a t the annual a l l o w a b l e  c u l a t e d by H a n z l i k  firm i s  the optimum a l l o c a t i o n o f s c a r c e  market d i s t o r t i o n s i s i m p l i e d by the growth by  The  the f a i l u r e t o respond t o p r i c e f l u c t u a -  t i o n s , which are a f u n c t i o n o f demand changes, w i l l ment o f market e q u i l i b r i u m and  market.  (Council  for  processing  the grounds t h a t such a c t i o n s  are  uneconomic. The  contention  t h a t the  community s t a b i l i t y has s t u d i e d the  sustained  supply  been q u e s t i o n e d by  of timber leads  Shalau et al.  (1969),  to who  i m p l i c a t i o n s o f the p o l i c y i n the D o u g l a s - f i r r e g i o n o f  the  United  States  s i f y the  o f America.  Baird  i n d u s t r i a l base d u r i n g  (1965) showed t h a t the periods  would l e a d t o r e g i o n a l d e p r e s s i o n .  o f r a p i d d e p l e t i o n o f the  economic aims o f economic development Smith and  sustained  Haley  t o p r i c e change and  r e s t r i c t s the  i s coordinated  ( N a u t i y a l and  ( i b i d ) c o n c l u d e d t h a t the  y i e l d severely  resource  A r a p i d run down o f the r e s o u r c e i s  an a c c e p t a b l e p r a c t i c e i f the r a t e o f d e p l e t i o n general  f a i l u r e to d i v e r -  with  Smith, 1968)..  s t r i c t adherence t o  a b i l i t y of industry  t o a c h i e v e economic e f f i c i e n c y .  t o respond  They make a  call  f o r a more f l e x i b l e approach t o f o r e s t management, which they c l a i m i s p o s s i b l e by  2.2  the  i n t r o d u c t i o n o f modern m a n a g e r i a l t o o l s and  ECONOMIC MODELS  The  use  o f economic models i s a d v o c a t e d f o r use  t o o l because they d i s p l a y a g r e a t e r the  techniques.  s o c i o - e c o n o m i c system.  as a  h a r m o n i s a t i o n with, the  planning realities  of  Again, s e v e r a l forms of model have been p r o -  posed, each w i t h t h e i r l i m i t a t i o n s through doubts as t o the v a l i d i t y the assumptions, l a c k o f s u i t a b l e d a t a o r o v e r l y narrow b e n e f i t  of  func-  tions .  2.2.1  ZERO INTEREST MODELS  I f we  assume t h a t c a p i t a l and  i n t e r e s t s o l u t i o n w i l l be exist.  adopted.  I f the wood h a r v e s t e d has  l a n d have no c o s t , t h e n a z e r o Both volume and  B.  solutions  a f i x e d p r i c e per u n i t volume t h e n  s o l u t i o n A i s s i m i l a r f o r b o t h volume and for solution  economic  value c r i t e r i a ;  and  similarly  Solution A ; the m a r g i n a l  growth o r revenue i s z e r o .  S o l u t i o n B: marginal  Maximum t o t a l revenue o r t o t a l volume o c c u r s when  Maximum average g r o s s revenue o r volume - when  growth r a t e equates w i t h t h e average growth r a t e .  S o l u t i o n C;  Maximum average annual n e t revenue — when  regenera-  t i o n and o t h e r c o s t s a r e c o n s i d e r e d and t h e f e l l i n g o c c u r s when m a r g i n a l n e t revenue equates w i t h average n e t revenue. However, c a p i t a l i s u s u a l l y s c a r c e and f o r e s t l a n d always has t h e o p p o r t u n i t y o f a second c r o p  tHaley, 1964).  o r l a n d can be c o n s i d e r e d t o be c o s t l e s s .  Therefore, neither c a p i t a l C a p i t a l i n t h i s case i s t h e  o p p o r t u n i t y f o r a c q u i r i n g t h e means o f p r o d u c t i o n and l a n d i n s i m p l y a form o f committed o p p o r t u n i t y .  Both t h e o p t i o n o f e a r n i n g  interest,  which i s t h e wages o f c a p i t a l , and f a i l u r e t o r e c o g n i s e t h e p o t e n t i a l e a r n i n g s w i l l r e s u l t i n an o p p o r t u n i t y c o s t .  Zero i n t e r e s t s o l u t i o n s  must t h e r e f o r e be p r e c l u d e d whenever economic parameters a r e i n c l u d e d i n the d e c i s i o n process  2.2.2  and t h e r e i s a non-zero r a t e o f growth.  NON-ZERO INTEREST MODELS  S e v e r a l non-zero s o l u t i o n s have been proposed. o f these and  s o l u t i o n s , c e r t a i n s i m p l i f y i n g assumptions may be made  Teeguarden, 1965).  Firstly,  i t i s assumed t h a t r e i n v e s t m e n t  f i x e d sum can be c a r r i e d o u t on t h e same l a n d ;  secondly,  v a l u e c r o p s a r e produced i n s i m i l a r time p e r i o d s . imply  that  (Bentley at a equal  These two assumptions  a s t a t i c economy, no t e c h n o l o g i c a l change and p e r f e c t c e r t a i n t y .  Included The  In c o n s i d e r a t i o n  i n t h i s assumption i s t h a t t h e i n t e r e s t r a t e i s s t a t i c and known.  problem o f i n t e r e s t r a t e s and t h e i r e f f e c t s on t h e models w i l l be  24.  d i s c u s s e d below. occur  T h i r d l y , i t i s assumed t h a t a l l o u t l a y s and  a t the times o f r e g e n e r a t i o n  and  harvesting.  s e r v e s o n l y t o s i m p l i f y the models by r e d u c i n g  T h i s assumption  the incomes and  ments t o more s p e c i f i c times but does not a l t e r t h e i r F o u r t h l y , i s the assumption t h a t the r e g e n e r a t i o n s i n g l e specied stands.  Bentley  and  s h i p and management a r e synonymous.  revenues  invest-  conclusions.  i s o f even^-aged,  Teeguarden a l s o assumed t h a t ownerIn the s t r i c t e s t sense t h i s i s an  i n v a l i d assumption f o r B r i t i s h Columbia i n t h a t the l a n d i s owned by the P r o v i n c e  and  the management the r e s p o n s i b i l i t y o f the  However, as the r o t a t i o n age  i s a p o l i c y d e c i s i o n o f the  companies. Provincial  F o r e s t S e r v i c e , which, i t i s assumed, i s a c t i n g b e n e v o l e n t l y , t i o n i s acceptable  2.2.2.1  practically.  PRESENT VALUE MODELS  The Faustmann  p r o b l e m o f f o r e s t v a l u a t i o n has  (1849) p r o p o s e d the s o i l  f o r e s t e v a l u a t i o n and Two  the assump-  l o n g been o f  (landl expectation value  as a method o f d e t e r m i n i n g  d e r i v a t i v e s o f the formula  concern. as a means o f  the r o t a t i o n l e n g t h .  were demonstrated.  F i r s t l y , he  by c o n v e r t i n g the i r r e g u l a r f l o w o f c o s t s and y i e l d s i n t o an  proceeded  equivalent  stream o f e q u a l annual f o r e s t r e n t s which f i n a l l y i s c a p i t a l i s e d t o g i v e the l a n d v a l u e .  S e c o n d l y , he  i f we  reduce t o t h e p r e s e n t  until  infinity. The  showed t h a t we  a r r i v e a t the same  a l l the incomes and  expenditures  formula i s :  V, ' - f • -, C1.0plu-1 n  CE + rD - C U . O p L I - A  formula  occurring  where E D rD C A u P R  The  = = = = = = = =  investment c o s t a t f i n a l y i e l d y i e l d from t h i n n i n g v a l u e o f P compounded t o end o f r o t a t i o n i n i t i a l investment c o s t annual e x p e n d i t u r e rotation length i n t e r e s t r a t e per cent annual l a n d r e n t  c a p i t a l i s e d value  B =  (Bl i s then-:  R  = E + rD - C ( 1 . 0 p )  0 - O.Op  thus u = Log  The  U  -  Cl.Qp)"a - 1  A °-°P  (B + rD + E) - l o g (B l o g (l.Op)  C)  r o t a t i o n adopted i s t h a t which maximises B, which i s not  n e c e s s a r i l y the maximised v a l u e o f t h e h a r v e s t . of marginal  A c c o r d i n g t o the  theory  economics, the optimum r o t a t i o n i s when the change i n r e a l i -  s a b l e v a l u e o f the f o r e s t e q u a l s the change i n the c o s t o f m a i n t a i n i n g the f o r e s t .  T h i s i s B e n t l e y and Teeguarden's  Pearse and  The  (1967) s o l v e d "u" i n a d i f f e r e n t manner than  so maximised "B". when  (1965) g e n e r a l  That  solution.  shown above  i s (by P e a r s e ' s n o t a t i o n ) :  AS  =  a - iS  where AS  =  the change i n stumpage  iS  =  i n t e r e s t charge a g a i n s t stumpage v a l u e o f t h e growing stock.  s o l u t i o n depends upon the r a t e o f change o f v a l u e o f the t r e e s .  The  m a r g i n a l d e c i s i o n w i l l depend upon the market t h a t the f e l l e d l o g s a r e g o i n g t o have.  When the h a r v e s t i s t i e d t o a g i v e n m i l l  d i f f e r from when t h e open market p r i c e i s o p e r a t i v e 1968), as the o b j e c t i v e then becomes the m a x i m i s a t i o n  the r e s u l t  CSinden 1964, o f the p r o f i t  may 1965, of  26.  the whole o p e r a t i o n from p l a n t i n g t o f i n i s h e d lumber r a t h e r than  solely  the f o r e s t o p e r a t i o n . Grainger  (1968) d i s c u s s e d some l i m i t a t i o n s t o the a p p l i c a t i o n o f  Faustmann's f o r m u l a but i n g e n e r a l the s o i l r e n t a p p r o a c h has g a i n e d support o f many a u t h o r s , f o r example H i l e y In h i s comprehensive review t i o n Watt  (1967) c o n c l u d e d ,  p r o v i d e d the assumption accepted,  (19301 and G a f f n e y  (19601.  o f the b a s i c concepts o f r o t a t i o n  determina-  on the b a s i s o f m a r g i n a l a n a l y s i s , t h a t ,  o f c e r t a i n t y and p r o f i t m a x i m i s a t i o n  the b e s t a v a i l a b l e t o o l f o r f o r e s t investment  Faustmann f o r m u l a .  were  a n a l y s i s was  G a f f n e y commented on the g e n e r a l a p p l i c a b i l i t y  t h e t h e o r y t o problems o f c a p i t a l renewal  i n g e n e r a l , and  developed  by Naslund  s o l u t i o n o f the o p t i m a l r o t a t i o n and  the  of  Weingartner  (1965) used a s i m i l a r form o f a n a l y s i s f o r equipment replacement T h i s g e n e r a l s o l u t i o n was  the  (1969). f o r the  problems.  simultaneous  the optimum time f o r t h i n n i n g , which  t a k e s p l a c e whenever t h e i n s t a n t a n e o u s i n c r e a s e i n t h e revenues i s g r e a t e r than t h e e n s u i n g d e c r e a s e The  i n the p r e s e n t v a l u e o f the f i n a l  sales.  c o n f i d e n c e i n p r e s e n t v a l u e models i s borne out By the f r e q u e n t  a d o p t i o n and use o f the D.C.F. (Discounted Cash F l o w l , a method e x p l i c i t l y advocated  by F i s h e r (19071, w h i c h i s the p r e s e n t r e c e i p t s  the p r e s e n t worth o f t h e c o s t s Hague, 1969).  The  first  (e.g. M e r r e t t and Sykes, 1963,  less  1967;  term Net D i s c o u n t e d Revenue i s p r e s e n t l y i n vogue i n  the f o r e s t l i t e r a t u r e  (Johnson, t NDR n=o  t = year of harvest n = year o f o p e r a t i o n  Grayson and B r a d l e y , 1967)  Sn n (1+p).  n=o  (l+pl  n  where;  27.  Sn = income i n y e a r n Cn = c o s t i n y e a r n p = interest rate  The  optimised  the former i g n o r e s  form o f the NDR  d i f f e r s from the  the l a n d element and  p r e n e u r i a l e f f o r t , which b e i n g  s o i l rent i n that  c a l c u l a t e s the r e t u r n t o  a negotiable  q u a l i t y i m p l i e s an e f f e c t i v e  c o n s i s t e n t m a n a g e r i a l s t a t u s , whereas the l a t t e r c a l c u l a t e s the t o the  2.2.2.2  l a n d as the  entre-  return  fixed factor.  INTERNAL RATE OF RETURN MODELS  In o r d e r  t o c i r c u m v e n t the p r o b l e m o f the d i s c o u n t  the b a s i s t h a t p r e s e n t the a b s o l u t e  r a t e and  n e t worth m a x i m i s a t i o n i s a f a l s e o b j e c t i v e ,  d i f f e r e n c e between the  without e x p l i c i t reference  t o the  i n v e s t m e n t and  return i s  s c a l e o f i n v e s t m e n t , and  on as  considered,  therefore i t  f a i l s t o rank i n v e s t m e n t a l t e r n a t i v e s w i t h o u t e x p l i c i t r e f e r e n c e  to  the  e f f i c i e n c y , o r r a t e o f c a p i t a l a c c u m u l a t i o n o f the i n v e s t m e n t , i n t e r n a l r a t e o f r e t u r n models have been p r o p o s e d . which reduces the r e c e i p t s t o the p r e s e n t worth o f the c o s t s . (1966) and  The  i t s value  use  o f the  IRR  The  i n t e r n a l rate i s that  worth equal t o the  present  i s supported by M e r r e t t  i n f o r e s t r y by Gane C1969).  The  rate  and  Sykes  optimum r o t a t i o n by  t h i s c r i t e r i a i s when the average i n t e r n a l r a t e o f r e t u r n i s maximised CBoulding, 1955). The by p r e v i o u s  Boulding  However, t h e r e a r e  drawbacks.  s o l u t i o n assumes a l a n d v a l u e  argument i s i n a d m i s s a b l e  s o l u t i o n t h a t i n c l u d e s the  land value  i s s i m i l a r t o the Faustmann s o l u t i o n .  (Gaffney,  o f z e r o and  1956).  A more  w i l l return a longer The  the assumption o f a f i x e d c a p i t a l i n p u t ;  therefore general  r o t a t i o n that  s o l u t i o n , however,  involves  that i s , establishment  costs  28.  are a l l o w e d f o r but and  fire  subsequent c o s t s such as, f o r example, " b e a t i n g  c o n t r o l , a r e not  the r e t u r n t o i n i t i a l Further,  the  to f i n a l harvest nal  r a t e , and  some i n s t a n c e s (Hirshliefer,  considered  w i t h i n the model which maximises  investment.  i n t e r n a l r a t e o f r e t u r n assumes t h a t a l l incomes p r i o r  are r e i n v e s t e d a t the same r a t e , which subsumes an  t h a t the  initial  and  t e r m i n a l p o s i t i o n s a r e known.  the r a t e o f r e t u r n may  not be unique o r may  (1969). and  Turvey  the  (1963) c o n c l u d e d t h a t  present  the  v a l u e models were t h e o r e t i c a l l y s u p e r i o r .  THE  PROBLEM OF  The  z e r o i n t e r e s t s o l u t i o n s were r e j e c t e d because they f a i l e d  recognise  THE  t i o n , and  DISCOUNT RATE  the urgency o f c a p i t a l .  assumption t h a t p r e s e n t  why  In  1958).  v a l u e models b o t h Haley  2.2.3  exter-  not e x i s t  In t h e i r comparisons o f the i n t e r n a l r a t e of r e t u r n and  present  up",  There i s no a priori  the  consumption i s t o be p r e f e r r e d t o f u t u r e consump-  hence, i f i n t e r e s t i s the reward f o r w a i t i n g ,  the d i s c o u n t  reason f o r  to  r a t e should  t i v e i t f o l l o w s t h a t when an  be p o s i t i v e .  there  i s no  I f i t i s assumed t o be  i n v e s t m e n t i s made the m a r g i n a l  o f a d e c r e a s e i n c u r r e n t consumption must be  accounted f o r .  reason  posi-  disutility The  interest  r a t e would thus equate the m a r g i n a l p r i c e o f c a p i t a l w i t h the m a r g i n a l time p r e f e r e n c e .  However, as mentioned, i n t e r e s t i s the wages o f  and  therefore, provided  nal  r a t e o f time p r e f e r e n c e ,  a r e p o s i t i v e , the which d i s c o u n t  the p r o s p e c t i v e  than the  margi-  which i n d i c a t e s the minimum r e t u r n , and  investment should  r a t e to apply  wages are g r e a t e r  capital,  be made.  wages  The problem i s t o d e c i d e  (Staebner, 1931).  29.  Several may  a l t e r n a t i v e discount  rates e x i s t .  The  r a t e s a t which money  be borrowed o r l e n t i n the open c a p i t a l market are termed the market  r a t e s , and  i n a p e r f e c t market system these r a t e s would c o i n c i d e and  the l o g i c a l r a t e t o a p p l y  be  t o a l l i n v e s t m e n t s , i n t h a t the market c o n t i -  n u a l l y r e f l e c t s the p r e f e r e n c e s  o f i n d i v i d u a l s and  society.  With the assumption o f a p e r f e c t market, then i n the mixed economy, where p a r t o f the  t o t a l investment t a k e s p l a c e  firms or resources,  i n the p u b l i c l y owned  i t i s o b v i o u s t h a t the optimum p u b l i c  s t r a t e g y i s found by e q u a t i n g  the m a r g i n a l p r o d u c t i v i t y o f p u b l i c  ment t o the market r a t e o f i n t e r e s t ; ciency or P a r e t o - o p t i m a l i t y  investment  the m a r g i n a l c o n d i t i o n s f o r  w i l l t h e n be  s a t i s f i e d a l l round.  going-borrowing, or going-lending  r a t e , a l l o w i n g f o r market  would be  source o f  adopted depending on the  However, the market i s c h a r a c t e r i s e d  investeffi-  The  inefficiencies,  capital. by:  1)  imperfect  knowledge by i n d i v i d u a l s ;  2)  r a t e s r e f l e c t d i f f e r e n t p r o p e n s i t i e s and  a t t i t u d e s to r i s k  and  uncertainty; 3)  institutional inefficiencies  ( t a x a t i o n and  government  fiscal  policy); 4)  the  income l e v e l o f the i n v e s t o r a f f e c t s h i s p r o p e n s i t y  5)  the d e s i r e s and  a s p i r a t i o n s s o l e l y o f i n d i v i d u a l s are r e f l e c t e d  i n the r a t e , which i n d i c a t e s p r i v a t e and 6)  1)  t o save;  and  not p u b l i c  utility;  the  rate i s unstable  changes f r e q u e n t l y .  The  r a t e i s u n s a t i s f a c t o r y f o r p u b l i c investments because:  a more complete knowledge i s , o r s h o u l d authorities.  be,  p o s s e s s e d by  public  30.  2)  t h e a u t h o r i t i e s are g e n e r a l l y  n o t a source o f r i s k c a p i t a l ;  3)  government f i s c a l p o l i c y i s o f t e n d i r e c t e d a t i n f l u e n c i n g t h e market f o r p o l i t i c a l r e a s o n s through such mechanisms as t h e bank r a t e and c e n t r a l bank  4)  deposits;  once made, an investment i s i s o l a t e d from s o c i e t y u n t i l though n o t from the negotiable.  maturity,  i n d i v i d u a l , between whom i n v e s t m e n t s a r e  Hence, t h e time h o r i z o n  before maturity i s o f l i t t l e  consequence t o t h e i n d i v i d u a l i f he i s c o n t e n t s o l e l y w i t h c a p i t a l gains.  Such an a t t i t u d e i s u n s a t i s f a c t o r y w i t h p u b l i c  ment as t h e investment remains i s o l a t e d u n t i l 5)  t h e government a c t s not  6)  7)  8)  do n o t n e c e s s a r i l y  coin-  The market cannot e x p r e s s c o l l e c t i v e demand;  the f u l l in  population,  classes;  t h e p r i v a t e and s o c i a l w e l f a r e f u n c t i o n s cide.  maturity;  f o r t h e advantage o f t h e e n t i r e  j u s t the investor  invest-  s o c i a l costs  and b e n e f i t s  o f investment a r e n o t r e f l e c t e d  the returns;  many markets e x i s t and a l l o f which may show d i f f e r e n t p r e v a i l i n g rates.  To the major f o r e s t f i r m s o f B r i t i s h Columbia, the Vancouver  market i s p r o b a b l y o f l i t t l e owned o u t s i d e  s i g n i f i c a n c e , as most o f whom a r e  t h e P r o v i n c e and o f t e n  raise the required  finances  from s o u r c e s o t h e r than t h e open market. G e n e r a l d i f f i c u l t i e s o f t h e c a p i t a l market were d i s c u s s e d by Stigler  (1967). Several  l i m i t a t i o n s are associated  w i t h the a p p l i c a t i o n o f t h e  market r a t e t o the management o f p u b l i c r e s o u r c e s .  In the  distorted  economy, such as when t a x a t i o n o c c u r s , where the e q u a l i s a t i o n o f m a r g i n a l  31.  r a t e s o f s u b s t i t u t i o n and p r e v e n t e d , then the  transformation  i n the p r i v a t e s e c t o r  i d e n t i f i c a t i o n o f the c o r r e c t d i s c o u n t  i n the p u b l i c s e c t o r i s impeded.  I t has  t h a t under c e r t a i n assumptions c o r p o r a t e the m a r g i n a l r a t e o f t r a n s f o r m a t i o n o f time p r e f e r e n c e "there  o f consumers.  remains an i n e s c a p a b l e  are  rate for  been argued by Baumol  (1968)  income t a x i n t e r p o s e s  between  i n p r i v a t e f i r m s and  the m a r g i n a l r a t e  Baumol c o n c l u d e d t h a t i n such c a s e s  i n d e t e r m i n a c y i n the c h o i c e  of a  discount  r a t e on government p r o j e c t s " , s i n c e the d i s c o u n t  r a t e cannot  be e q u a l t o the m a r g i n a l r a t e o f time p r e f e r e n c e  o f consumers and  m a r g i n a l p r o d u c t i v i t y o f p r i v a t e c a p i t a l , and t h e o r e t i c a l grounds f o r a c c e p t i n g any  arbitrary.  Pigou  t h a t any  choice  discount  (1932) commented t h a t  the t o t a l w e l f a r e  market r a t e was it  the  "irrational rate".  l i s e d on  The  use  w i l l not  felt  so s t r o n g l y t h a t  Feldstein  r a t e s which are  o f a s o c i a l time p r e f e r e n c e  b e n e f i t s which i s c l e a r l y a f a l s e p r o p o s i t i o n and However, the use  ignored  threatened.  and  termed  (19641 r a t i o n a administratively  rate or a s o c i a l  discount  social  i t s imposition v i o l a t e s  o f such a r a t e has  t h a t the c o n t i n u o u s e x i s t e n c e  need  the  been argued  f o r i n t h a t w i t h o u t i t the e t h i c a l r e s p o n s i b i l i t y t o p o s t e r i t y w i l l be  be  serve  r a t e t h a t he  r a t e assumes t h a t a l l p u b l i c i n v e s t m e n t s y i e l d equal i n t a n g i b l e  consumer s o v e r e i g n t y .  no  i n the  i n h i s d i s c u s s i o n on the  (1963) and  the need f o r normative d i s c o u n t  determined.  r a t e t o use  f o r a p u b l i c discount  Marglin  found  (or presumably  "economic w e l f a r e  f u n c t i o n , and  the wrong c h o i c e  the  o f such a r a t e w i l l t o some e x t e n t  f o r a barometer o r index o f t o t a l w e l f a r e " to consider  simultaneously  on t h i s b a s i s he  e i t h e r o f these r a t e s  t h i r d a l t e r n a t i v e ) as the a p p r o p r i a t e  p u b l i c s e c t o r , and  use  o f the  s t a t e would  A l t e r n a t i v e t o the d o c t r i n e o f the p o l i t i c a l t h e o r y  be  be of  the  32.  social will  i s t h a t o f t h e economic t h e o r y o f s o c i a l i s m .  A theory  that  a d v o c a t e s the r e j e c t i o n o f the market m a n i f e s t a t i o n s o f i n d i v i d u a l preferences  and thereby  negates consumer s o v e r e i g n t y .  However, whatever t h e r e a s o n i n g the s o c i a l r a t e o f time p r e f e r e n c e  adopted, S c o t t  (1955) r e j e c t e d  as a r a t i o n a l e f o r t h e a d o p t i o n o f  a sub-market r a t e as i t was u n c l e a r whether t h i s would l e a d t o t h e c o n s e r v a t i o n o f e i t h e r s t o c k o r renewable  resources.  The u s e o f t h e o p p o r t u n i t y c o s t r a t e f o r c a p i t a l i g n o r e s t h e s o c i a l b e n e f i t s foregone The  which a r e u s u a l l y i n e s t i m a b l e .  d i f f i c u l t y o f r a t i o n a l i s i n g a d i s c o u n t r a t e suggests  the c h o i c e i s p r a g m a t i c and w i l l remain s o .  that  The c h o i c e o f t h e wrong  r a t e o f d i s c o u n t may, however, cause a s e r i o u s m i s a l l o c a t i o n o f s c a r c e r e s o u r c e s , f o l l o w i n g t h e K e y n e s i a n model, i n t h a t i f t h e r a t e i s t o o low c a p i t a l investment tendencies savings.  w i l l be o v e r l y encouraged. T h i s w i l l r e s u l t i n i n f l a t i o n a r y  and p o s s i b l y a d i s c o u r a g i n g e f f e c t on t h e s u p p l y o f p r i v a t e A l t e r n a t i v e l y , i f t h e r a t e i s t o o h i g h t h e economy w i l l move  i n t o e x c e s s i v e consumption.  I f t h e investment  by p r i v a t e v o l i t i o n , w i t h o u t  d i r e c t pressure  i n t h e f o r e s t was s o l e l y  involvement  by t h e p u b l i c  s e c t o r then, assuming a v e r t i c a l l y i n t e g r a t e d company, t h e o v e r a l l  posi-  t i o n o f t h e f i r m , i n c l u d i n g c o n v e r s i o n r e t u r n , would be e x p l i c i t l y a c c o u n t e d f o r i n the r o t a t i o n d e t e r m i n a t i o n . when t h e m a r g i n a l  The f o r e s t would be f e l l e d  i n c r e a s e i n c o n v e r s i o n r e t u r n e x p e c t a t i o n equated  c o s t o f h o l d i n g the f o r e s t .  with  The c o s t o f h o l d i n g t h e f o r e s t would be  the o p p o r t u n i t y c o s t o f t h e c a p i t a l i n v o l v e d and t h e l a n d opportunitycost.  2.2.4  EFFECT OF  INTEREST RATE SELECTION ON  Private firms w i l l  ROTATION LENGTH  c a r r y i n v e s t m e n t t o the p o i n t where  m a r g i n a l p r o d u c t i v i t y o f the c a p i t a l equates t o the the h i g h e r the shorter  the  rotation. and  Thus, any  the w o r t h o f more remote e a r n i n g s i s  The  reviewed by Goundrey  l i t e r a t u r e on  (.I960) .  The  increased  (Smith and  the c a p i t a l correspondingly  s h o r t e r than a z e r o  the e f f e c t s o f i n t e r e s t r a t e s  r e s u l t i n g shortening  o f the  cut  Haley, 1964).  COST-BENEFIT ANALYSIS  s i m p l e economic a n a l y s i s i s t h a t o f c o s t - b e n e f i t a n a l y s i s . r e v i e w e d i n terms o f economic t h e o r y by P r e s t and  p u b l i c i n v e s t m e n t by F e l d s t e i n D a v i s et at. son  was  rotation  A more comprehensive t e c h n i q u e f o r i n v e s t m e n t a p p r a i s a l  was  and the  the a d o p t i o n o f a f i n a n c i a l r o t a t i o n w i l l p e r m i t the a l l o w a b l e  t o be  2.3  T h i s i s because the c o s t o f h o l d i n g  non-zero i n t e r e s t s o l u t i o n w i l l be  interest solution.  by  interest rate  i n t e r e s t r a t e chosen f o r the p r e s e n t worth models  becomes g r e a t e r less.  the  o f the  sum  (1962).  (1964) and  i n i t s simplest  o f the c o s t s and  the  f o r general  form the  sum  Turvey  than  The  subject  (1965) f o r  application  t e c h n i q u e i s the  by  compari-  o f the b e n e f i t s o f p r o p o s e d  projects. Leslie sis  (1967) gave the  e s s e n t i a l elements o f c o s t - b e n e f i t  analy-  as:  1)  a statement o f the  c o s t s and  2)  a method o f e v a l u a t i n g  3)  a discount  b e n e f i t s t o be  taken i n t o account;  them;  rate for converting  the v a l u e s o f b e n e f i t s , and  o c c u r r i n g a t d i f f e r e n t t i m e s t o a common b a s i s ;  costs  34.  4)  a statement o f the  constraints;  5)  a c r i t e r i o n f o r comparing c o s t s  and  I t w i l l have been noted t h a t the forms o f a n a l y s i s , the above, and  the  inherent  benefits.  s o l u t i o n i s based upon o t h e r  t h e o r e t i c a l problems o f which were  discussed  shortcomings o f these a n a l y s e s p e r s i s t .  I f i t i s assumed t h a t t h e s e problems have been s o l v e d , most a t t r a c t i v e a l t e r n a t i v e t o the d i f f e r e n c e between the values i s presently tive analysis.  costs  and  investor  f o r instance  The  valuation  A s u i t a b l e method by which t h e s e v a l u e s may  cannot be  of  from the v i e w p o i n t o f  t o a common base, u s u a l l y d o l l a r v a l u e s ,  the  i s t h a t which maximises  the b e n e f i t s .  very unsatisfactory  then  does not  exist.  the  abstract  quantita-  be  reduced  Scenic values  t r a n s l a t e d , o r even t r a n s m o g r i f i e d ,  to d o l l a r  values. C l a s s i c a l l y , the v a l u e o f c a p i t a l can  0 =  be  expressed according  to:  ftL,C)  where 0 = s o c i a l p r o d u c t L = labour C = capital whereby C can  be  ascertained  by  the d e t e r m i n a t i o n o f the p o t e n t i a l p r o -  d u c t i v i t y a t the p r e v a i l i n g f a c t o r r a t i o a b l e p e r p e r s o n employed). markets, the  i n the  What i s the  sum  Hence, what i s the v a l u e o f the  of  the  capital tied  forest?  .In the divergent  forestry?  of c a p i t a l a v a i l -  s o c i a l p r o d u c t i s , assuming p e r f e c t  s a l e v a l u e o f the goods produced.  goods produced by up  The  (the q u a n t i t y  f i n a l a n a l y s i s , where the  n a t u r e as  costs  and  benefits  i n the c a s e o f f o r e s t r y p r a c t i c e , the  are o f such a analysis  reduces t o the l i s t i n g o f t h e c o s t s and b e n e f i t s t o form a s e r i e s o f c o s t b e n e f i t combinations.  F o r each, c o m b i n a t i o n o f investment o r p o l i c y  a l t e r n a t i v e s an e x h a u s t i v e l i s t  i s recorded.  I d e a l l y , these l i s t s a r e  extended t o c o v e r n e t - s o c i a l b e n e f i t and c o s t f a c t o r s , secondary f a c t o r s and  a d e s c r i p t i o n o f the i n t a n g i b l e s .  Further  t i o n i s p o s s i b l e i f opportunity- c o s t v a l u e s ,  a n a l y s i s o f the informa-  expressed q u a n t i t a t i v e l y o r  q u a l i t a t i v e l y , are considered. Under p r e s e n t  c o n d i t i o n s , where t h e t o t a l o b j e c t i v i t y o f f o r e s t  investment i s not a p r a c t i c a l p r o p o s i t i o n , c o s t - b e n e f i t combinations present  a u s e f u l a i d t o d e c i s i o n making.  s p e c i f i c values  are included  i n t h e a n a l y s i s t h e method i s i n a p p l i c a b l e  as t h e s o l e b a s i s f o r d e c i s i o n making. though i m p e r f e c t ,  We may c o n c l u d e t h a t t h e method,  i s an improvement o v e r t h e s i n g l e o b j e c t i v e maximisa-  t i o n s o f c l a s s i c a l investment a p p r a i s a l . Leslie  This conclusion  i s shared b y  C1967), who wrote t h a t the method " i s an example o f t h e t r e n d f o r  the development o f more r e a l i s t i c  2.4  However, where many non-  a n a l y t i c a l t o o l s f o r decision-making".  CONCLUSION  On t h e b a s i s o f t h e r e b e i n g  several facets f o rconsideration i n  f o r e s t p o l i c y , p h y s i c a l models a r e i n a d e q u a t e f o r a c h i e v i n g They g e n e r a l l y g i v e e x c e s s i v e the use o f zero  these  goals.  weight t o f u t u r e b e n e f i t s as a r e s u l t o f  time p r e f e r e n c e ,  and a r e g e n e r a l l y thought t o be t o o  i n f l e x i b l e t o be used s a t i s f a c t o r i l y w i t h i n a market o r i e n t e d  economy.  Economic models c o r r e c t the b i a s e d w e i g h t i n g t o f u t u r e  benefits  but  even t h e s e have l i m i t a t i o n s as n o t a l l v a l u e s  expressed i n a s i n g l e u n i t a r y value.  and b e n e f i t s can be  The r e q u i r e m e n t s t o s a t i s f y many  36.  g o a l s p r e c l u d e m a x i m i s i n g b e h a v i o u r i n t h e d e c i s i o n making p r o c e s s the use  o f e i t h e r p h y s i c a l o r economic F u r t h e r , the i n f o r m a t i o n o u t p u t  too narrow t o g i v e a t o t a l policy.  policy  from the p l a n n i n g  systems e v a l u a t i o n o f the e f f e c t o f a  is  given  l i m i t e d input data f a i l  to  o f the t o t a l system response t o i n p u t o r  p r e s e n t -models bear no r e l a t i o n s h i p t o the f o r e s t f i r m , which  i s envisaged  operator  w i l l continue  f o r the f o r e s e e a b l e f u t u r e t o be the main  o f B r i t i s h Columbian f o r e s t s , make no e x p l i c i t r e f e r e n c e  e x t e r n a l i t i e s o r s e c o n d a r y b e n e f i t s , and the r e s o u r c e . t h a t we  techniques  changes. The  it  behaviour.  A l s o , the i n h e r e n t r e g u l a r i t y and  r e f l e c t the t r u e c o m p l e x i t y  by  now  to  do not ensure e f f i c i e n t use  W i t h the narrow b a s i s f o r p l a n n i n g and  the l i m i t e d  of  ability  p o s s e s s f o r the a n a l y s i s o f the consequences o f c o n s t r a i n t s  o r p o l i c y changes, i t becomes a b u n d a n t l y c l e a r t h a t new the a p p r a i s a l o f p o l i c y and  procedures f o r  i n v e s t m e n t d e c i s i o n need t o be i n v e s t i g a t e d .  CHAPTER 3  OPERATIONS RESEARCH TECHNIQUES AND  FOREST PLANNING  S y s t e m a t i c a n a l y s i s o f the f i r m i n a dynamic manner may  and  quantitative  o n l y be r e a l i s e d r f the system i s e x p r e s s e d as a s e r i e s o f  m a t h e m a t i c a l a l g o r i t h m s t h a t e x p r e s s the f u n c t i o n a l r e l a t i o n s h i p s between the i n t e r a c t i n g elements o f t h e system.  The f u n c t i o n a l  reduce i n the s i m p l e s t c a s e t o the "go-nogo" s t a t e  relationships  Cor a l t e r n a t i v e l y  the "yes-no" o r " a c t i v e - p a s s i v e " response)., which i s commonly r e f e r r e d t o as the l o g i c a l  model.  The need f o r q u a n t i f i c a t i o n i n economic by R i c a r d o from h i s e a r l i e s t works and Jevons mathematics  was  s t u d i e s was h i n t e d a t  C1871)  realised  that  t h e key;  " I t seems p e r f e c t l y c l e a r t h a t Economy, i f i t i s t o be a s c i e n c e a t a l l , must be a m a t h e m a t i c a l science." There e x i s t s much p r e j u d i c e a g a i n s t attempts t o i n t r o d u c e the methods and language o f mathematics i n t o any branch o f the m o r a l s c i e n c e s . Most p e r s o n s appear t o h o l d t h a t the p h y s i c a l s c i e n c e s form the p r o p e r sphere o f m a t h e m a t i c a l method, and t h a t m o r a l s c i e n c e s demand some o t h e r method; I know n o t what. My t h e o r y o f Economy, however, i s p u r e l y mathematical i n character. I know n o t when we s h a l l have a p e r f e c t system o f s t a t i s t i c s , b u t t h e want o f i t i s t h e o n l y i n s u p e r a b l e o b s t a c l e i n t h e way o f making P o l i t i c a l Economy an e x a c t s c i e n c e . " (p. 3 ) . The advent o f t h e e l e c t r o n i c computer,  w i t h i t s f a c i l i t y f o r the  h a n d l i n g o f p r o d i g o u s amounts o f d a t a and the e x e c u t i o n o f o t h e r w i s e t e d i o u s , mundane and humdrum a l g o r i t h m s has been a major s t e p the " p e r f e c t system o f s t a t i s t i c s " . f o r e s t r y was  towards  The e a r l y use o f computers i n  r e v i e w e d by C s i z m a z i a Q-963) and more r e c e n t l y by D i x o n  38.  (1970).  Bunce  (1967) i n a tome on f o r e s t r e g u l a t i o n w i t h r e f e r e n c e t o  the t o t a l environment commented; "The d e t a i l o f the system o f m a t h e m a t i c a l c a l c u l a t i o n r e q u i r e d has not Been shown but r a t h e r remains f o r f u r t h e r research. The a p p l i c a t i o n o f modern e l e c t r o n i c computing d e v i c e s a t t h i s stage would seem most l o g i c a l . " (p. 306). The  s y s t e m a t i c m a t h e m a t i c a l approach t o p l a n n i n g i s termed  t i o n s r e s e a r c h , and  the i n t e r e s t d i s p l a y e d i n the use o f t h e s e  opera-  techniques  f o r many a s p e c t s o f f o r e s t p l a n n i n g problems i s r e f l e c t e d i n t h e amount o f l i t e r a t u r e devoted 1965;  H u l l , 1967; The  t o the s u b j e c t  I.B.M., 1964,  (e.g. B r i t i s h F o r e s t r y Commission,  1965;  Wardle, 1971).  term o p e r a t i o n s r e s e a r c h c o v e r s s e v e r a l t e c h n i q u e s .  t h o s e used f o r f o r e s t r y problems a r e c a l c u l u s ;  Amongst  the i t e r a t i v e o p t i m i s i n g  techniques  o f l i n e a r , n o n - l i n e a r , i n t e g e r and dynamic programming;  techniques  such as PERT (Programme E v a l u a t i o n and Review Technique)  c r i t i c a l p a t h a n a l y s i s , game t h e o r y ;  and  search and  s t o c h a s t i c and d e t e r m i n i s t i c  simulation. The  a p p l i c a b i l i t y o f t h e s e t e c h n i q u e s w i t h i n the c o n t e x t o f the  a n a l y s i s o f the f i r m w i l l depend t o a l a r g e e x t e n t on the p l a n n i n g i n q u e s t i o n and the r e l a t i v e importance o f the d e c i s i o n i n the scheme.  The  level  overall  r e l e v a n c e o f o p e r a t i o n s r e s e a r c h t o f o r e s t management has  been d i s c u s s e d by Wardle  (1968),  though h i s work r e f e r r e d p r i n c i p a l l y  to  l i n e a r programming.  3.1  CALCULUS  C a l c u l u s may lems.  be a p p l i e d t o simple m a x i m i s i n g and m i n i m i s i n g  However, s e v e r a l d i f f i c u l t i e s a r e i n h e r e n t i n the -method.  a d e r i v a t i v e t h a t becomes z e r o i s a n e c e s s a r y ,  probFirstly,  but not s u f f i c i e n t c o n d i t i o n ,  39.  f o r a g l o b a l l i m i t and where a c o n s t r a i n t i s i n t r o d u c e d minimum v a l u e zero.  over t h e f e a s i b l e range may n o t be where t h e d e r i v a t i v e i s  Further,  n o n - r d i f f e r e n t i a b l e and l i n e a r f u n c t i o n s a r e n o t s a t i s -  f a c t o r i l y r e s o l v e d by t h i s  3.2  t h e maximum o r  technique.  ITERATIVE OPTIMISATIONS  I f an n-space o f f e a s i b i l i t y systems then an o p t i m a l  i s d e f i n e d f o r a system o r s e r i e s o f  s o l u t i o n may be found by t h e comparison o f  extreme p o i n t s o f t h i s space " u n t i l t h e maximum o r t h e minimum i s found. One  o f t h e more commonly used t e c h n i q u e s o f t h i s type t h a t i s -used  i n f o r e s t planning  i s l i n e a r programming.  The f o l l o w i n g assumptions and  l i m i t a t i o n s p e r t a i n t o t h e l i n e a r programming model; 1)  As w i t h a l l o p t i m i s i n g t e c h n i q u e s a d e f i n i t i v e o b j e c t i v e i s required.  Under c o n d i t i o n s o f broad p l a n n i n g  with  extreme u n c e r -  t a i n t y a d e f i n i t i v e o b j e c t i v e may n o t be t o t a l l y f e a s i b l e .  It  i s a l s o assumed t h a t t h e r e t u r n s from a l l a c t i v i t i e s can be measured 2}  i n common u n i t s .  A d d i t i v i t y and p r o p o r t i o n a l i t y w i t h i n t h e model imply and  linearity,  t h e assumption t h a t l i n e a r i t y h o l d s may be an o v e r  tion.  The assumption o f a l i n e a r o b j e c t i v e f u n c t i o n  i n f i n i t e demand e l a s t i c i t y of production  and f i x e d  implies  f o r the f i n a l product, constant  input f a c t o r proportion.  be a l l e v i a t e d by t h e use o f a s e r i e s o f l i n e a r Such a c t i o n may be a p p l i e d ,  simplifica-  costs  The problem may  approximations.  f o r example, i n c a s e s o f d i m i n i s h i n g  r e t u r n s t o s c a l e where t h e r e t u r n from any a c t i v i t y of the returns o r inputs t o other  activities.  i s independent  40.  3)  U n r e s t r a i n e d a d d i t i v i t y w i t h i n t h e f o r m u l a t i o n o f the model i s assumed.  That i s ,  t h e p r o d u c t s o f t h e system a r e n o n - c o m p e t i t i v e  and t h e e f f e c t s o f market s a t i a t i o n a r e i g n o r e d . 4)  The t e c h n i q u e p r o d u c e s f r a c t i o n a l answers.  Where d i v i s i b i l i t y  i s n o t a c h a r a c t e r i s t i c o f t h e system, t h e r o u n d i n g - o f f o f r e s u l t s may p r o d u c t a s u b - o p t i m a l o r even an i n f e a s i b l e 5)  answer.  The c o n s t r a i n t s must be m a i n t a i n e d o v e r the f u n c t i o n a l  time  spectrum o f t h e model, which may be o v e r l y r e s t r i c t i v e f o r l o n g term a l l o c a t i o n problems o r where t h e system i s r e s p o n s i v e t o feedback. L i n e a r programming has been a p p l i e d t o f o r e s t management, w i t h v a r y i n g d e g r e e s o f s u c c e s s by C u r t i s K i d d et al.  (1966), Leak  (1962), D o n n e l l y et al.  (1964), and Wardle  (1963),  (1965) amongst o t h e r s .  Use  has been made o f t h e t e c h n i q u e f o r t h e o p t i m i s i n g o f the a l l o c a t i o n o f s c a r c e r e s o u r c e s , and has been a p p l i e d t o q u i t e l a r g e problems o f r e s o u r c e allocation.  F o r example, Navon  (1971) has d e v e l o p e d the "Timber Resources  A l l o c a t i o n Model" f o r f o r e s t p l a n n i n g o v e r a t e n y e a r time h o r i z o n .  This  model was d i s c u s s e d and compared w i t h two t r a d i t i o n a l methods o f f o r e s t c o n t r o l and r e g u l a t i o n by Hennes et al.  (1971).  Other t e c h n i q u e s have been d e v e l o p e d t o overcome some o f t h e problems a s s o c i a t e d w i t h l i n e a r v  programming.  N o n — l i n e a r programming has been d e v e l o p e d i n o r d e r t o overcome  the assumption o f l i n e a r i t y , b u t p r e s e n t s c o n s i d e r a b l e d i f f i c u l t i e s as t o the f o r m u l a t i o n o f t h e p r o b l e m and t h e r e s p e c t i v e f u n c t i o n s , and a l s o t o the s o l u t i o n which, must s a t i s f y t h e s o - c a l l e d Kuhn-Tucker c o n d i t i o n .  41.  Where n o n - d i v i s i b i l i t y o f an i n t e g e r i s a r e q u i r e m e n t f o r t h e s o l u t i o n o f a l i n e a r equation,  i n t e g e r programming needs t o be employed.  The i n t e g e r s o l u t i o n may- Be a c h i e v e d  by the p r o g r e s s i v e  c o n s t r a i n t s i n t o non-integer s o l u t i o n s u n t i l satisfied.  inclusion of  the integer c o n d i t i o n i s  C e r t a i n problems may- be s o l v e d hy t h e u s e o f m i x e d - i n t e g e r  programming whereby i n t e g e r v a r i a b l e s a r e i n t r o d u c e d the g e n e r a l  l i n e a r programming f o r m a t .  i s zero-one  (0.1) programming, where a z e r o v a l u e  an i n t e g e r v a l u e  entails inclusion.  as c o n s t r a i n t s i n t o  The most common form o f i t s u s e e n t a i l s e x c l u s i o n and  F o r a constrained  b r a n c h and bound methods may be employed.  optimisation,  These methods were r e v i e w e d  by L a w l e r and Wood (1966).. Another i m p o r t a n t t e c h n i q u e t h a t may be a p p l i e d t o r e s o u r c e cation i n sequential or multistage  p r o c e s s e s i s dynamic programming.  has been a p p l i e d by Amidon and A t k i n K i l k i and V a i s e n e n  (1970), R i s v a n d  allo-  (1968), B a i l e y  (1970), Hood  (1970), and Schreuder  It  (1966),  (1968).  Problems t h a t a r e s u i t a b l e f o r dynamic programming a r e c h a r a c t e r i s e d by; 1)  t h e need f o r d e c i s i o n s i n s u c c e s s i v e  and s e q u e n t i a l s t a g e s ,  a stage may be a p a r t i a l e n t i t y o r d e f i n i t e o r i n d e f i n i t e 2)  s e v e r a l s t a t e s e x i s t a t each s t a g e and t h e r e coupling  3)  duration;  i s a known stage  function;  a p o l i c y d e c i s i o n r e l a t e s t h e s t a t e o f the c u r r e n t associated with the following  stage t o a s t a t e  stage.  The p r i n c i p l e o f t h e t e c h n i q u e i s t h a t f o r an optimum  solution  t h e n t h e c u r r e n t d e c i s i o n i n an n-stage sequence must be o p t i m i s e d respect  where  t o t h e n-1 d e c i s i o n s r e m a i n i n g , g i v e n  with  t h e s t a t e r e s u l t i n g from  42.  the  f i r s t decision.  D i f f i c u l t i e s a r i s e , however, i n s e t t i n g up the  problem i n a manner amenable t o s o l u t i o n by t h i s t e c h n i q u e .  3.3  SIMULATION  For  t h e a n a l y s i s o f complex  valuable technique. real  systems, s i m u l a t i o n has p r o v e d a  S i m u l a t i o n i s the use o f a model t h a t s i m u l a t e s a  l i f e process.  The model may  use p h y s i c a l , d e s c r i p t i v e o r mathema-  t i c a l c o n c e p t s t o r e p r o d u c e t h e e s s e n t i a l c h a r a c t e r i s t i c s o f the system. Models u s i n g m a t h e m a t i c a l c o n c e p t s a r e most commonly used f o r f o r e s t planning purposes. The model may  be based on v a r i o u s forms o f i n t e r - r e l a t i o n s h i p s  between the elements t h a t comprise t h e system. may  be l o g i c a l ,  The  i n t h a t g i v e n a s e t o f c i r c u m s t a n c e s (x^, i = 1  then a second s e t o f c i r c u m s t a n c e s Cy^, i = 1 n a t i v e l y , the r e l a t i o n s h i p may circumstances  inter-relationships  (x^, i = 1  upon the s t a t e o f the f i r s t  be f u n c t i o n a l .  n) w i l l o c c u r .  Alter-  That i s , g i v e n a s e t o f  n) the subsequent c i r c u m s t a n c e s a r e s e t Cy^ = f ( x J ,  ni  i = 1  n).  dependent  Stochastic  p r o c e s s e s a r e used where t h e t r a n s l a t i o n between elements i s governed by a p r o b a b i l i t y . or  I f t h e e x a c t d e f i n i t i o n o f the r e l a t i o n s h i p i s unknown,  i s e x c e s s i v e l y demanding, e i t h e r i n terms o f computer  time o r c o m p l e x i t y  h e u r i s t i c s , o r " r u l e s o f thumb" t h a t a d e q u a t e l y d e s c r i b e the t r a n s l a t i o n , may  be employed.  A model may  c o n t a i n any c o m b i n a t i o n o f t h e s e forms.  The advantages a s s o c i a t e d w i t h the use o f s i m u l a t i o n a r e the f l e x i b i l i t y o f approach, the freedom from c o n s t r a i n i n g assumptions a p p e r t a i n t o the p r e v i o u s l y mentioned  that  t e c h n i q u e s , the c h a n g i n g o f the  d e f i n e d c o n s t r a i n t s and assumptions w h i l s t o p e r a t i n g t h e model i f d e s i r e d ,  43.  the c o m p l e x i t y  o f the systems t h a t may  o f m u l t i p l e g o a l s and o b j e c t i v e s . the e x e c u t i o n o f the model may a t any  chosen  The  be s i m u l a t e d , and  the  inclusion  f l o w o f goods and  services during  be noted and an i n t e r v e n t i o n may  time.  A l l models a r e a b s t r a c t i o n s from r e a l i t y .  However, the degree  t o which the model resembles r e a l i t y i s c o n s t r a i n e d by v a r i o u s ^ F i r s t l y , the degree t o which the system i s u n d e r s t o o d the amount and  occur  the a c c u r a c y o f the d a t a i n p u t ;  factors.  and known;  secondly  and t h i r d l y , the o b j e c t i v e  o f the e x e r c i s e as s o p h i s t i c a t i o n beyond t h a t r e q u i r e d i s f r u i t l e s s ; lastly  the c o m p u t a t i o n a l One  f a c i l i t i e s a t the d i s p o s a l o f the  modeller.  approach t o model f o r m u l a t i o n i s :  1)  determine the problem;  2)  d e f i n e the g o a l s and o b j e c t i v e s - ;  3)  r e c o g n i s e t h e elements o f the problem;  4)  designate  5)  i d e n t i f y the o p e r a t i n g system, w i t h i t s b o u n d a r i e s ,  the c o n s t r a i n t s p e r t a i n i n g t o the problem; v a r i a b l e s and  parameters; 6)  d e t a i l the a l g o r i t h m s f o r each sub-system;  7)  programme the The  Conway  c o n s t r u c t i o n o f the model e n t a i l s c e r t a i n s t e p s and  procedures.  (1963) c o n s i d e r e d t h e r e t o be t h r e e phases e n t a i l e d a f t e r  problem has been 1)  algorithms.  the  identified:  model implementation  - d e s c r i p t i o n o f the system i n a language  a c c e p t a b l e t o the computer; 2)  s t r a t e g i c p l a n n i n g - d e s i g n o f an experiment t h a t w i l l y i e l d desired information;  the  44.  3)  •  t a c t i c a l p l a n n i n g — d e t e r m i n a t i o n o f how each o f t h e t e s t specified  i n experimental  d e s i g n i s t o be  runs  executed.  Smith. 0.9701 d i s c u s s e d t h e s t e p s i n v o l v e d i n u s i n g t h e systems technique  f o r problem a n a l y s i s i n d e v e l o p i n g a -management model, where  much o f t h e i n h e r e n t d e c i s i o n p r o c e s s e s judgement.  a r e based on e x p e r i e n c e and v a l u e  Smith's d e s c r i p t i o n c a n be m o d i f i e d  (see F i g . 3.1) t o make  * more e f f i c i e n t u s e o f t h e model i n t h e e a r l y s t a g e s .  Whereas a model  , may n o t r e p r e s e n t t h e system s u f f i c i e n t l y f o r u s e i n f i e l d procedures, i t j may be used t o reproduce  f i e l d c h a r a c t e r i s t i c s w i t h i n the c l a s s r o o m and  i t h u s f i n d use as a t r a i n i n g t o o l b e s i d e s d e l i v e r i n g more d e t a i l e d m a t i o n as t o t h e n a t u r e o f t h e system. the f i e l d still  infor-  F u r t h e r i f the model f a i l s  to reach  s t a t u s , due t o l a c k o f d a t a f o r example, t h e i n p u t o f e f f o r t  r e n d e r s some v a l u e . The v e r i f i c a t i o n and v a l i d a t i o n o f t h e model and the a n a l y s i s o f  generated  3.4  d a t a has been d i s c u s s e d by Fishman and K i v i a t e  (1967 a & bL.  APPLICATION OF OPERATIONS RESEARCH TO FOREST PLANNING  F o r a s a t i s f a c t o r y management p l a n f o r f o r e s t use t o be 'developed the f u l l range o f t h e m u l t i p l i c i t y o f p o s s i b l e i n p u t s and o u t p u t s be c o n s i d e r e d . cut  should  I f i n s u f f i c i e n t v a r i a b l e s are included i n the allowable  c a l c u l a t i o n t h e r e s u l t i n g s o l u t i o n s h o u l d be c o n s i d e r e d  (McConnen et al., 19661.  invalid  The "what s h o u l d be approach" t h a t they  i s a v e r y i d e a l i s t i c approach t h a t cannot, C l e a r l y , e a c h i n p u t and o u t p u t w i l l  adopted  however, always be emulated.  c a r r y d i f f e r e n t weights as t o t h e i r  importance and t h e r e f o r e t r a d e - o f f s between a l t e r n a t i v e s a r e o f t e n c a l l e d for.  The m a r g i n a l  case f o r d e c i s i o n s between a l t e r n a t i v e s i s f a c i l i t a t e d  45.  more e a s i l y i f a l l t h e f a c t o r s a r e based on a common u n i t o f measurement. However, t h e use o f common v a l u e s i n complex p l a n n i n g problems i s impract i c a l a t the present The  time.  r e l a t i o n s h i p s t h a t e x i s t between v a r i o u s elements w i t h i n t h e  c o u r s e o f t h e use o f t h e f o r e s t may v a r y c o n s i d e r a b l y and f o l l o w no r i g i d form o r t y p e .  F u r t h e r , the d e f i n i t i o n o f t h e optimum o v e r a l l s t a t e o f  the system may be a p o l i t i c a l  decision.  A l l t h a t can be e s t a b l i s h e d i s a  s e r i e s o f a c c e p t a b l e and f e a s i b l e s t a t e s , w i t h t h e f i n a l d e c i s i o n  being  the r e s p o n s i b i l i t y o f t h e p o l i t i c i a n s . In view o f t h e n a t u r e o f t h e problem and w i t h r e g a r d t o t h e c h a r a c t e r i s t i c s o f t h e problem and v a r i o u s o p e r a t i o n s r e s e a r c h  techniques  d i s c u s s e d , f o r t h e f o r m u l a t i o n o f a p o l i c y e v a l u a t i o n model o f a f o r e s t f i r m and t h e c o n s e q u e n t i a l e f f e c t on t h e f o r e s t r e s o u r c e , s i m u l a t i o n i s the most a p p r o p r i a t e . The was of  g e n e r a l a p p l i c a t i o n o f s i m u l a t i o n and i t s v a l u e t o a n a l y s i s  d i s c u s s e d by Gould  (1967).  S a s s e r and N a y l o r  (1967) gave an example  t h e a p p l i c a t i o n o f s i m u l a t i o n t o economic systems and Vaux  (1970)  demonstrated t h e management o f complex systems, a l b e i t o v e r a s h o r t time h o r i z o n w i t h b o t h e x a c t temporal  and s p a t i a l d e f i n i t i o n .  In t h i s  case,  o p e r a t i n g p e r s o n n e l i n a plywood p l a n t e f f e c t i v e l y managed complex d e c i s i o n p r o c e s s e s o f r e s o u r c e a l l o c a t i o n w i t h both economic and p r o d u c t i o n constraints.  Smith  (1966) supported  as an a i d t o d e c i s i o n making. for  the H P S  t h e use o f stand growth s i m u l a t i o n s  A t o t a l systems s i m u l a t i o n has been  adopted  ( I n t e r - I n s t i t u t i o n a l P o l i c y S i m u l a t i o n ) study a t t h e U n i v e r -  s i t y o f B r i t i s h Columbia  (Goldberg et al. , 1971).  The  f o r e s t resource  (.1969) , and system.  Seale  was  viewed as a system by R i p l e y and  Yandle  (1965L c o n s i d e r e d t h a t the f o r e s t as a whole formed a  When seen as such, the advantages o f the system approach  d i s c u s s e d p r e v i o u s l y may the d e c i s i o n maker and  be c a p i t a l i s e d - u p o n , Both t o the advantage o f  the m o d e l l e r .  The  t i c r e p r e s e n t a t i o n o f the system was approach was  as  need f o r the a c c u r a t e  s t r e s s e d By Gane  adopted by 0'Regan et at,  and  (1966).  realis-  A systems  (1965) f o r t h e i r e v a l u a t i o n o f  a l t e r n a t i v e h a r v e s t i n g p o l i c i e s under c o n d i t i o n s o f p r i c e i n s t a b i l i t y . However, the use and  o f models f o r p r e d i c t i o n i s p e r f o r c e  s u b j e c t t o e r r o r , due  t o the c u m u l a t i v e  i n t e r n a l e r r o r s and  changes i n the environment not a c c o u n t e d f o r by the model. will  to  The  errors  i n c r e a s e i n a b s o l u t e magnitude though not n e c e s s a r i l y i n importance,  as t h e time h o r i z o n o f the model i s extended. l i t e r a t u r e i s c h a r a c t e r i s e d by the e v e r i n t o the management d e c i s i o n . to a r a d i c a l , systematic  The  The  development o f  increasing diversity of  f u n c t i o n i n g system i s b e i n g  d i s s e c t i o n i n order  o f i n t e r a c t i n g and r e a c t i n g f a c e t s . has  uncertain  multitude  C o i n c i d e n t w i t h t h i s development t h a t l e a d us  to  t o c o n s i d e r the f o r m u l a t i o n o f a t o t a l systems model f o r f o r e s t  planning  and  the c o n s e q u e n t i a l  a n a l y s i s o f these d e c i s i o n s .  These models c o u l d be d e v e l o p e d a l o n g many d i f f e r e n t the subsequent d i s c u s s i o n j u s t one course  inputs subject  t o comprehend the  been the e v o l u t i o n o f the m a t h e m a t i c a l t e c h n i q u e s  begin  the  of developing  (see F i g . 3.1).  approach w i l l be c o n s i d e r e d .  the model t h e r e are s e v e r a l s t a g e s  These s t a g e s have been taken from Smith  f i e d t o i n c l u d e a gaming phase.  lines.  t o be  In  In  the  followed  (1970) and modi-  T h i s phase has been i n c l u d e d as  model has p o t e n t i a l "use p r i o r to i n t r o d u c t i o n i n t o the o p e r a t i o n s  the phase.  Identification o f the system  o b s e r v a t i o n and measurement  7TT ) analysis  ^ hypothesis  <-  model  7N  + testing  testing  ^  simulation 1^  gaxnmg e x p e r i e n c e o f the system by gaming management goals  ^ o p t i m i s a t i o n ^-  .-^  field  F i g u r e 3.1  FLOW CHART OF MODEL DEVELOPMENT USING THE SYSTEMS APPROACH (MODIFIED FROM SMITH, 1970)  48.  The  e d u c a t i o n a l worth o f the model f o r t e a c h i n g the s t r u c t u r e o f the  and  the o p e r a t i o n s i n the g e n e r a l sense must be r e c o g n i s e d .  model may  Though the  have s p e c i f i c d a t a inadequacies- and o n l y g e n e r a l l y d e f i n e d  p r o d u c t i o n functions-, o r even be p r e j u d i c e d a g a i n s t o p e r a t i o n a l use those  systems  i n power, the e d u c a t i o n a l -value i s not i n v a l i d a t e d .  increased experience  w i t h the model w i l l  enable  refinements  ments t o be i n c l u d e d a l o n g w i t h c l e a r e r i n d i c a t i o n o f the f u n c t i o n s and/or system l i m i t a t i o n s - .  by  Further, and  develop-  critical  49.  CHAPTER 4  ANALYSIS OF  THE FOREST FIRM  There has r e c e n t l y Been i n c r e a s i n g a t t e n t i o n p a i d t o t h e and  r o l e o f the f i r m i n resource a l l o c a t i o n .  theory  The p o s i t i o n o f the  i n the o v e r a l l s t r u c t u r e has been d i s c u s s e d a t some l e n g t h , b u t t h e o r y has  so f a r not been mentioned.  firm  the  There i s c o n s i d e r a b l e disagreement  between economists as t o p r e c i s e l y what i s the "theory o f the f i r m " . one  t h e o r y has been g r a c e d w i t h the t i t l e  a d i s t i n c t c o u r s e o f e v o l u t i o n can be I n i t i a l l y t h e r e was  and was  concerned The  consequently,  whose o b j e c t i v e was t i v e was  theory s e t out to e x p l a i n  the a l l o c a t i o n o f  (profits).  the net revenue was  mised by the f i r m d e c i d i n g upon a p a r t i c u l a r combination i n accordance  determined  *  competition, an  The  by the f i r m t a k i n g the p r i c e o f i t s f a c t o r  as b e i n g g i v e n by the market p l a c e and  outputs  resources  A c c o r d i n g t o the t h e o r y , the f i r m was  t o maximise i t s net revenue  accomplished  was  w i t h e x p l a i n i n g the  among f i r m s under v a r y i n g market c o n d i t i o n s , e.g. pure o l i g o p o l y and monopoly.  though  followed.  a l l o c a t i v e p r o c e s s o f the market p l a c e . o f f i r m s and,  l e n g t h o f time  the c l a s s i c a l t h e o r y * which i n essence  the t h e o r y o f market b e h a v i o u r  the b e h a v i o u r  f o r any  No  entity  objecinputs  then m a x i -  of inputs  and  w i t h i t s p a r t i c u l a r p r o d u c t i o n f u n c t i o n , which  by the c u r r e n t s t a t e o f t e c h n o l o g y ,  and the g i v e n p r o d u c t  was price.  F o r a more d e t a i l e d d e s c r i p t i o n o f the c l a s s i c a l t h e o r y see Henderson and Quandt Q958I pp. 42-84.  50.  Under pure c o m p e t i t i o n the f i r m was  a l l o w e d to s e l l a t a g i v e n  p r i c e whatever q u a n t i t y o f f i n i s h e d p r o d u c t  i t produced, and  would c o n t i n u e t o produce u n t i l the m a r g i n a l revenue.  The  t h e o r y was  f i r m s t o e x p l a i n how  the  c o s t e q u a l l e d the  firm  marginal  extended from s i n g l e p r o d u c t t o m u l t i - p r o d u c t  they- would a c h i e v e t h e i r o v e r a l l p r o d u c t i o n .  After  s p e c i f y i n g the c o n d i t i o n s u n d e r which the f i r m s engaging i n pure  competi-  t i o n c o u l d maximise t h e i r n e t revenue, the t h e o r y then e x p l a i n e d  the  e f f e c t s o f changes i n the p r i c e s o f p r o d u c t s and  the f a c t o r s o f p r o d u c -  t i o n which r e s u l t e d from changes i n the e q u i l i b r i u m p o s i t i o n o f the  total  market. Pure c o m p e t i t i o n was  not u n i v e r s a l and  so the t h e o r y was  t o meet c o n d i t i o n s where the market f o r f a c t o r s o f p r o d u c t i o n o r p r o d u c t s was  imperfect.  final  S e v e r a l i n t e r p r e t a t i o n s o f the t h e o r y were  proposed i n o r d e r t o account ( M o d i g l i a n i , 19581.  extended  f o r i m p e r f e c t market s t a t e s such, as o l i g o p o l y ,  However, c e n t r a l t o t h e e x t e n s i o n s was  t i o n t h a t the o b j e c t i v e o f each f i r m was w h i l e the c l a s s i c a l t h e o r y was  the assump-  t o maximise i t s p r o f i t .  Thus,  extended t o meet v a r i o u s market c o n d i t i o n s  i t s purpose, the e x p l a n a t i o n o f the a l l o c a t i v e p r o c e s s e s  o f the market  p l a c e , remained unchanged. O p p o s i t i o n t o the t h e o r y mounted as c r i t i c s argued t h a t the d i d not d e c i d e how revenue. t i o n and  much t o produce by e q u a t i n g m a r g i n a l  They noted  firm  cost to marginal  t h a t the t h e o r y d i d not view the f i r m as an o r g a n i s a -  i g n o r e d t h e e x i s t e n c e o f management p l a n n i n g , b u d g e t i n g  t a r g e t i n g f o r i n s t a n c e , which, t h e y argued, s h o u l d be firm's d e c i s i o n processes.  The  classical  e x p l a i n a t the g e n e r a l l e v e l the b e h a v i o u r  and  sales  i n c l u d e d i n the  t h e o r y had been c o n s t r u c t e d t o o f the f i r m s w i t h x n the  51.  market and  not  the b e h a v i o u r o f i n d i v i d u a l s w i t h i n a p a r t i c u l a r f i r m .  Consequently-, the c r i t i c i s m s not o n l y r e f l e c t e d the d i s p a r i t y between the b e h a v i o u r o f the a c t u a l f i r m s and the d i r e c t i o n s i n which the t h e o r y if  the t h e o r y was  the f i r m s o f the t h e o r y ,  ought t o be r e v i s e d .  t o become a v e h i c l e f o r e x p l a i n i n g and  but  T h i s was  (1958L p r o p o s e d a major r e v i s i o n when he proposed the  maximisation hypothesis tive.  He  t h e r e was  while  suggesting  acceptable  profit  l e v e l was  firm  to  be  a c o n s t r a i n t on the f i r m  i t s t r i v e d t o maximise i t s s a l e s revenue. Whereas c l a s s i c a l t h e o r y  l e v e l of production,  s a i d t h a t f i x e d c o s t s d i d not  so must p r i c e s " , Baumol's  c l e a r l y more c o n s i s t e n t w i t h t h i s o b s e r v e d b e h a v i o u r .  theory  still  neglected  influence  which c o n t r a d i c t e d o b s e r v e d b e h a v i o u r ,  by the g e n e r a l d i c t u m , " i f c o s t s r i s e , was  the o b j e c t i v e o f the  the c o n s t r a i n t o f an o v e r a l l p r o f i t l e v e l t h a t had The  sales  t h a t f i r m s do not have a s i n g l e o b j e c -  a s s e r t e d t h a t s a l e s m a x i m i s a t i o n was  maintained.  the  within  systems o f the i n d i v i d u a l f i r m s . Baumol  but  necessary  p r e d i c t i n g the  v a r i e t y t h a t f i r m s e x h i b i t e d w i t h i n the market p l a c e as w e l l as the  also  the p a r t i c u l a r s e t o f d e c i s i o n s and  described theory  However, the procedures that  lead to a p a r t i c u l a r goal. F u r t h e r development o f the t h e o r y described Instead  as the  ' b e h a v i o r a l t h e o r i e s ' , or the  of concentrating  an e n t i t y and  o f the f i r m l e a d t o what may  analysed  'Carnegie School  as  t o the f i r m ' s d e c i s i o n making b e h a v i o u r  on p r i c e s e t t i n g , o u t p u t l e v e l s , i n t e r n a l r e s o u r c e theory  o f Thought'.  on the market mechanisms the f i r m i s t a k e n  according  be  i s most c o m p r e h e n s i v e l y r e p o r t e d  allocation, etc.  i n C y e r t and March  (1963).  The  With the  abandonment o f the  c l a s s i c a l t h e o r y and a v a r i e t y of goals,  the  s u b s t i t u t i o n o f the  had  t o be  introduced.  decisions  by  s a t i s f y i n g the  so the  have  resolution enters the  the  Aspirations  confines  of  n a t u r a l l y change the  firm  changes.  a v a i l a b l e , but  f o r e s t f i r m i n B r i t i s h Columbia i s  p r i o r t o the use  o f the  f i r m as the  straints i s required.  However, a p e r f u n c t o r y a n a l y s i s  f o r e s t f i r m i n B r i t i s h Columbia has  t i o n s i n g e n e r a l , and generalisations  other firms  r e g a r d i n g the  CHARACTERISTICS OF  The aspirations  THE  abilities.  i s possible  i n p a r t i c u l a r , which a l l o w s  conas  organisa-  several  f i r m t o be made.  FIRM'S 0RG7-NISATI0N  The  each w i t h h i s own  i n d i v i d u a l s are  i n p u r s u i n g the  c o r e a c t i v i t i e s o f the  core a c t i v i t i e s  as:  organisation's  and  many c h a r a c t e r i s t i c s o f  f i r m i s comprised o f i n d i v i d u a l s ; and  not  instrument f o r planning,  a d e t a i l e d u n d e r s t a n d i n g o f i t s mode o f o p e r a t i o n , o b j e c t i v e s  4.1  firms  the management  l e v e l o f s a t i s f a c t o r y performance w i t h i n  A d e t a i l e d study o f the  the  the  which d e f i n e  set within  a v a i l a b l e , always i m p e r f e c t , knowledge.  o v e r time and  the  of  Each g o a l  s e t , o f s a t i s f a c t o r y performance l e v e l s , and  makes p l a n s and  also  notion that  d e c i s i o n p r o c e s s as a s e r i e s o f c o n s t r a i n t s  s e r i e s , or  the  objective  the d e c i s i o n mechanism t h a t p e r m i t t e d the  o f c o n f l i c t s between o b j e c t i v e s i n t o the  single universal  firm.  1)  the  2)  maintenance o f the  i n t e r n a l system;  3)  i n t e g r a t i o n o f the  organisation  r e l a t e d w i t h each o t h e r  Argyris  (1968} gave t h e s e  goals; and  w i t h the  hopes,  environment.  The  achievement o f these g o a l s  is facilitated  organisational structure for information the  formal  ones.  and  o r g a n i s a t i o n has  steady s t a t e and  d e c i s i o n making, problem s o l v i n g and  formalised  i n s t r u c t i o n flow,  s t r u c t u r e i s augmented by the f o r m a t i o n  The  by a  of casual  though  and  informal  dynamic p r o p e r t i e s .  The  d e c i s i o n implementation p r o c e s s e s  tend t o be r e l a t e d t o the i n f o r m a l , o r dynamic p r o p e r t i e s . The a)  e f f e c t i v e n e s s of these a c t i v i t i e s  awareness o f the r e l e v a n t i n f o r m a t i o n  i s dependent -upon: necessary to understand  the  problem n e e d i n g s o l u t i o n ; b)  ability  t o u n d e r s t a n d the a v a i l a b l e  c)  ability  t o use  d)  availability  e)  existence  and m a n i p u l a t e the  of resources  SYSTEMS AND  The  f o r s o l u t i o n implementation;  THE  o f e f f e c t i v e n e s s o f the  and  (1951) and  detract  organisation.  FIRM  f o u n d a t i o n s f o r modern systems theory  Bertalanffy As  information;  o f a l o n g term problem s o l u t i o n t h a t does not  from the c u r r e n t l e v e l  4.2  information;  were l a i d by Ludwig  were a p p l i e d t o management by K.  Boulding  systems are made up o f s e t s o f components t h a t work t o g e t h e r  o v e r a l l o b j e c t i v e o f the whole, we  von  0-956). for  the  are a b l e t o a n a l y s e the most complex  o f systems by the d i s s e c t i o n o f the whole i n t o i t s component p a r t s  for  scrutiny. Systems pervade a l l a s p e c t s o f our  environment, be  it a  transit  system, an ecosystem, an economic system o r a p o l i t i c a l system. systems approach i s simply t h e i r components.  The  a way  o f t h i n k i n g o f the t o t a l  The  systems  and  problems o f r e a l i s t i c d e s c r i p t i o n o f complex  systems were commented upon a t l e n g t h by Churchman  (1968).  The  systems  54.  approach may  be made i n d i f f e r e n t ways.  The  a s e r i e s o f i n t e r - r e l a t e d sub-systems was has  been a p p l i e d w i t h c o n s i d e r a b l e  Maass  (1962).  An  can be  advocated by  o v e r a l l framework can be p r o v i d e d  such phenomena.  Simon  (1962)  s u c c e s s t o water r e s o u r c e  common t o s e v e r a l d i s c i p l i n e s can be to include  d i v i s i o n o f the whole i n t o  i s o l a t e d and  planning  g e n e r a l models d e v e l o p e d of complexity l e v e l s  empirical f i e l d s .  would a l s o i n v o l v e the development o f a l e v e l o f a b s t r a c t i o n t o each f i e l d . Boulding  T h i s a l t e r n a t i v e approach i s t h a t which was  i n h i s o r i g i n a l c l a s s i f i c a t i o n model and  developed with reference Within  the  o f the  se  f o r the  who  concentrated  how  they i n t e r a c t e d .  f i r m was  more on  human b e h a v i o u r a l  de-emphasised by  Recognition  o f the  f a c t o r s w i t h i n the  m a t e l y a r r i v e d a t the c o n c e p t o f the system s c h o o l  s o c i o l o g y and formal  system. operating  The  activity,  The  teachings  recognise and  (.1964) .  scientific-  showing each component The  machine  the human r e l a t i o n i s t s  f i r m has  l e d to a r e a p p r a i s a l o f  techniques.  T h i s movement  f i r m as a s o c i a l system.  ulti-  This  social  inter-  o f t h i s s c h o o l o f thought r e l y h e a v i l y  t h a t the components group and  regroup i n  f u n c t i o n i n groups w i t h i n the t o t a l  system o f the  and  i n t e r - p e r s o n a l r e l a t i o n s h i p s and  l o o k s upon management as a system o f c u l t u r a l  relationships.  was  the i n t e r - r e l a t i o n s h i p s between components  m a n a g e r i a l approaches, o b j e c t i v e s , and  and  Rosenweig  f i r m as a f u n c t i o n a l element w i t h i n the o r g a n i s a t i o n .  system per  by  the approach t h a t  t o b u s i n e s s by Johnson, Kast and  drawn machine-man a n a l o g i e s ,  It  represent  adopted  framework o f the b u s i n e s s as a system, the  management s c h o o l has  by  i n which phenomena  A l t e r n a t i v e l y , a hierarchy  s t r u c t u r e d f o r the b a s i c u n i t s o f v a r i o u s  and  firm i s subject  informal  integrated  t o c u l t u r a l i n f l u e n c e s and  w i t h i n an o v e r a l l l a r g e r e n v i r o n m e n t a l system.  on  is  55.  The  r e a l i s a t i o n o f the c o m p l e x i t y o f the  the e a r l i e r  way  system  simple models o f m a x i m i s i n g b e h a v i o u r as t o o l s f o r  tional analysis. given  enterprise  The  m e c h a n i c a l models o f  t o t h e o r i e s and  nullifies  organisa-  " s c i e n t i f i c management" have  systems r e p r e s e n t a t i v e  o f the  "human r e l a t i o n s "  movement w i t h c u r r e n t  emphasis d e v e l o p i n g around d e c i s i o n making, communi-  cations, organisation  s t r u c t u r e , growth o f the  4.2.1  f i r m and  uncertainty.  HIERARCHICAL SYSTEMS  The  existence  of formal structures within  the r e t e n t i o n o f c e r t a i n f e a t u r e s  CSimon, 1960,  the f i r m w i l l p. 49).  These  require features  are: a)  the o r g a n i s a t i o n into parts  b)  w i l l be h i e r a r c h i c a l i n form and  divided  i n a d e p a r t m e n t a l manner;  the o r g a n i s a t i o n  w i l l be  constructed  system o f p h y s i c a l p r o d u c t i o n grammed and  w i l l be  and  of three  layers;  an  underlying  d i s t r i b u t i o n , a layer of pro-  p o s s i b l y l a r g e l y automated d e c i s i o n p r o c e s s e s f o r  r o u t i n e r e g u l a t i o n o f the p r o d u c t i o n  system and  a system o f  non-  programmed d e c i s i o n p r o c e s s e s f o r m o n i t o r i n g the o t h e r systems and  g o v e r n i n g them.  Simon's h i e r a r c h i c a l systems may r e s p o n s i b i l i t y o f i n d i v i d u a l s must be t o t a l information The  however, the  lateral  e x p e c t e d to expand as m u l t i - d i s c i p l i n a r y ,  systems are  developed.  f i r m system must m a i n t a i n a s e r i e s o f sub-systems i n o r d e r  r e a c t t o , f o r and The  decisions  persist;  w i t h the  t o t a l dynamic system o f w h i c h i t forms a  system as a whole must n o t e :  1)  the  t o t a l system o b j e c t i v e ;  2)  the  systems environment and  fixed constraints;  to  part.  56.  3)  resources  o f the system;  4)  components o f t h e system, i n a c t i v i t i e s ,  g o a l s and measures o f  performance; 5)  management o f t h e system. The management a s p e c t may be d i v i d e d i n s e v e r a l o p e r a t i n g  systems. 1)  sub-  These sub-systems a r e Csee F i g , 4.1, p . 5 7 ) :  a g o a l - s e t t i n g sub-system which e s t a b l i s h e s t h e o b j e c t i v e s o f the organisation;  2)  a sensor  sub-system t o i d e n t i f y and m o n i t o r changes w i t h i n t h e  environment; 3)  a data  storage  4)  an i n f o r m a t i o n p r o c e s s i n g  5)  a d e c i s i o n making sub-system t h a t r e c e i v e s i n f o r m a t i o n outputs  6)  planning  sub-system such as a c c o u n t i n g ; i n p u t s and  messages;  a c o n t r o l component t h a t e n s u r e s t h e achievement o f g o a l s and provides  7)  sub-system;  t h e feedback c o n t r o l ;  a production  sub-system t h a t responds t o i n f o r m a t i o n and p r o d u c t i o n  goods t o a c h i e v e  certain goals.  The performance o f t h e system w i l l be a s s e s s e d which t h e s t a t e d o b j e c t i v e s a r e a c h i e v e d ,  by t h e degree t o  r e l a t i v e t o the t o t a l e n v i r o n m e n t a l  system.  4.2.2  DECISION TAKING SUB-SYSTEM  The i n f o r m a l d e c i s i o n t a k i n g system o f the f i r m may be s t r a t i f i e d i n t o three l e v e l s ,  (see F i g . 4.2, p. 58) though i n f o r m a t i o n - f l o w and f e e d -  back between these  levels i s prevalent.  The importance o f a d e c i s i o n and  the i n f l u e n c e e x e r t e d become l e s s s i g n i f i c a n t a t each s u c c e e d i n g  decision  level.  57.  SENSOR SYSTEM  data  I 1 1 requests 1 i i  new  information and i n f o r m a t i o n renewal  I  DATA  STORAGE  DATA PROCESSING  data  G o a l s e t t i n g and g o a l c o n s t r a i n i n g subsystem: - shareholders - creditors - bond h o l d e r s  I I  requests i i  DECISION TAKING SUB-SYSTEM  CONTROLLING SUB-SYSTEM  F U N C T I O N I N G inventory  S U B S Y S T E M S administration  processing  sales  e t hoc genus omne  OUTPUT  Figure  4.1  THE SYSTEM OF THE FIRM  changes and satisfaction  ENVIRONMENT  THE PLANNING  SYSTEM  S t r a t e g i c Planner s e t s b r o a d p o l i c i e s and g o a l s o f the f i r m .  General d e c i s i o n taking  under u n c e r t a i n t y .  Tactical plans  Planner  t h e p r o j e c t s and t h e  facilitating  systems.  Resources  allocated.  Operational operations  Planner  o f e a c h p r o j e c t and  facilitating  system  Figure  4.2  planned.  1)  S t r a t e g i c planning  I t i s a t t h i s l e v e l t h a t a l l major l o n g term d e c i s i o n s a r e made. Operating set.  over a l o n g time h o r i z o n t h e broad  The g e n e r a l p o l i c i e s c o n c e r n i n g  investment  p o l i c i e s o f the firm are  the o p e r a t i o n o f t h e f i r m , t h e  p o l i c y and t h e r e s p o n s e s t o u n c e r t a i n t y a r e f o r m u l a t e d .  d e c i s i o n s taken a t t h i s l e v e l a r e non-programmed, n o v e l , and  The  unstructured  c o n s e q u e n t i a l , and a r e taken under t h e g r e a t e s t u n c e r t a i n t y .  2)  Tactical  planning  The p l a n n i n g g o a l s and modes o f o p e r a t i o n a r e t r a n s l a t e d a t t h i s level  i n t o more s p e c i f i c terms wherein t h e p r o j e c t systems and f a c i l i t a t i n g  systems a r e p l a n n e d . The  General  d e c i s i o n process  resource  still  a l l o c a t i o n occurs a t t h i s  level.  demands i n i t i a t i v e b u t t h e degree o f  l a t i t u d e i s s e v e r e l y c o n s t r a i n e d and t h e degree o f u n c e r t a i n t y reduced. Programmed d e c i s i o n making o c c u r s a t t h i s l e v e l and t h e p l a n n i n g  horizon  i s f a r shorter.  3)  The  initiative  frequently.  planning  o p e r a t i o n o f each p r o j e c t and f a c i l i t a t i n g  i n d e t a i l over a v e r y and  Operational  s h o r t time h o r i z o n .  system i s p l a n n e d  The l a t i t u d e f o r i n n o v a t i o n  i s u s u a l l y l i m i t e d and programmed r e s p o n s e s a r e employed  Operational research techniques  may o f t e n be a p p l i e d a t t h i s  l e v e l because o f t h e comparative c e r t a i n t y o f o p e r a t i o n s and c l o s e l y d e f i n e d o b j e c t i v e s , r e s o u r c e s and c o n s t r a i n t s . A l l d e c i s i o n making s t r u c t u r e s such as t h i s p e r m i t p l a n n i n g a t the p r o j e c t l e v e l and on a systems b a s i s .  integrated  There i s a down-  60. c u r r e n t o f g o a l s , p r e m i s e s and p r o j e c t managers who  a r e d e l e g a t e d the f u n c t i o n o f i n t e g r a t e d p l a n n i n g  f o r t h e i r p r o j e c t , and quotients, c o n f l i c t s ,  4.3  GOALS AND  The goals.  c o n s t r a i n t s from the h i g h e r l e v e l s t o the  t h e r e i s an u p - c u r r e n t , o r feedback,  OBJECTIVES  c o h e s i o n and d i r e c t i o n o f the f i r m a r e m a i n t a i n e d  by  These g o a l s a r e n o t , however, always e x p l i c i t and may  g o a l i s s e t by the owners o f the company who  overall  be  tempered  The o r g a n i s a t i o n a l g o a l s  themselves be s t r a t i f i e d a c c o r d i n g t o the p l a n n i n g l e v e l .  t h e i r behaviour.  success  and b o t t l e n e c k s .  by the need f o r s h o r t term o p e r a t i o n a l g o a l s . may  of  The  overall  are g e n e r a l l y maximising i n  Depending upon the stage o f development and the  commodity  b e i n g produced the share h o l d e r s w i l l be c a p i t a l g a i n s m a x i m i s i n g o r income flow maximising. and  4.3.1  In the former c a s e , the r a t e o f expansion  i n the l a t t e r case the annual  dividends are  o f the  stock  important.  STRATEGIC OBJECTIVES  As f i r m s compete on the open market f o r c a p i t a l , i t must be assumed t h a t they a r e p r o f i t m o t i v a t e d .  The p r o f i t m o t i v a t i o n w i l l be c o n s t r a i n e d  by the need t o m a i n t a i n ; 1)  a minimum r e t u r n t o c a p i t a l ;  2)  an adequate c a s h  3)  a s a t i s f a c t o r y stock p o s i t i o n .  flow;  The p r o f i t m o t i v e m a n i f e s t s circumstances.  i t s e l f a c c o r d i n g t o the  prevailing  In p e r f e c t l y c o m p e t i t i v e f r e e market s i t u a t i o n s the  i s maximised when the m a r g i n a l  c o s t equates w i t h p r i c e .  profit  However, i f the  61.  production  i s beyond the c o n t r o l o f the f i r m and  or c o n s t r a i n e d ,  as i t i s under c o n s t r a i n e d  the p r o d u c t i o n  is limited  y i e l d c o n d i t i o n s , then  the  r e t u r n f u n c t i o n i s f i x e d f o r the f i r m , which must then become c o s t mising  i n i t s operations.  mini-  I t i s always i n the i n t e r e s t s o f the f i r m t o  move o n t o a lower average c o s t c u r v e i f i t i s a t a l l p o s s i b l e , but  under  the c i r c u m s t a n c e s o u t l i n e d above, the f i r m w i l l c o n t i n u e t o d e p r e s s average c o s t c u r v e a t the p o i n t o f p r o d u c t i o n m a r g i n a l c o s t s i t u a t i o n Csee F i g . 4.3, The increased  depression  p.  c a p i t a l investment.  to  Thus i n an a s s u r e d p r o d u c t i o n  entail p o s i t i o n the  With the f i r m s on a c o s t  b a s i s a t h i g h c a p i t a l i n t e n s i t y , t h e y tend t o be p o l i c y  r a t h e r than p r i c e r e s p o n s i v e  in their actions.  i n m o b i l e a s s e t s w i l l however, s t i l l  be  The  The  f a i l u r e to apply  continued  s u b j e c t t o the  t i o n o f p r o f i t s , which are themselves dependent on price levels.  mini-  responsive investments  s h o r t term e x p e c t a -  the e x p e c t e d s a l e s  the m a r g i n a l c r i t e r i a w i l l ,  t o the c l a s s i c a l economic a n a l y s i s o f the  the  62).  o f the average c o s t c u r v e w i l l n o r m a l l y  f i r m w i l l become more c a p i t a l i n t e n s i v e . mising  without reference  the  and  according  f i r m , l e a d t o economic  ineffi-  ciency. I f the on  f i r m becomes l e s s s e n s i t i v e t o p r i c e changes by  the average c o s t c u r v e i t i s t o be  o f the p r o d u c t i o n  function w i l l  f o r e s t i n d u s t r i e s where the a reluctance sity  e x p e c t e d t h a t the  increase.  labour  to s u b s t i t u t e c a p i t a l f o r labour  g i n a l r a t e o f s u b s t i t u t i o n i s unknown.  fixed cost  element  T h i s i s p a r t i c u l a r l y so i n the  c o s t s are h i g h and  t o work i n remote a r e a s .  operating  I t may  workers a r e  showing  be deduced t h a t the  propen-  i s h i g h , but u n f o r t u n a t e l y ,  the mar-  62.  V — p r o d u c t i o n s e t by t h e a l l o w a b l e c u t P - prevailing  price  MC^ - m a r g i n a l c o s t curve o f f i r m o p e r a t i n g i n a f r e e market AC^ - average  c o s t c u r v e o f t h e same f i r m  MC 2 - m a r g i n a l and average AC  c o s t c u r v e s f o r the f i r m  2  MC^ - m a r g i n a l c o s t c u r v e o f a f i r m o p e r a t i n g i n a f i x e d h a r v e s t position AC^ - average  c o s t curve o f t h e f i r m i n a s s u r e d market  F i g u r e 4.3  ALTERNATIVE AVERAGE AND MARGINAL COST CURVES UNDER DIFFERING MARKET CONDITIONS  position  63.  With the i n c r e a s e d r e l i a n c e on m e c h a n i s a t i o n , h i g h f i x e d c o s t element o f the p r o d u c t i o n r i s i n g marginal  4.4,  still  A t the upper l i m i t ,  P^,  fluc-  c o s t f u n c t i o n Csee  64).  p.  when the g o i n g p r i c e f o r o u t p u t  is  then n e i t h e r p r o d u c t i o n a l t e r n a t i v e w i l l be i n a p o s i t i o n o f advan-  tage as b o t h w i l l produce t o c a p a c i t y a t v to  the  s h o r t term p r o d u c t i o n  be dependent upon the m a r g i n a l  In the s i m p l i f i e d F i g u r e 4.4, at  a  f u n c t i o n , i t f o l l o w s , assuming  become l e s s s e n s i t i v e t o s h o r t term p r i c e  t u a t i o n s than a t p r e s e n t .  Fig.  consequently  c o s t s o v e r the p o t e n t i a l p r o d u c t i v e range, t h a t  production decision w i l l  decisions w i l l  and  drop t o P  2  However, i f the p r i c e were  then the f i r m w i t h o p e r a t i n g c o s t s c h e d u l e  f o r c e d t o reduce i t s p r o d u c t i o n t o V^, w i l l continue  .  i n production at V  o f OC,,  will  w h i l s t the f i r m o p e r a t i n g on  , as i t s o p e r a t i n g c o s t s a r e  be OC^  covered.  m Only when the p r i c e f a l l s below P^ w i l l the l a t t e r f i r m b e g i n t o its if  production.  Obviously  the p r i c e were d e p r e s s e d  curtail  t h i s f i g u r e r e f e r s o n l y t o the s h o r t term  and  below t o t a l c o s t l i n e s f o r any s u b s t a n t i a l  p e r i o d both f i r m s would move t o reduce t h e i r c o s t s . It  i s t o be expected  t h a t i n time o r g a n i s e d  labour w i l l  force  the l a b o u r c o s t element o f the p r o d u c t i o n f u n c t i o n t o be c o n s i d e r e d more as a f i x e d c o s t f a c t o r by f o r c i n g g u a r a n t e e d c o n t r a c t s , and modifying  thereby  the p r o d u c t i o n d e c i s i o n s t i l l f u r t h e r .  F u r t h e r , the more r e s t r i c t i v e and  f i r m ' s o p e r a t i o n s w i l l have to become c o m p a t i b l e demanding s t a n d a r d s  f o r the c o n t r o l o f  impact r e s u l t i n g from p r o d u c t i o n a c t i v i t i e s .  with  environmental  R e c r e a t i o n a l demands, p a r t i -  c u l a r l y i n areas c l o s e to p o p u l a t i o n centres w i l l e n t a i l a d d i t i o n a l c o s t s to  the f i r m s .  64.  OC^ - o p e r a t i n g  cost of f i r m with high  f i x e d and low o p e r a t i n g  costs FC^  - f i x e d c o s t o f t h e same f i r m  TC^  - t o t a l operating  OC^  operating  -  cost of that  firm  c o s t o f f i r m w i t h low f i x e d and h i g h  costs FC^  - f i x e d c o s t o f t h e same f i r m  TC  - t o t a l operating  2  P  2  cost of that  P^ - a l t e r n a t i v e p r i c e  — maximum p r o d u c t i o n - production  firm  levels.  possible  l e v e l under low p r i c e s  Figure  4.4  ALTERNATIVE PRODUCTION COST SCHEDULES FOR THE FIRM  i  operating  65.  4.3.2  TACTICAL OBJECTIVES  For has  s h o r t terra f u n c t i o n i n g t h e g e n e r a l maxim o f "maximise p r o f i t s "  l i t t l e meaning.  goals.  Targets f o r operations  Thus, elements o f a f i r m ' s  inventory  ( C y e r t and March, 1963).  i s s e t and a budget i s a l l o c a t e d t o f i n a n c e  sales strategy.  The o u t p u t g o a l  term  f u n c t i o n i n g become d e c i s i o n v a r i a b l e s  r a t h e r than market response v a r i a b l e s sales goal  must be s e t as s h o r t  A periodic  a m a r k e t i n g and  i s s e t f o r a f i x e d p e r i o d depending upon  and s t o c k p i l e r e q u i r e m e n t s and s a l e s f o r e c a s t s .  The p r i c e o f  the produce i s s e t by t h e m a n a g e r i a l d e c i s i o n and i s t i e d t o t h e i n v e n t o r y p o s i t i o n , planned production thereby the p r o f i t goal The the  4.4  d e c i s i o n v a r i a b l e s a r e r e v i s e d as t h e need a r i s e s , a c c o r d i n g  success achieved w i t h i n the v a r i o u s  to  sections o f the f i r m ,  PLANNING HORIZON'S, OPERATIONAL SCOPE AND THE FOREST FIRM  planning  1)  s a l e s f o r e c a s t s and s t r a t e g i e s , and  i s set.  Planning horizons  any  level,  given  level.  within  the f o r e s t f i r m w i l l vary according  to  The f i r m w i l l have a v a r i e t y o f p l a n s i n e x i s t e n c e a t  time which may f o l l o w t h e f o l l o w i n g o u t l i n e  Ten y e a r p l a n .  The e x p e c t e d a r e a o f o p e r a t i o n s  (Wellburn, 1972) : with  possible  Volumes and road r e q u i r e m e n t s c u r s o r i l y o u t l i n e d ; 2)  Five year production  plan.  A plan revised annually  and i s s i m i l a r  t o t h e above b u t i s more d e t a i l e d i n i t s c o n t e n t s ; 3)  Five year sales plan.  Economic f o r e c a s t s a r e p r e p a r e d and t h e  sales potential outlined; 4)  Annual p l a n . detailed;  The f i r m ' s budget i s s e t and o v e r a l l  operations  66.  5)  Monthly p l a n .  Prepared  f o r each p r o d u c t i o n camp by the camp f o r e -  man and d e t a i l s programmed f o r p r o d u c t i o n and b u d g e t i n g ; 6)  Engineering plans.  Prepared  every  t h i r d month and o u t l i n e  e n g i n e e r i n g p l a n s f o r t h e coming y e a r . The  p u b l i c a u t h o r i t i e s w i l l t e n d t o show concern  f o r the f o r e s t  over a much l o n g e r p e r i o d , g e n e r a l l y a t l e a s t one f u l l r o t a t i o n .  The  p l a n n i n g a u t h o r i t y o f t h e r e g u l a t i n g body, which i n B r i t i s h . Columbia i s the B r i t i s h Columbia F o r e s t S e r v i c e , t a k e s precedence over t h e p l e a s o f the o p e r a t i n g f i r m s . Besides  t h e temporal l i m i t a t i o n t o t h e f i r m ' s a c t i v i t i e s t h e r e a r e  the s p a t i a l l i m i t a t i o n s . l i m i t a t i o n s begin  The i n f o r m a t i o n f l o w and o p e r a t i o n a l c o n t r o l  t o impose themselves as t h e s c a l e o f t h e o p e r a t i o n expands.  Beyond a c e r t a i n s i z e t h e d i s e c o n o m i e s o f s c a l e i n t e r v e n e , c a l l i n g f o r the i n t r o d u c t i o n o f secondary p r o d u c t i o n c o n t r o l l e v e l s . author  As f a r as t h e  i s aware t h e r e i s no a v a i l a b l e study as t o the optimum s c a l e o f  f o r e s t operations a t the primary  control level.  However, p r e l i m i n a r y  i n v e s t i g a t i o n s i n d i c a t e t h a t an o p e r a t i o n a l l o g g i n g u n i t , which may comp r i s e s e v e r a l l o g g i n g o p e r a t i o n s , c o v e r s about 200,000 a c r e s o f t r e e farm l i c e n s e i n the c o a s t a l region o f B r i t i s h  4.5  Columbia.  FIRM'S CONSTRAINTS  The  f i r m i s not f r e e t o operate  at will.  I t operates  according to  a s e t o f r u l e s and r e g u l a t i o n s and w i t h i n t h e c o n f i n e s o f i t s environment (see F i g . 4.5). These c o n s t r a i n t s a r e : 1)  Resource base. - p r o d u c t i o n o f t h e f i r m i s u l t i m a t e l y l i m i t e d by the a v a i l a b i l i t y o f t h e r e s o u r c e .  T h i s l i m i t a t i o n w i l l have  spatial  i- stumpage  production i n wood "processing industry  taxation  environmental standards  - allowable cut  required restocking  required - forest practices  -log  price  potential -forest production  present -road investment  consumer demand  previous activity  competitors production and supply position  GOVERNMENT POLICY  supply - and demand  THE MARKET PLACE  growing stock  mobile capital  other land demands  the forest  THE RESOURCE  government a i d schemes  saving rate investment rate  previous years activity  depreciation  retained earnings  - inflation investment opportunity  output from training institutions  working conditions  on page 67b.  bond holders  banks  wage r a t e unemployment  employee benefit schemes  market optimism exchange rate forms o f taxation  wages i n other industries  remoteness of work  amount o f taxation firm's capital i . CAPITAL AVAILABILITY  capital 'market  c o s t and supply  LABOUR  f i g u r e 4.5 c o n t i n u e d  mortgages  iCREDITORS  F i g u r e 4.5  THE ENVIRONMENT OF THE FIRM  68.  and temporal v a r i a t i o n s as the f i r m i s d e a l i n g w i t h a dynamic resource.  Artificial  constraints  by l e g a l o r a d m i n i s t r a t i v e 2)  Legal constraints. on the f i r m ' s  3)  on the r e s o u r c e may  be imposed  action.  - the p l a c i n g o f o b l i g a t i o n s  and s t r i c t u r e s  operations.  Social constraints. moral o b l i g a t i o n s  - o p e r a t i o n s a r e conducted so as t o  fulfill  t o employees and maintenance o f t h e c o r p o r a t e  image. 4)  Economic and p r o d u c t i o n ^ . c o n s t r a i n t s . regulated  by i t s a b i l i t y  to acquire  - the f i r m ' s p r o d u c t i o n i s r e s o u r c e s and t o p r o c e s s them.  I t s s a l e s a r e governed by t h e p r o d u c t i o n a c h i e v e d and the demand for i t s products.  4.6  SUMMARY  The o r g a n i s a t i o n s not  and s t r u c t u r e s  e x p l i c i t l y occur within  lities  the f i r m .  as o u t l i n e d  i n t h i s chapter  may  The c l e a r d e f i n i t i o n o f r e s p o n s i b i -  i s o f t e n d i f f i c u l t and the v e r t i c a l i n t e g r a t i o n o f t h e p l a n n i n g and  d e c i s i o n making w i l l c e r t a i n l y o c c u r , p a r t i c u l a r l y i n s m a l l However, t h e g e n e r a l p a t t e r n  as d e s c r i b e d  work f o r a model o f the f o r e s t  firm.  companies.  p r o v i d e s t h e a n a l y t i c a l frame-  69.  CHAPTER 5  APPLICATION OF  Simulation excessive  SIMULATION TO  models o f the  a b s t r a c t i o n and  However, the f o r m u l a t i o n information and  THE  FIRM  f i r m have o f t e n been c r i t i c i s e d  unrealism,  o r i e n t a t e d , t h e i r c o m p l e x i t y and  SUBSYSTEMS OF  and  though t r a d i t i o n a l l y  o f a model s p o t l i g h t s the k i n d o f  t i o n o f the  firm.  The  f i r m were d i s c u s s e d  their  analytically  r e a l i s m have been s e v e r e l y l i m i t e d . empirical  needed f o r g a i n i n g a b e t t e r u n d e r s t a n d i n g o f the  p r o c e s s e s o f the  for  operation  b a s i c problems a s s o c i a t e d w i t h the by Cohen  simula-  (1960).  Many s i m u l a t i o n models t h a t r e f e r t o p a r t s o f f o r e s t p l a n n i n g been d e v e l o p e d . system o f the o f the  They may  firm.  looked  upon as r e f e r r i n g t o a s p e c i f i c  Some o f the more e l a b o r a t e models r e f e r t o  sub-systems, but w i t h i n the c o n t e x t  cussed with reference  5.1  be  t o the  sub-  several  o f t h i s c h a p t e r they are  dis-  sub-system t o which they p r i n c i p a l l y r e f e r .  SENSOR SUB-SYSTEM  The  s e n s o r sub-system n o t e s the  economic e n v i r o n m e n t s . Simulation  The  s t a t e o f the n a t u r a l and  sub-system i s d i v i d e d i n t o s e v e r a l  t e c h n i q u e s have t o be a p p l i e d t o f o r e s t  p r o c e s s e s as a means o f i m p r o v i n g sampling t e c h n i q u e s . or hypothetical  f o r e s t d a t a are  a l t e r n a t i v e sampling methods may The  have  be  inventory  If either real  a p p l i e d t o sample the g i v e n then be  evaluated  sampling e f f i c i e n c y i n terms o f sample v a r i a t i o n s and (1965), A r v a n i t i s and  sections.  s t o r e d o r g e n e r a t e d i n the computer, then  a l t e r n a t i v e sampling methods may  Arvanitis  the" s o c i o -  O'Regan  data.  for relative sampling  costs:  (1969), Mawson (1968), O'Regan  70.  and A r v a n i t i s and  Payandeh  (1966),  O'Regan and P a l l e y  (1965),  P a l l e y and O'Regan (1961)  (1968, 1970 a and b ) .  T h i s sub-system i s a l s o r e s p o n s i b l e f o r m a i n t a i n i n g a c o n s t a n t check on changing  5.2  demand p a t t e r n s , p r i c e changes, e t c .  DATA-STORAGE  SUB-SYSTEMS  C o l l e c t e d d a t a and d a t a changes, b o t h i n t e r n a l l y and e x t e r n a l l y t o the system, must be r e t a i n e d f o r f u t u r e u s e o r p r o c e s s i n g . accounting, in  s a l e s , p e r s o n n e l , i n v e n t o r y and c a p i t a l s t o c k s h o u l d be s t o r e d  t h i s sub-system.  Gessford  (19621,  Hamilton  C1964).,  The of  C19601  and Hewson  have a p p l i e d s i m u l a t i o n t o m i l l y a r d i n v e n t o r i e s and Holemo cussed  Data on f o r e s t  (19711  dis-  i n v e n t o r y management and c o n t r o l b u t d i d not p r e s e n t a f o r m a l m o d e l .  use o f t h e computer f o r d a t a s t o r a g e p e r m i t s a c o n t i n u o u s  inventory  t h e f o r e s t r e s o u r c e t o be k e p t and so a l l o w i n g f o r improved d e c i s i o n  1963).  making  (Hall,  5.3  DATA PROCESSING AND PLANNING  One o f t h e major d i f f i c u l t i e s  SUB-SYSTEM  t h a t f a c e s t h e f o r e s t manager i s t h e  p r e d i c t i o n o f t h e outcome o f a g i v e n p r a c t i c e , p r o c e d u r e action.  o r course o f  N a t u r a l l y , no p r e d i c t i v e model i s ever c o m p l e t e l y c o r r e c t , how-  e v e r , s i m u l a t i o n has been a p p l i e d t o reproduce  forest  stands  t o t e s t the  e f f e c t s o f i n t r a - and i n t e r - s p e c i f i c c o m p e t i t i o n w i t h i n the f o r e s t . absolute boundaries  o f f o r e s t p r o d u c t i o n a r e l i m i t e d by the environment,  though t h e r e i s c o n s i d e r a b l e l a t i t u d e f o r v a r i a t i o n w i t h i n these tions .  The  limita-  Models have been d e v i s e d t o t e s t t h e e f f e c t s o f changes i n competit i o n as brought about by changing T s o l a k i d e s , 1968). Dress  s i l v i c u l t u r a l treatments  (Lee, 1967;  S t o c h a s t i c o r d e t e r m i n i s t i c approaches may be adopted.  (1968) adopted t h e s t o c h a s t i c approach and e x p r e s s e d  s h i p s i n terms o f p r o b a b i l i t y d i s t r i b u t i o n s , w h i l e Newnham  the r e l a t i o n (.1964) developed  a d e t e r m i n i s t i c model, where t h e same d a t a i n p u t and f u n c t i o n i n g c o n t r o l s will  always y i e l d t h e same answer.  S t u d i e s u s i n g h y p o t h e t i c a l d a t a have  been c a r r i e d o u t (Smith et al. , 1965) though t h e use o f hard d a t a i s more I common  (Newnham and Smith, 1964; M i t c h e l l , 1969).. Early  s t a n d models were r e s t r i c t e d t o s m a l l p o p u l a t i o n s o f a s i n g l e  s p e c i e s b u t more r e a l i s t i c p o p u l a t i o n s i m u l a t i o n s and a l s o w i t h two s p e c i e s  (Pennycuick  et al.  3  ( B e l l a , 1969;  L i n , 1969)  1968) a r e now a v a i l a b l e .  A f o r e s t s i m u l a t i o n s h o u l d c o n t a i n t h e elements o f : a)  s p a t i a l d e f i n i t i o n and i n d i v i d u a l dimension  definitions;  b)  i n t e r - and i n t r a - s p e c i f i c c o m p e t i t i o n , r e s o u r c e l i m i t a t i o n s and t h e i r e f f e c t on growth;  c)  m o r t a l i t y and t h e removal o f dead t r e e s from t h e s t a n d . The  by Brace  s p a t i a l arrangement o f t r e e s w i t h i n t h e f o r e s t has been s i m u l a t e d  (1970) and t h e f r e q u e n c y  d i s t r i b u t i o n s o f t r e e parameters by  Newnham (1968) and Newnham and M a l o l e y Competition problems. and  and r e s o u r c e l i m i t a t i o n s p r e s e n t d i f f i c u l t s i m u l a t i o n  D e n s i t y i t s e l f may be c o n s i d e r e d t o a f f e c t c o m p e t i t i o n  (Lemon  Schumacher, 1962), o r t h e zone o f i n f l u e n c e o c c u p i e d by c o m p e t i t o r s  may be determined. Opie  (1970).  T h i s l a t t e r approach was adopted by Newnham  (1968) and G e r r a r d  (1969).  r e g r e s s i o n s a r e thus e s t a b l i s h e d .  (1966a),  On t h e s e bases growth and c o m p e t i t i o n  72.  The  d e a t h and removal o f t r e e s tends t o be s e t by a r b i t r a r y l i m i t s .  Smith et al. within  (.1965) d i s c u s s e d  f o r e s t stands.  space i n d e x .  t h e use o f s i m u l a t i o n  L i n (1969) k i l l e d  for defining mortality  t r e e s which had a z e r o  The system was improved by P a i l l e  growing  (1970) and P a i l l e and Smith  (1970) who i n c l u d e d m o r t a l i t y t a b l e s w i t h i n t h e models and k i l l e d according position  to a p r o b a b i l i t y function appropriate i n t h e t r e e canopy.  c a r r i e d o u t by P i e n a a r  ranging  and t h e s p e c i e s  White spruce  A q u a n t i t a t i v e a n a l y s i s o f f o r e s t growth was  (Opie,  1970).  upon t h e d e v e l o p i n g Lodgepole p i n e .  have g e n e r a l l y been r e s -  The s i m u l a t i o n s  investigated include Douglas-fir  ( M i t c h e l l , 1966), Lodgepole p i n e  1970), Western hemlock  t o t h e i r age, s i z e and  (1965), though s i m u l a t i o n s  t r i c t e d t o even aged f o r e s t s  trees  ( L i n , 1967).  have been wide  (Newnham, 1964),  (Lee, 1967)., aspen  Newnham and Smith  (Bella,  (19641 commented  and t e s t i n g o f s t a n d models f o r D o u g l a s — f i r and  Opie  (undated) has d e v e l o p e d a n o n — s t o c h a s t i c  model, "STANDSIM", f o r v a r i o u s  species o f Eucalyptus,  empirical  and i s d e v e l o p i n g  a s i m i l a r model f o r P i n u s r a d i a t a . Goulding fir.  (1972) s i m u l a t e d  t h e growth o f pure, even aged D o u g l a s -  The model, "TOPSY", o p e r a t e s on the d.b.h.'s o f i n d i v i d u a l t r e e s i n  a sample p l o t o f known a r e a , per p l o t i s allowed.  s i t e and age.  Y i e l d t a b l e s and stand  A range o f 50 t o 800 stems t a b l e s f o r any d e s i r e d age  from 20 t o 100, s i t e c l a s s e s from 70 t o 170 and 100 t o 2,OOO stems p e r acre  (depending on s i t e and age) a r e produced, w i t h o r w i t h o u t  thinning  interventions. Uneven aged stands p r e s e n t d e r i v a t i o n o f t h e growth and y i e l d investigated  (Moser and H a l l ,  several d i f f i c u l t i e s ; functions  19691.  however the  f o r such stands have been  73.  The  s i m u l a t i o n o f i n d i v i d u a l stands w i l l y i e l d  important  as t o t h e i r dynamics, but they a r e , however, too d e t a i l e d planning.  i s t o use  s i m u l a t i o n t o p r e d i c t wood f l o w s and  the f o r e s t . of cut.  Amidon  Chappelle  rences  as w e l l  The  entire  normal approach  growing s t o c k l e v e l s  of  (1958). a p p l i e d dynamic programming t o the r e g u l a t i o n (1966) used a s i m u l a t i o n technique  p l a n n i n g , u s i n g a volume r e g u l a t i o n model. developed  f o r general  F o r p l a n n i n g p u r p o s e s i n f o r m a t i o n r e l e v a n t t o the  f o r e s t r e s o u r c e w i t h i n the p l a n n i n g a r e a i s needed.  information  (Sassaman and C h a p p e l l e ,  i n p r o d u c t i o n r e g u l a t i o n compared.  improved t o take c o g n i z a n c e the c u t w i t h both a r e a and  An  to allowable  cut  area r e g u l a t i o n m o d e l  1967)  and  the r e s u l t i n g  was  diffe-  The models have s i n c e been  o f s e q u e n t i a l p l a n n i n g p e r i o d s and cut s t i p u l a t i o n s  (Chappelle and  to regulate  Sassaman, 1968)..  A m o d i f i c a t i o n o f the "ARVOL" s i m u l a t i o n model i s b e i n g used by the D e p a r t ment o f N a t u r a l Resources, S t a t e o f Washington h a r v e s t p l a n n i n g and programme c a l l e d volume method has  the achievement o f  (19711 f o r s u s t a i n a b l e  a normal f o r e s t .  a l s o been produced  (Sassaman et al.  o f Land Management, 1968  and  a l l o w a b l e c u t p l a n n i n g and  outputs  1970).  The  i s i n use  area-  1969)..  t  principally  (the development o f which i s r e p o r t e d i n B e r g s v i k ,  t i o n s and  alternative  "SORAC" f o r c a l c u l a t i n g a l l o w a b l e c u t u s i n g the  A more s o p h i s t i c a t e d model has been developed Bergsvik  An  1970  by and  "SIMAC" model i s d e s i g n e d  i n Western Oregon.  Bureau  for  Prescribed condi-  l i m i t a t i o n s on o p e r a t i o n s a r e a p p l i e d t o the model which  the a n t i c i p a t e d stand d a t a f o r these c o n s t r a i n t s .  Current  then inven-  t o r y and growth d a t a are used as a b a s i s f o r the model c a t e g o r i s e d i n t o f i v e s i t e c l a s s e s and  species.  Up  t o seven management assumptions may  a p p l i e d which i n c l u d e pre-commercial and  be  commercial t h i n n i n g , f e r t i l i s i n g ,  g e n e t i c improvement, i n t e n s i f i c a t i o n of management, and  changes i n r e s o u r c e  74.  base e i t h e r through l a n d r e c l a m a t i o n The  c u t i s c a l c u l a t e d on a d e c a d e l  or a l i e n a t i o n of land to other  b a s i s with a f a c i l i t y f o r quadra-  decadel  period projection.  for  l o n g term consequences o f a c o u r s e o f a c t i o n and  the  T h i s l o n g term p r o j e c t i o n i s s o l e l y t o  tenance o f a g i v e n c u t l e v e l i n p e r p e t u i t y . t a n t t o the B.L.M. who  have adopted a v e r y  This i s p a r t i c u l a r l y  but  the model as t h a t r o t a t i o n which ensures a g i v e n  The  l e n g t h i s not an  i n p u t f a c t o r w i t h i n the model  c u t i s s p e c i f i e d on a d i s t r i c t  recommended management p r a c t i c e f o r t h a t  impor-  l i t e r a l i n t e r p r e t a t i o n of  Rotation  ting rate.  test  ensures the m a i n -  sustained y i e l d . i s d e r i v e d by  uses.  basis along with  harves-  the  district.  The model i s perhaps the most s o p h i s t i c a t e d p r e s e n t l y i n use forest planning, use  for  but because o f i t s f o r e s t o r i e n t a t i o n , comparative  land  i s not p o s s i b l e . The  establishment  difficulties.  of m u l t i p l e goals with m u l t i p l e products  Some o f t h e s e d i f f i c u l t i e s  as r e g a r d s  models f o r p r i v a t e f o r e s t management were d i s c u s s e d  presents  the development o f by McConnen et  al.  3  (1966). The manager.  5.4  a n a l y s i s o f economic d a t a  i s e q u a l l y i m p o r t a n t f o r the f o r e s t  These models are c o n s i d e r e d  under the f o l l o w i n g s e c t i o n .  DECISION MAKING SUB-SYSTEM  T h i s sub-system p e r f o r m s the (see 2.4).  Operational  d e c i s i o n s as t o the f u l f i l l m e n t o f d e c i s i o n s  t h i s sub-system are c o n s i d e r e d The  f u n c t i o n o f the master p l a n n i n g  unit from  as the c o n t r o l sub-system.  d e c i s i o n making sub-system makes a l l m a j o r d e c i s i o n o f the f i r m  as t o the f i r m ' s o b j e c t i v e s , m a i n p l a n o f o p e r a t i o n d e c i s i o n r u l e s f o r r e s p o n s e s t o changes i n the  and  formulation  environment.  of  75.  S i m u l a t i o n has found many a p p l i c a t i o n s f o r s t r a t e g i c p l a n n i n g i n f o r e s t management.  S e v e r a l l i n e s o f development may be noted and t h e i r  l i n e s of evolution followed. Gould  and O'Regan  (1965) a p p l i e d s i m u l a t i o n i n a -very s i m p l i s t i c  manner t o a s s e s s t h e advantages o f a p r i c e r e s p o n s i v e c u t t i n g p o l i c y f o r the Harvard  Forest.  with the t o t a l  The model was n o t a r e a s p e c i f i c b u t was  s t a n d i n g volume o f t h e f o r e s t .  concerned  The model i g n o r e d t h e  marginal c o s t o f h a r v e s t i n g i n the h a r v e s t i n g d e c i s i o n .  The c u t i n any  g i v e n y e a r was a f u n c t i o n s o l e l y o f t h e p r i c e which i s c l e a r l y an u n r e a l i s t i c premise.  The model was a l s o r e p o r t e d by O'Regan et al.  w i t h minor m o d i f i c a t i o n s by Howard et al. Gould  (1966).  Walton  (1965) and  (1965) and  (1967) c o n t i n u e d t o work w i t h even aged stands b u t reduced t h e  degree o f a b s t r a c t i o n c o n s i d e r a b l y by i n t r o d u c i n g a s e l e c t i o n o f s i t e classes, a c c e s s i b i l i t y classes, of products.  s p e c i e s , p r o d u c t s and s i z e and q u a l i t y  The c h o i c e o f s i l v i c u l t u r a l o p e r a t i o n was a l l o w e d f o r and  the o r i g i n a l f i r e and storm damage s u b - r o u t i n e improved. models c o n t i n u e d t o be non-area  These  specific.  A t t h e U n i v e r s i t y o f G e o r g i a another management model was ( C l u t t e r and Bamping, 1965).  latter  developed  The model d e a l t w i t h a h y p o t h e t i c a l f o r e s t  e n t e r p r i s e i n the G e o r g i a a r e a , w i t h each f o r e s t b l o c k a m u t u a l l y e x c l u s i v e and g e o g r a p h i c a l l y i d e n t i f i a b l e even aged u n i t which was c h a r a c t e r i s t i c o f t h e stands and s i t e s f o r the r e g i o n . create a r e a l i s t i c  The aim o f t h e model was t o  f o r e s t o p e r a t i o n which c o u l d s p e c i f y c u t t i n g u n i t s and  o p e r a t i o n s and c a l c u l a t e t h e p r e - and p o s t - t a x n e t d i s c o u n t e d  revenues.  The management may choose between n a t u r a l r e g e n e r a t i o n o r p l a n t i n g . The  r e s t o c k i n g a c h i e v e d by n a t u r a l r e g e n e r a t i o n was randomly chosen  from  a normal p r o b a b i l i t y d i s t r i b u t i o n f u n c t i o n w i t h a g i v e n mean and s t a n d a r d  deviation.  The  each stand  p l a n t i n g d e n s i t y was  a management d e c i s i o n s p e c i f i c  though the number s u r v i v i n g f o r b o t h  stochastically.  H a r v e s t i n g may  b a s i s o f economic m a t u r i t y .  to  s p e c i e s i s determined  be r e g u l a t e d on an a r e a b a s i s o r on  the  In a l l c a s e s t r a n s p o r t c o s t s t o market were  accounted f o r . The schedules  o p e r a t i n g o f the system under the a l t e r n a t i v e h a r v e s t i n g shows a s i g n i f i c a n t economic advantage f o r the l a t t e r form o f  regulation.  However, as the a u t h o r s mentioned themselves,  " I t i s i n c o n c e i v a b l e t h a t such wide f l u c t u a t i o n s i n wood s a l e s c o u l d be absorbed by the market and i t would seem h i g h l y u n l i k e l y t h a t our own e n t e r p r i s e c o u l d be f l e x i b l e enough t o expand and d e c r e a s e i t s h a r v e s t i n g f a c i l i t i e s a c c o r d i n g t o the schedule r e q u i r e d . " A model w i t h s i m i l a r c h a r a c t e r i s t i c s t o t h a t o f the Harvard was  d e v i s e d by Myers  (1968), though i t was  t i o n o f l o n g term consequences than  group  more concerned w i t h the  evolu-  the o p t i m i s a t i o n o f the c u t t i n g  schedule. Perhaps one l o p e d so f a r was  o f the most r e a l i s t i c  by Bare  (1969, 1970a and  f o r e s t management models deveb, 1971a).  o p e r a t i o n s o f an i n d u s t r i a l f o r e s t p r o p e r t y  I t simulates  t o study the economic  b i o l o g i c a l i n t e r a c t i o n s o f f o r e s t management p r a c t i c e s . s p e c i e s growing on any  Only a  the and  single  o f f o u r s i t e c l a s s e s i s d e a l t w i t h , but each  site  i s geographically located. The model i s p l a y e d as a game w i t h an annual o p e r a t i o n s b e i n g e s t a b l i s h e d and  the a p p r o p r i a t e budget p r e p a r e d .  Management c h o i c e  i n c l u d e t h i n n i n g , s i t e p r e p a r a t i o n , i n v e n t o r y r e g e n e r a t i o n and protection.  The  o p e r a t i o n o f the f i r m i s then  o f the f o r e s t updated f o r one management s u c c e s s  year.  s i m u l a t e d , and  The p r o c e s s  i s e v a l u a t e d by r e t u r n on  schedule  fire the growth  i s then r e p e a t e d .  investments,  net  income  The  77.  percentage,  a f t e r tax p r o f i t ,  s a l e s , annual  a c t u a l annual budgeted e x p e n d i t u r e s ,  gross  c u b i c f o o t growth r a t e and t h e t r e n d towards s u s t e n t i o n o f  production. F o r t h e a l l o c a t i o n o f l a n d between a l t e r n a t i v e u s e s , a l a n d use e v a l u a t i o n system The  ("CLUES") has been e v o l v e d ,  computerised  (Thornburn,  1972).  system u t i l i s e s t h e Canada Land I n v e n t o r y d a t a and a l l o c a t e s l a n d  between a l t e r n a t i v e uses a c c o r d i n g t o t h e p o t e n t i a l p r o d u c t i v i t y .  The  d a t a i s s t o r e d on a g r i d w i t h XY c o o r d i n a t e s o f one m i l e i n t e r v a l .  The  b a s i n g o f t h e system on t h e p o t e n t i a l p r o d u c t i v i t y and i g n o r i n g t h e c a p i t a l investment  necessary f o r the r e a l i s a t i o n o f t h a t p o t e n t i a l ,  c o u p l e d w i t h t h e need f o r an e x t e r n a l i n t e r v e n t i o n f o r t h e e x c l u s i o n o f anomolies  a r i s i n g from t h e n o n - r e c o g n i t i o n o f a c t i v i t y c r o s s impact  ween t h e d a t a s q u a r e s , implementation  i n v o l v e s severe l i m i t a t i o n s as t o t h e p r a c t i c a l  o f t h e system.  Away from t h e N o r t h American c o n t i n e n t , Gibson "FORSIM  ,  model r e c o r d e d even aged monocultured  C19691., w i t h h i s  sections o f the f o r e s t  w i t h r e s p e c t t o number o f stems, s t a n d h e i g h t and age. age  bet-  F o r young  and s i t e q u a l i t y a r e r e c o r d e d u n t i l age t e n when s t o c h a s t i c  stands  processes  generate  s t a n d a r d b a s a l a r e a , stem f r e q u e n c y d i s t r i b u t i o n and predominant  height.  The a v a i l a b l e c u t from the f o r e s t i s c a l c u l a t e d a c c o r d i n g t o  managerial  p o l i c y d e c i s i o n s such as t h i n n i n g age and i n t e n s i t y and f i n a l  f e l l i n g age.  The model s e a r c h e s f o r a l l s e c t i o n s t h a t q u a l i f y f o r  t h i n n i n g o r c l e a r f e l l i n g , ranks them a c c o r d i n g t o age, d e n s i t y , o r some o t h e r s p e c i f i e d c h a r a c t e r i s t i c and f e l l s specified  i n t h e o r d e r o f r a n k i n g up t o a  limit.  On t h e b a s i s o f a r e g r e s s i o n u s i n g b a s a l a r e a and h e i g h t as t h e independent  v a r i a b l e s the volume h a r v e s t e d i s a s c e r t a i n e d .  Log s i z e  78.  distributions, at  based  breast height,  on t r e e t a p e r  are prepared  lines  derived  f o r conversion  from volume and  diameter  i n monetary v a l u e s  that are  discounted. The natives  present  a r e then In o r d e r  potential  net worth values  used  t o take  account Allison  a point  i n time  of  time".  The mass c o n c e p t  solely  vesting  plan  The  optimum  i s devoid  forest  takes  and  regeneration  mass  cognizance  Because input  i s thus  t h e base  capital  account  in  Scotland.  area  distribution,  w h e r e a n S.C.U. on one  o f the f o r e s t  i s based demand  a period  and i s con-  acre.  times  volume becomes t h e a n n u a l  have e v o l v e d  which,  The f o r e s t h a r - .  forest  that evaluates  The i n p u t  flexibility,  the.  change i n  on y i e l d  schedules,  and ease  i n f o r m a t i o n , s i m u l a t i o n was  The i n d i v i d u a l  annually  reported  o f acreage  and o u t p u t  estates.  is  they  of i t ss i m p l i c i t y ,  tables.  a c u t over  feet.  normal  the forest  of a forest  dimensions  i n cubic  and i t s  tables and l o g g i n g  schedules.  (1971) f o r a m o d e l  performed  C1971) p r o p o s e d  o f timber  mass t o s u s t a i n t h e s t a n d a r d  and  private  resource  on t h e s u s t a i n a b l e c a p a c i t y u n i t  The s i m u l a t i o n model  both  forest  i t s capacity to support  o f t h e S.C.U. a n d t h e h a r v e s t  mass.  yield  and McKenzie  t h e volume expressed  i s based  the forest  of  determines  with  has  value  of the total  F o r e s t mass i s d e f i n e d a s " t h a t p r o p e r t y  at  cerned  alter-  as the b a s i s f o r comparison.  productivity  mass c o n c e p t .  f r o m a l t e r n a t i v e management  chosen by  Sayers  t h e a l t e r n a t i v e management p l a n s i n stocks  a r e d e s c r i b e d by F o r e s t r y  i s i n the form o f expressed  and o u t p u t  o f comprehension  includes a detailed  and a v a l u a t i o n o f growing  t h a t the model has been  operations  operations  stock with  timber  applied successfully  Commission  that are  account, yields.  on t h r e e  It  estates  79.  A more comprehensive approach was  presented  by Morgan and  (1971) i n which the a c t i v i t i e s o f the F o r e s t r y Commission were The  model i s i n t e n d e d  t o a i d the c o r p o r a t e  decision v a r i a b l e s incorporated  planning process.  are the c u t t i n g and  Bjora simulated.  The  planting policies.  A l l o w a n c e i s made f o r the e x p l o r a t i o n o f the e f f e c t s o f d i f f e r e n t c i e s on net d i s c o u n t e d  revenue, n e t  income and  s h i p s w i t h i n the model are d e s c r i b e d . t h r o u g h examples o f p r o j e c t e d  I t s use  main  employment.  The  i s demonstrated  poli-  relationfirstly  i n d u s t r i a l man—power r e q u i r e m e n t s f o r  d i f f e r e n t c u t t i n g p o l i c i e s under a v a r i e t y o f p r o d u c t i v i t y assumptions, and  secondly  the p r e s e n t v a l u e  o f the growing s t o c k  i s calculated for  d i f f e r e n t c u t t i n g regimes. On  the b a s i s o f the n e t  formulated  s o c i a l b e n e f i t c r i t e r i o n , Gane  (19691  a s i m u l a t i o n model o f f o r e s t r y development i n T r i n i d a d , u s i n g  a m o d i f i c a t i o n o f the F e l d s t e i n m u l t i p l i e r ( F e l d s t e i n , 19641. p l i e r was  a p p l i e d t o the p r i m a r y s e c t o r o n l y and  m a n u f a c t u r i n g , d i s t r i b u t i o n and used r e f e r e n c e  ignored  construction benefits.  the The  The  multi-  secondary model p r i m a r i l y  t a b l e s as the d a t a base, both f o r the p i n e , t e a k , and  hardwood p l a n t a t i o n s and  l i k e w i s e f o r the economic p r o j e c t i o n s o f  mixed  labour,  wage, p r i c e s , e t c . The has  use  o f computers and  a l s o been used i n Sweden.  f a r and  s i m u l a t i o n f o r management d e c i s i o n making Andersson  (1971). has  no development appears t o have o c c u r r e d  parallel  i n the E n g l i s h t e x t s .  research  i n f o r e s t r y has  r e v i e w e d the work so  t h a t does not  A German b i b l i o g r a p h y o f  been p r e p a r e d by  Sch&pfer and  find a  operations  Hflfle  (1970).  80.  5.5  CONTROL AND FUNCTIONING SYSTEMS  The The  c o n t r o l system o p e r a t e s w i t h i n c l o s e l y d e f i n e d  flexibility  horizon  o f t h e d e c i s i o n i s s e v e r e l y c o n s t r i c t e d and t h e time  i s generally  short.  to mathematical, o p t i m i s i n g The  l i m i t s and r u l e s .  F o r t h e s e reasons t h i s sub-system i s amenable techniques.  f u n c t i o n i n g sub-system i s the one t h a t a c t u a l l y does t h e work  of production.  A g a i n t h e freedom and l a t i t u d e o f a c t i o n a r e l i m i t e d and  o p e r a t e d w i t h a s h o r t time Lussier  horizon.  (1972) f o r example d e s c r i b e d  evaluation of d i f f e r e n t logging model gave i n f o r m a t i o n  a s i m u l a t i o n model f o r t h e  systems i n a w e l l d e s c r i b e d  as c o s t d a t a o v e r s p e c i f i c a r e a s ,  forest.  The  l o c a t i o n o f each  l o g g i n g u n i t w i t h i n the f o r e s t and a s s i s t e d w i t h the s e l e c t i o n o f l o g g i n g a r e a s o v e r t h e medium term and t h e l o n g term p o l i c y d e c i s i o n s . i n t e r e s t i n g p o i n t about the model was the d e t a i l e d i n f o r m a t i o n  The t h a t was  s t o r e d about t h e f o r e s t . Other s i m u l a t i o n s been reviewed by Bare  5.6  t h a t have been a p p l i e d t o t h e s e sub-systems have  (1971).  SUMMARY  Though s i m u l a t i o n has found numerous a p p l i c a t i o n s w i t h i n f o r e s t planning,  t h e models t h a t have so f a r been d e v i s e d  systems o f t h e whole r a t h e r than the whole.  have d e a l t w i t h  sub-  Attempts have been made, and  are b e i n g made, t o produce more comprehensive models.  The f o l l o w i n g chap-  t e r w i l l o u t l i n e a p o s s i b l e model t h a t attempts t o b r i n g t o g e t h e r o f sub-systems as a s t e p towards t h e t o t a l systems model.  a series  81.  CHAPTER 6  OUTLINE AND  DESCRIPTION OF A POSSIBLE MODEL OF  THE  FOREST FIRM  L e t us pause f o r a moment to r e v i e w the developments so f a r . tially,  the  for their  t r a d i t i o n a l methods o f f o r e s t p l a n n i n g  inadequacies.  t o be p r o p o s e d .  Such s t r o n g  I t was  criticised  c r i t i c i s m begged f o r an a l t e r n a t i v e  t h e n noted t h a t the p l a n n i n g  m e n t a t i o n o f those p l a n s systematic  were s e v e r e l y  Ini-  p r o c e s s and  l e n t themselves t o s y s t e m a t i c  the  analysis.  imple-  With a  d e s c r i p t i o n o f these p r o c e s s e s i t would be p o s s i b l e t o  recreate  t h e s e systems i n the form o f a s i m u l a t i o n model, which i n t u r n , would provide  the b a s i s f o r a m u l t i - o b j e c t i v e p l a n n i n g  generation As and  the f o r e s t f i r m l i n k s the n a t u r a l and  the  and,  sphere o f o p e r a t i o n s  o f the  i n t e r n a l bounds o r c o n s t r a i n t s . system which has  inherent  i n e f f i c i e n c i e s o f the  flow  the f i r m i s the major  argued t h a t the  f i r m was  firm i s ultimately defined two  the  i n terms  s u p e r i o r systems mentioned  i t i s t o t a l l y i n t e r f a c e d w i t h them.  t h e s e bounds, which c o n s t i t u t e the  services  type.  o f the c o n s t r a i n t s which a c t w i t h i n the e a r l i e r and  conversely,  f o r e s t environment, i t was  n a t u r a l v e h i c l e f o r a model o f t h i s The  the s o c i o - e c o n o m i c systems,  f o r e s t f i r m t h a t most o f the goods and  f o r e s t t o the market p l a c e  impact on  second  type.  i t i s t h r o u g h the  from the  model o f the  Also,  supplementary t o  external c o n s t r a i n t s , there  These are due  t o the o p e r a t i o n  are  the  of  the  l i m i t a t i o n s brought about by the i n t e r n a l  flows of information  and  goods.  The  firm i s also  82.  l i m i t e d by the a s p i r a t i o n s and g o a l s o f t h e f i r m , employee groups o r individuals. In t h i s c h a p t e r , to simulate  the form o f a model i s p r e s e n t e d  the p l a n n i n g ,  operations  that i s designed  and p l a n e v a l u a t i o n s t a g e s  of a firm  t h a t i s p r o f i t o r i e n t e d o r a c t s as a p r o f i t c e n t r e w i t h i n a l a r g e r o r g a n i sation.  The system d e s c r i p t i o n i s adequate t o a l l o w the -model t o be  programmed and implemented a t t h e gaming phase A model o f t h i s t y p e , planning use  (see c h a p t e r 3)_.  i f i t i s t o be u s e f u l as a game o r f o r  must be i n a form t h a t p e r m i t s easy comprehension by t h o s e who  i t . T h i s r e q u i r e s s e t t i n g t h e system i n a manner t h a t r e p l i c a t e s , o r  reproduces, the d e c i s i o n process real  and i s c l o s e l y i d e n t i f i a b l e w i t h t h e  system. Throughout t h i s c h a p t e r  the term "management" r e f e r s t o i n d i v i d u a l s  o r groups who a c t as p l a y e r s o r e x p e r i m e n t e r s w i t h t h e model.  The exoge-  nous v a r i a b l e s t h a t impinge upon t h e f i r m ' s a c t i v i t i e s must be s e t by a game o r model s u p e r v i s o r , who i s r e f e r r e d t o i n t h e t e x t as "Guru"} model has t e n t a t i v e l y been t i t l e d A R e i t e r a t i v e Simulation  6.1  " B e n e f i t A p p r a i s a l and Resource E v a l u a t i o n :  Experiment", f o r which t h e r e  i s an acronym.  OBJECTIVE OF THE MODEL  To g i v e d i r e c t i o n and c o u r s e t o the model the o b j e c t i v e must be  stated.  first  The o b j e c t i v e o f t h e model i s :  to p r e d i c t the e f f e c t o f a productive f i r m ) on t h e f o r e s t r e s o u r c e ,  1  The  system  ( i . e . the f o r e s t  t o m o n i t o r the f l o w o f goods  T h i s may be taken as r e f e r r i n g t o a G e n e r a l l y U n r e l i a b l e Umpire.  Regulatory  83.  and  s e r v i c e s i n t o the socio-economic  system  the r e s p o n s e s o f t h e p r o d u c t i v e system  and t o e v a l u a t e  t o changes i n con-  s t r a i n t s a c t i n g on the system. The model whould be t i e d as c l o s e l y as p o s s i b l e t o an a c t u a l firm to f a c i l i t a t e a b s t r a c t i o n from  6.2  the use o f t h a t f i r m ' s d a t a and t o reduce  forest  t h e degree o f  reality.  DESIRED OUTPUT FROM THE MODEL  The  o b j e c t i v e as s t a t e d i s i n v e r y g e n e r a l terms and needs some  c l a r i f i c a t i o n and e l a b o r a t i o n .  The o u t p u t i n f o r m a t i o n , i f t r a d i t i o n a l  o f e v a l u a t i o n a r e t o be adhered  t o and the more a b s t r a c t v a l u e s  f o r by t h e i r i n t r o d u c t i o n i n t o t h e model as c o n s t r a i n t s , w i l l employment;  2)  l a b o u r income;  3)  c a p i t a l involvement  4)  annual cash flows  5)  annual p r o f i t o r l o s s ;  6)  annual wood f l o w s from t h e f o r e s t ;  7)  reinvestment i n the f o r e s t resource;  8)  changes i n t h e f o r e s t r e s o u r c e t o a c t i v i t y by t h e f i r m . The  equipment);  (both p o s i t i v e and n e g a t i v e ) ;  o u t p u t w i l l have v a r y i n g degrees  projection periods.  accounted  include:  1)  (both f i x e d and m o b i l e  forms  o f v a l i d i t y over  differing  I t i s u n l i k e l y t h a t p r e c i s e economic d a t a would be  v a l i d beyond a few y e a r s , and c e r t a i n l y  ten years a t the o u t s i d e , but  f o r e s t growth d a t a may be u t i l i s a b l e over a much l o n g e r time  span.  The model as o u t l i n e i s d e s i g n e d t o have a v a l i d use f o r p o s s i b l y up t o t e n y e a r s o f e x p e r i m e n t a t i o n , though r e i t e r a t i o n s i n t o t h e f u t u r e  84.  i n the game form a r e l e s s l i m i t e d but the e d u c a t i o n a l v a l u e w i l l as the p l a y e r g a i n s e x p e r i e n c e  and  the system s t a t e d e p a r t s  decrease  f u r t h e r from  reality.  6.2.1  LIMITATIONS TO THE  The v a l u e o f any  MODEL OUTPUT  o u t p u t w i l l be  l i m i t e d by -various f a c t o r s .  Firstly,  t h e r e i s the degrees o f r e a l i s m t h a t a r e i n c o r p o r a t e d i n t o the model.  The  more c l o s e l y the f u n c t i o n i n g o f the model f o l l o w s the a c t u a l workings o f the f o r e s t f i r m , the more r e a l i s t i c t h e r e s u l t i n g outcome.  The  accuracy  t h a t i s demanded o f the d e s c r i p t i o n w i l l depend upon d e s i r e d a c c u r a c y the o u t p u t immediately be  and  the importance o f the f a c t o r s i n f l u e n c i n g t h a t o u t p u t .  l e a d s us t o the q u e s t i o n as t o a t what l e v e l the f i r m  simulated.  of  The  t i v e the o u t p u t .  should  lower down the h i e r a r c h i c a l p l a n n i n g system the  t i o n i s attempted the g r e a t e r the d a t a requirements  and  This  simula-  the more s p e c u l a -  However, as s p e c i f i c i n f o r m a t i o n i s r e q u i r e d the model  must be r e a s o n a b l y  s p e c i f i c i n i t s o p e r a t i o n s and  t h a t the f i r m ' s l a t i t u d e o f d e c i s i o n be  i t i s t h e r e f o r e proposed  s i m u l a t e d a t the  "tactical"  w i t h the o p e r a t i o n s based on d e t e r m i n i s t i c f u n c t i o n s .  The  ministic  l a c k of data  f u n c t i o n s i s e n f o r c e d f i r s t l y by the expected  use  level  of d e t e r that  would f a c i l i t a t e more complex f u n c t i o n s , t o a v o i d the complex a n a l y s i s o f s t o c h a s t i c a l l y generated to operate  d a t a , and  t o reduce the computer time r e q u i r e d  the model.  Secondly,  the output  i s o n l y as good as the i n p u t d a t a .  d e t a i l e d the model becomes the g r e a t e r w i l l be of  the l i m i t a t i o n s i n terms  the a c t u a l e x i s t e n c e and r e l i a b i l i t y o f d a t a .  uniform  requirement  as t o the d a t a s t a n d a r d s  The more  There w i l l not be  a  because some f u n c t i o n s w i l l  85.  be o f r e l a t i v e l y  little  importance, w h i l s t o t h e r s w i l l be o f c o n s i d e r a b l e  significance. T h i r d l y , t h e g r e a t e r t h e time p r o j e c t i o n then becomes both  t h e i n p u t and t h e o u t p u t  information.  system d e s c r i p t i o n w i l l be compounded over  the l e s s  reliable  Inaccuracies i n the  time and w i t h t h e r e p e t i t i v e -  ness o f t h e i t e r a t i o n s . F o u r t h l y , t h e model w i l l assume t h a t managers and p l a n n e r s a c t r a t i o n a l l y , and hence p r e d i c t a b l y , t o a g i v e n s e t o f i n f o r m a t i o n .  There  i s no way t h a t t h e v a g a r i e s o f human i n d e c i s i o n and e r r o r can be a l l o w e d f o r w i t h i n t h e model, as i t i s p r e s e n t l y c o n c e i v e d , level.  below the t a c t i c a l  A l l f u n c t i o n s and o p e r a t i o n s a t t h e o p e r a t i o n a l l e v e l w i l l be on  a d e t e r m i n i s t i c l e v e l and thereby  o b v i a t i n g any d e c i s i o n l a t i t u d e .  As t h e model t h a t i s d e s c r i b e d has no f a c i l i t y f o r t h e e v a l u a t i o n o f t h e l o n g term e f f e c t s on t h e f o r e s t r e s o u r c e , t h e c o m p l e t e l y  uncon-  s t r a i n e d c u t t h a t i g n o r e s t h e l o n g term o b j e c t i v e s o f t h e f i r m would be unrealistic.  6.3  T h i s reduces the l a t i t u d e o f experiment t o some e x t e n t .  FORM OF THE MODEL  The  d e s i g n i s such t h a t t h e c o n s e q u e n t i a l e f f e c t s o f m a n a g e r i a l  s t r a t e g i e s and t a c t i c s under a g i v e n s e t o f c o n s t r a i n t s were g i v e n .  There-  f o r e , t h e s t r a t e g i c and t a c t i c a l p l a n n i n g phases must be e x t e r i o r t o t h e model and a r e p r e s e n t e d  as a s e r i e s o f p r e - s e t d e c i s i o n v a r i a b l e s .  The  model w i l l r e a c t a c c o r d i n g t o t h e programmed parameters and g i v e n v a r i a b l e s t o produce a s e r i e s o f system s t a t e p r e d i c t i o n s .  86.  In i t s most simple  form the model may be r e p r e s e n t e d a s :  INFORMATION OUTPUT MANAGERIAL ANALYSIS OF INFORMATION  DATA  MANAGERIAL DECISIONS  STATUS OF MODEL  MODEL OPERATIONS ON DECISIONS  DECISIONS FROM "GURU"  FINAL POSITION OF FIRM AND SYSTEM  MANAGERIAL DECISION ON DISCRETIONARY ALLOCATIONS OF PROFITS  The model thus f a l l s  i n t o a s e r i e s o f d i s t i n c t phases.  are the g a t h e r i n g o f data, the a n a l y s i s o f data, managerial implementation  of decisions  given i n chapter  4 abovel  These phases  decisions,  (which so f a r f o l l o w s t h e s t r u c t u r e o u t l i n e  and t h e e v a l u a t i o n o f t h e d e c i s i o n s i n t h e l i g h t  of the o b j e c t i v e s o f the f i r m . The  i n f o r m a t i o n and d a t a t h a t a r e r e q u i r e d w i t h i n t h e model a r e kept  i n a s e r i e s o f data blocks o r data u n i t s . fic  type o f d a t a . The  Each b l o c k w i l l c o n t a i n a s p e c i -  These d a t a b l o c k s a r e d e s c r i b e d i n s e c t i o n 6,3.3  below.  phases i n more d e t a i l i n v o l v e :  Phase I .  The management c a l l s  f o r t h e i n f o r m a t i o n as t o t h e f o r e s t  inventory data, the status o f the f i r m , the firm's competitive  position,  p r o d u c t i v e p o s s i b i l i t y p o s i t i o n s , p a s t p r o d u c t i o n , p r i c e and demand t r e n d s , and o b l i g a t i o n s and r e s t r i c t i o n s t o t h e h a r v e s t i n g o r p r o d u c t i o n , s c h e d u l i n g .  87.  The of  i n v e n t o r y d a t a w i l l be p r e s e n t e d  t o the management i n t h e form  s t o c k maps and summaries o f the s t o c k t a b l e s .  Further s p e c i f i c  infor-  mation w i l l be a v a i l a b l e from t h e d a t a r e s e r v e s as r e q u e s t e d . The  s t a t u s o f t h e f i r m e n t a i l s the i n f o r m a t i o n as t o t h e e q u i t y  p o s i t i o n o f the f i r m , p r e f e r e n c e and common s t o c k ; which t h e f i r m i s l i a b l e  w i t h d a t e s o f m a t u r i t y and i n t e r e s t r a t e s ;  t o t a l and s o u r c e s o f o t h e r d e b t s by the company; the o u t s t a n d i n g  debts;  t h e bond i s s u e s f o r  d e p r e c i a t i o n allowance;  the  the firm's l i q u i d amortisation;  the v a l u e o f t h e f i x e d a s s e t s and m o b i l e a s s e t s c o v e r e d  assets;  depletion;  by t h e company.  Under t h e s e c t i o n o f c o m p e t i t i v e p o s i t i o n the management w i l l be g i v e n t h e i n f o r m a t i o n as t o t h e p r o d u c t i v e c a p a c i t y o f t h e f i r m for  (the need  t h e d i s t i n c t i o n between t h e p r o d u c t i v e c a p a c i t y and t h e v a l u e o f t h e  f i x e d a s s e t s w i l l be e l a b o r a t e d below under t h e s e c t i o n 6.8.3.2}., t h e p r e v a i l i n g p r o d u c t i o n c o s t s t r u c t u r e , t h e o r d e r s r e c e i v e d by t h e company, the expected  orders, i n v e n t o r i e s , access  be r e p l a n t e d and f i n a l l y and  supply  t o h a r v e s t a b l e timber,  the l o c a l demand f o r timber,  areas t o  t h e expected  supply  price.  The p r o d u c t i o n f u n c t i o n may be a c h i e v e d by a l t e r n a t i v e s e t s o f c a p i t a l and l a b o u r c o m b i n a t i o n s .  A s e r i e s o f f e a s i b l e c o m b i n a t i o n s must  be g i v e n t o t h e management t o enable strategies.  the planning o f f u t u r e  investment  T h i s p o i n t i s e l a b o r a t e d on i n s e c t i o n 6.8.1.3 below.  With t h e i n f o r m a t i o n as r e g a r d s p a s t t r e n d s o f p r o d u c t i o n , and to  price  demands t h e management w i l l be i n a p o s i t i o n t o make p r o j e c t i o n s as the f u t u r e demand and s u p p l y p o s i t i o n s f o r p u l p , lumber and l o g s .  The  m a t r i c e s o f bond and l o a n d a t a g i v i n g p e r i o d i c i t y , r a t e and maximum amount for  each v i a b l e a l t e r n a t i v e w i l l be p r e s e n t e d .  a l s o as t o t h e ' e x p e c t e d  I n f o r m a t i o n w i l l be g i v e n  l a b o u r and l a b o u r c o s t t r e n d s .  Further  information  88.  such as p r o j e c t i o n s as t o house s t a r t s and p u l p demands c o u l d be g i v e n to  the company depending upon t h e s o p h i s t i c a t i o n o f t h e d a t a Bank t h a t  i s f i n a l l y deemed d e s i r a b l e o r can r e a s o n a b l y  be g a t h e r e d  and s t o r e d .  The o b l i g a t i o n s and r e s t r i c t i o n s w i l l be the r e g u l a t i o n s as imposed by t h e P r o v i n c i a l government, o r under c o n d i t i o n s o f experiment, the e x p e r i m e n t e r and t h e game s u p e r v i s o r i n gaming s i t u a t i o n s , i . e . "Guru". The i n f o r m a t i o n c o v e r s f o r example t a x and stumpage limits,  l o g g i n g standards,  rates, harvesting  s l a s h b u r n i n g p o l i c y and r e c r e a t i o n a l p o l i c y .  "Guru" w i l l a l s o s e t the maximum debt p o s i t i o n t h a t t h e f i r m can e s t a b l i s h a c c o r d i n g t o c r i t e r i a based on t h e market expectancy, a s s e t s and timber reserves.  T h i s would n o r m a l l y  be a market e n f o r c e d p o s i t i o n  but-must  become an e x p l i c i t c o n s t r a i n t w i t h i n t h e model. Phase I I . analyse cut,  During  phase two t h e management has o p p o r t u n i t y t o  t h e i n f o r m a t i o n and d a t a p r e s e n t e d  d u r i n g phase one.  i f n o t g i v e n under f o r e s t i n v e n t o r y d a t a , w i l l have t o be c a l c u l a t e d .  (The a l l o w a b l e c u t w i l l be i n w a r d l y a g a i n s t t h e management's p r o p o s a l s . )  c a l c u l a t e d i n any case as a check P r i c e and demand p r o j e c t i o n s w i l l  be made a l o n g w i t h e s t i m a t i o n s o f f u t u r e c a p i t a l c o s t s , l a b o u r lity  The a l l o w a b l e  availabi-  and wage r a t e s . Phase I I I . On the b a s i s o f t h e i n f o r m a t i o n g i v e n and t h e a n a l y s i s  conducted by management, a s e r i e s o f p l a n n i n g d e c i s i o n s must be taken. The d e c i s i o n p r o c e s s w i l l and f e a s i b i l i t y achieved  i n v o l v e a s e r i e s o f i n f o r m a t i o n feedbacks,  studies u n t i l  a s a t i s f a c t o r y compromise  and t h e p r o d u c t i o n p l a n f i n a l i s e d .  f o l l o w those  plans  position i s  The p l a n n i n g h o r i z o n s  will  s e t o u t i n s e c t i o n 4.4 above, though s t a g e s 4 and 5, t h e  monthly and e n g i n e e r i n g p l a n s , w i l l be i n c l u d e d i n annual o p e r a t i o n a l p l a n .  89.  Under t h e f i r s t  stage o f the p l a n n i n g p r o c e s s the g e n e r a l a r e a s o f  l o g g i n g and o t h e r o p e r a t i o n s w i l l be o u t l i n e d . the management and by- r e c a l l o f compartment volumes by s p e c i e s can be e s t i m a t e d . e l a b o r a t i o n o f the p r e v i o u s s t a g e .  From t h e s t o c k map h e l d by  data the a n t i c i p a t e d  harvest  The f i v e year p l a n i s a more d e t a i l e d The f i v e y e a r p l a n i s c o u p l e d t o the  s a l e s and economic f o r e c a s t s t h a t have Been-made.  The annual p l a n , s e t s  out t h e o p e r a t i o n a l Budget and t h e a c t u a l c u t and c o n s t r u c t i o n o r d e r e d f o r the coming y e a r . In a d d i t i o n t o the p r o d u c t i o n p l a n s , t h e f i n a n c i a l p l a n s as t o t h e c a p i t a l t o be r a i s e d , t h e p r o d u c t i o n f u n c t i o n t h a t s h o u l d Be aimed f o r , t h e new investment  and t h e p o l i c y towards s t o c k p i l i n g , and maintenance,  w i l l Be s e t . The p l a n n i n g p r o c e s s and d e c i s i o n .making phase i s d i s c u s s e d i n g r e a t e r d e t a i l i n s e c t i o n 6.7 Below. Phase IV.  The model w i l l then f u n c t i o n a c c o r d i n g t o t h e m a n a g e r i a l  d e c i s i o n s t h a t have Been t a k e n . three d i s t i n c t steps.  The o p e r a t i o n a l s t a g e s may Be seen as  The p r e - p r o d u c t i o n phase e n t a i l s ,  i f necessary, the  r a i s i n g o f new s o u r c e s o f c a p i t a l By l o a n s o r t h e i s s u a n c e o f Bonds;  the  r e q u i s i t i o n o f new equipment t o r e p l a c e t h a t which has Been d e p r e c i a t e d and, i f d e s i r e d t o B u i l d up the p r o d u c t i v e c a p a c i t y ; the l a b o u r r e q u i r e d t o o p e r a t e During  and  " b u i l d s " new r o a d s and makes  " h a r v e s t s " the f o r e s t ,  f i n a l l y makes an allowance  t o employ  t h e equipment.  t h e p r o d u c t i o n stage t h e model  other f i x e d investments,  and l a s t l y ,  " t h i n s " the f o r e s t , " p l a n t s "  t o c o v e r the c o s t o f maintenance and o v e r -  heads i n c u r r e d d u r i n g o p e r a t i o n s . F o l l o w i n g p r o d u c t i o n t h e l o g s a r e " s o l d " o r s t o c k p i l e d , t h e revenues p a i d t o t h e company c o f f e r s , the c o s t s and r e q u i r e d debt payments met, t a x e s  90.  l e v i e d and t h e p r o d u c t i v e  capacity depreciated.  The s a l e p r i c e and f i n a l  demand f o r l o g s t h a t i s used w i l l be s e t by a mechanism independent o f management.  By m a n a g e r i a l d i r e c t i o n , t h e d i s c r e t i o n a r y d e b t s and d i v i d e n d s  may t h e n be p a i d and t h e excess k e p t w i t h i n t h e f i r m as r e t a i n e d Phase V.  The model then ceases o p e r a t i o n s  the system t o the management.  earnings.  and g i v e s t h e s t a t u s o f  By management d i s c r e t i o n , the d i s c r e t i o n a r y  d e b t s and d i v i d e n d s may then be p a i d and e x c e s s kept w i t h i n t h e f i r m as retained  earnings.  A t t h i s p o i n t the manager n o t e s any changes w i t h i n the o p e r a t i n g i n s t r u c t i o n s , o r c o r r e c t s any s e r i o u s e r r o r s w i t h i n the p r e d i c t i o n s . the b a s i s o f these o b s e r v a t i o n s make changes.  he may o p t t o c o n t i n u e  In t h e former case t h e c y c l e w i l l  h i s present  plan or  return t o the beginning  o f t h i s phase and i n t h e l a t t e r phase I I I Cthree) w i l l be Phase V I .  On  repeated.  I f t h e r e i t e r a t i o n s o f t h e s i m u l a t i o n a r e completed  then  d u r i n g t h i s phase the e f f e c t o f t h e v a r i o u s c o n d i t i o n s w i t h i n the s o c i o economic environment and t h e p o l i c i e s and c o n s t r a i n t s p r e v a i l i n g w i l l be evaluated.  The s u c c e s s  a l s o be e v a l u a t e d . s e c t i o n 6.9 below.  o f management i n r e s p o n d i n g t o t h e s e c o n d i t i o n s  The q u e s t i o n  will  o f performance e v a l u a t i o n i s d i s c u s s e d i n  91,  6.3.1  PHASE CHART OF THE MODEL  The model phases, f i g u r a t i v e l y , a r e as f o l l o w s :  Phase I  Summary o f f o r e s t inventory data given t o management  Prevailing o p e r a t i o n a l and f u n c t i o n a l cons t r a i n t s from Guru  Competitive position of the f i r m  Phase I I  A n a l y s i s o f d a t a and i n f o r m a t i o n  Phase I I I  impolicy decisions of firm  [Operational  decisions  -Yes No  Phase IV  Decisions  f e d t o mode.'. 1  Pre-production  activity  1. F i n a n c i a l p o s i t i o n o f f i r m 2. Labour engagement 3. P r o d u c t i v e c a p a c i t y e s t a b l i s h e d  JL  Production  phases  1. F i x e d investment 2. H a r v e s t i n g 3. T h i n n i n g 4. P l a n t i n g 5. Overheads and maintenance  I n f o r m a t i o n as to present s t a t u s o f the firm  92,  Past productive  activity  1. Log c o n v e r s i o n and s a l e s * 2. D e p r e c i a t i o n 3. P o s t o p e r a t i o n s f i n a n c i a l p o s i t i o n  Phase V  Management pays d i s c r e t i o n a r y d e b t s  s Payment o f d i v i d e n d  ^  Note changes i n c o n d i t i o n s w i t h i n s u p e r v i s o r ' s system and d e c i d e as t o o p e r a t i o n a l changes Phase VI  E v a l u a t i o n o f t h e o u t p u t from t h e s i m u l a t i o n  F i g u r e 6.1  PHASE CHART OF MODEL  In t h e c o n t e x t o f t h i s model, l o g c o n v e r s i o n r e f e r s t o t h e expected s a l e a b l e l o g o u t p u t from a h a r v e s t i n g o p e r a t i o n .  93.  6.4  ASSUMPTIONS OF THE MODEL  The  assumptions need t o be p r e c i s e l y d e f i n e d .  p r o d u c t i o n assumptions o f t h e f i r m w i l l a)  the p r i c e s o f the firm's the  The economic and  take the form o f :  p r o d u c t s and f a c t o r s a r e f i x e d and beyond  c o n t r o l o f the f i r m .  That i s t h e f i r m i s o p e r a t i n g w i t h i n  t u a l l y a p e r f e c t market and cannot i n f l u e n c e  vir-  the f a c t o r s o f produc-  t i o n o r goods; b)  the firm's  overall objective  technical constraints c)  i s t o maximise p r o f i t ,  imposed by t h e p r o d u c t i o n  a continuous production function  subject  t o the  function;  e x i s t s w i t h non-zero f i r s t and  second o r d e r p a r t i a l d e r i v a t i v e s which r e l a t e s the s e t o f i n d e p e n dent f a c t o r v a r i a b l e s  t o t h e s e t o f dependent p r o d u c t i o n  That i s t h e p r o d u c t i o n shows d i m i n i s h i n g  variables.  r e t u r n s t o c a p i t a l and t h e  amount o f t h e c a p i t a l employed i s t h e independent v a r i a b l e ,  being  t h a t which i s d i r e c t l y c o n t r o l l a b l e by the management. The i) ii)  production function  i s characterised  by:  a decreasing marginal rate of technical  substitution;  a decreasing marginal product f o r a l l factor-product  combina-  tions; iii)  an i n c r e a s i n g m a r g i n a l r a t e o f t r a n s f o r m a t i o n between any two p r o d u c t s ;  d)  the p r o d u c t i o n f u n c t i o n t e c h n i c a l and economic  e)  the firm's  i s determined by m a n a g e r i a l d e c i s i o n s  under  constraints;  f a c t o r s and p r o d u c t s a r e p e r f e c t l y d i v i s a b l e  ease o f computation and p l a n n i n g t h i s c o n s t r a i n t  (though f o r  would be  relaxed);  94.  f)  the  f a c t o r p r i c e s , p r o d u c t p r i c e s and  the p r o d u c t i o n f u n c t i o n g)  the parameters t h a t determine  change over time;  the parameters t h a t determine the p r o d u c t i o n f u n c t i o n technological  innovation  and  be  to  development, though t h e i r implementa-  t i o n i s determined by m a n a g e r i a l These r u l e s may  respond  decision.  changed o r m o d i f i e d w i t h i n  a model as  circum-  stances warrant.  6.5  VARIABLES OF  The i n t o two  variables  MODEL  t h a t are  main c a t e g o r i e s ,  The  the  contained within  o f the  v a r i a b l e s may  prevailing rules within be  decision  i s exogenous, but  maximum and t h a t are  s e t by  "Guru", a c t i n g  minimum c u t s  i f the  the  Those v a r i a b l e s  categories  of variables  example, the maximum c u t i n  i n place  o f the  always the any  B.C.F.S., whereupon  c u t i s u n c o n s t r a i n e d , then the We  In  i s not  i n e i t h e r c a t e g o r y depending upon For  beyond  exogenous, o r independent.  become endogenous.  may  term these  the  planned  variables  a t the management's d i s c r e t i o n on o c c a s i o n s , s t r a t e g i c , and  always a t i t s d i s c r e t i o n ,  6.5.1  be  the model.  y e a r may  classified  those o v e r which  to i n f l u e n c e .  f i r m are  p r a c t i c e , the d i s t i n c t i o n between the Further,  be  exogenous arid endogenous v a r i a b l e s .  some c o n t r o l o r a b i l i t y  c o n t r o l or i n f l u e n c e  clear.  the model may  endogenous or dependent v a r i a b l e s are  management has the  THE  those  tactical.  EXOGENOUS VARIABLES  The  model i s an open system, t h a t  i s the  system r e c e i v e s  produces o u t p u t s to an e x t e r i o r , independent system.  inputs  and  95.  We have a l r e a d y  made s e v e r a l  independence o f t h e s u p e r i o r and  assumptions  ssary. within  then feedback mechanisms t h a t  the d a t a o f t h e system as a r e s u l t o f f i r m a c t i v i t y a r e unnece-  The f i r m must, however, r e a c t i t s own a c t i v i t y The  t o s t a t e s o f the s u p e r i o r  system  sphere.  t o t a l l y exogenous v a r i a b l e s a r e p r i n c i p a l l y t h e economic  These i n c l u d e prices.  as t o the  economic system t o the a c t i v i t i e s o f t h e f i r m  p r o v i d e d t h e s e assumptions a r e v a l i d ,  influence  ( s e c t i o n 6.4)  forces.  the c o s t o f c a p i t a l , t h e c o s t o f equipment, l a b o u r c o s t s and  The l i m i t t o which t h e f i r m can draw on the r e s o u r c e s o f t h e t o t a l  system f o r i t s own a c t i v i t y i s n o r m a l l y l i m i t e d by market f o r c e s to the f i r m .  These f o r c e s w i l l be s u r p l a n t e d  by the i m p o s i t i o n  exterior o f debt  l i m i t a t i o n s by "Guru", who w i l l a l s o d e c i d e which o p t i o n s o f c a p i t a l s o u r c e s are  available. The  s a l e p r i c e i s a l s o independent o f t h e f i r m , though t h e f i r m  r e t a i n s the option  o f s t o c k p i l i n g o r s e l l i n g i t s wares.  There i s a market  l i m i t t o t h e s a l e t h a t c a n be a c h i e v e d a t a g i v e n p r i c e . a t a g i v e n p r i c e i n any p e r i o d Cutting e.g.  The market l i m i t s  i s s e t by "Guru".  l o c a t i o n , amount and evenness o f h a r v e s t , type o f  c l e a r f e l l i n g or patch logging,  amount o f r e p l a n t i n g ,  operations,  r e s t r i c t i o n s on  road l o c a t i o n and type and waste d i s p e r s a l , e.g. s l a s h b u r n i n g , a r e t a c t i c a l decisions,  and as such a r e o p t i o n a l l y exogenous o r endogenous.  they a r e o f t h e former, then t h e d e c i s i o n s o r may n o t a p p l y c u r r e n t  B.C.F.S. p o l i c y .  If  were made by "Guru", who may  96.  6.5.2  ENDOGENOUS VARIABLES  The  endogenous v a r i a b l e s a r e n o t independent  a c t i o n s o f the f i r m . enced by m a n a g e r i a l  o f the d e c i s i o n i n  T h e i r v a l u e , o r r a t e o f change, o r b o t h , i s i n f l u d e c i s i o n o r change i n another v a r i a b l e , which may be  exogenous o r endogenous.  A l l those d e c i s i o n s n e c e s s a r y  t o the o p e r a t i o n  o f t h e f i r m t h a t have n o t been pre-empted from management a r e endogenous.  6.5.3  DATA  The model as proposed  w i l l require a great deal of data.  The  development o f the model t o t h e gaming s t a g e s h o u l d n o t p r e s e n t e x c e s s i v e data d i f f i c u l t i e s ,  however, as the system w i l l c o n t i n u e t o j u n c t i o n w i t h  some degree o f r e a l i t y p r o v i d e d t h e d a t a i n p u t i s o f t h e c o r r e c t s c a l e o f magnitude and b e a r s a r e a s o n a b l e  similarity  t o r e a l system s t a t e s .  The use o f f i c t i t i o u s o r h y p o t h e t i c a l d a t a f o r d a t a s c a r c e a r e a s w i t h i n t h e model a t t h e gaming stage w i l l have t h e advantage o f i n d i c a t i n g the importance  o f t h a t d a t a and hence t h e need, f o r d a t a c o l l e c t i o n and  the a c c u r a c y r e q u i r e d o f t h a t d a t a when the d e c i s i o n t o p r o c e e d  t o the  o p e r a t i o n a l phase i s made. The d a t a may be s e c t i o n e d i n t o v a r i o u s groups o f d a t a .  The d a t a  groups and t h e p o s s i b l e s o u r c e s o f t h e d a t a a r e now g i v e n . Data A.  The f o r e s t i n v e n t o r y and l a n d c l a s s i f i c a t i o n d a t a a r e  stored i n t h i s section.  Because the o p e r a t i o n s a r e d e t a i l e d  t h e s e d a t a must be s p e c i f i c a l l y  located.  I f contiguous  specifically  forest  types,  i . e . compartments, a r e mapped and l o c a t e d then the d a t a can be p o i n t l o c a t e d w i t h an a r b i t r a r y p o i n t by c a r t e s i a n c o o r d i n a t e s w i t h i n the computer along with area of f o r e s t  types.  97.  The  l a n d d a t a w i l l comprise t h e r e f o r e :  1)  location;  2)  area;  3)  soil  type;  4)  site  d i f f i c u l t y factor^";  5)  existence of The  s l o p e and  site  stream.  difficulty  elevation.  The  f a c t o r i s i n c l u d e d because c o s t s v a r y value of t h i s d i f f i c u l t y  f a c t o r w i l l be  with deter-  mined by f u r t h e r r e s e a r c h . The  f o r e s t inventory data w i l l  comprise:  1)  s p e c i e s w i t h i n the  compartment;  2)  volume o f s t a n d i n g  timber  3)  average d i a m e t e r c l a s s o f each s p e c i e s ;  4)  e x p e c t e d grades o f l o g s . The  by  s p e c i e s per  d e t a i l e d i n f o r m a t i o n need o n l y be  acre;  s t o r e d f o r those  areas  a r e p o t e n t i a l l y a v a i l a b l e f o r l o g g i n g w i t h i n the time h o r i z o n o f simulation.  Other i n v e n t o r y d a t a w i l l be r e q u i r e d f o r the  o f the a l l o w a b l e i s envisaged  c u t but t h i s may  t h a t the d a t a can be  be  ^  the  calculation  s t o r e d i n a summarised f a s h i o n .  stored i n a s t a t i c  s i m u l a t i o n as the change over the p e r i o d w i l l not be may  which  form d u r i n g  the  significant.  r e s u l t i n an u n d e r e s t i m a t e o f r e a l volume p r o d u c t i o n  and  It  o f the  This value  O p e r a t i o n s a r e a f f e c t e d amongst o t h e r t h i n g s by s l o p e , s o i l type, expos u r e , a l t i t u d e and r o c k o u t c r o p s . C l e a r l y , such e x t e n s i v e i n f o r m a t i o n cannot be s t o r e d w i t h i n the d a t a bank and used f r e e l y w i t h i n the model. A more e f f i c i e n t way i s by the use o f an index, here r e f e r r e d to as a s i t e d i f f i c u l t y f a c t o r . The development o f a s u i t a b l e index w i l l und o u b t e d l y i n v o l v e many problems, and i t i s u n l i k e l y t h a t a s i n g l e index will suffice. However, i n d i c e s as proposed would have uses beyond the model f o r such t h i n g s as stumpage a p p r a i s a l or p l a n t i n g g r a n t assessment.  98.  of  same, b u t average  e r r o r , over a t e n y e a r c y c l e w i l l  y e a r s which i s p r o b a b l y  be minus  five  l e s s than the e r r o r s a s s o c i a t e d w i t h c o s t s and  revenue p r o j e c t i o n s . B e s i d e s the s t o r a g e o f the d a t a w i t h i n the computer the d a t a a l s o be a v a i l a b l e i n map of  form  t o g i v e the management a d e t a i l e d p e r s p e c t i v e  the l o c a t i o n o f r o a d i n g and o t h e r  activities.  Assuming t h a t an e x i s t i n g management a r e a i s used ted  t h a t t h e r e w i l l be s e v e r a l s o u r c e s o f d a t a .  photographs, will  then i t i s expec-  F o r the l a n d d a t a , a i r  f o r e s t company r e c o r d s and Canada Land I n v e n t o r y  be used where a v a i l a b l e .  information  Land form, s l o p e s , and e l e v a t i o n s a r e  a v a i l a b l e from t o p o g r a p h i c maps.  The  f o r e s t stand data w i l l  the f o r e s t company r e c o r d s and B.C.F.S. d a t a bank were contemplated,  should  come from  In the e a r l y s t a g e s , i f an  the U n i v e r s i t y o f B r i t i s h Columbia  actual  Research  F o r e s t c o u l d p r o v i d e the d e t a i l e d s t a n d d a t a and be t i e d i n t o the summar i s e d f o r e s t d a t a o f a Tree Farm L i c e n s e . be f i t t e d  i n t o form the expected  area of  The  Research  F o r e s t d a t a would  activity.  The d a t a group would a l s o be r e q u i r e d t o c a r r y i n f o r m a t i o n as t o the a c c e s s t h a t i s a v a i l a b l e t o the f o r e s t . a c c e s s t o each compartment w i l l g i v e n purpose can be based  be r e c o r d e d .  to  The  type o f  The  s t o r e d w i t h i n the computer, but i t would be much  f o r e s t company r e c o r d s and a i r  Access  S a t i s f a c t o r y access f o r a  the a r e a o f the compartment.  r e c o r d the i n f o r m a t i o n on the maps.  Data B.  a c c e s s and the type o f  on r e l a t i o n s h i p s between the l e n g t h and  a c c e s s , such as road q u a l i t y , and l o c a t i o n c o u l d be  The  exact cheaper  d a t a c o u l d be d e r i v e d from  photographs.  T h i s d a t a group c o v e r s the i n i t i a l  t o company r e c o r d s would f a c i l i t a t e  s t a t u s o f the  the easy c o m p l e t i o n o f  firm. this  the  99.  section.  However l a c k i n g t h a t f o r t u n e ,  the p u b l i s h e d  c o u l d be used t o e s t a b l i s h the o v e r a l l l i m i t s and activities. The  D e t a i l s c o u l d then be basic information  the p r o d u c t i v e any  The  capital  cash a s s e t s  included  bonds h e l d and differing  capacity, recorded.  the  stored  i s the  stock, and  company.  the u n p a i d b i l l s  i n t e r e s t r a t e s and  l i q u i d i t y p o s i t i o n and  the company.  in this section.  i n v e s t m e n t i s the sum  information.  the c a p i t a l investment p o s i t i o n ,  i n v o l v e s the p r e s e n t  l o a n e d o r i n v e s t e d by  company are  t o be  firm's  s t o c k p o s i t i o n i s the number o f shares o f  type t h a t have been i s s u e d by The  tal  capacity.  scope o f the  i n t e r p o l a t e d from t h i s  that i s required  the cash a s s e t s , the l i a b i l i t i e s ,  annual statement  The  o f the  the  O u t s t a n d i n g d e b t s owed t o liabilities  firm.  Several  are  the  loans  f o r d i f f e r e n t p e r i o d s may  loans  The  The  term c a p a c i t y w i l l be  elaborated  and  explained  capi-  productive  t h a t i s the p h y s i c a l p o s s i b i l i t y f o r d o i n g work, w i l l a l s o The  and  i n bonds a t  be h e l d .  o f the f i x e d and m o b i l e a s s e t s .  the  be  in section  6.8.1.3 below. The to orders  t r a d i n g p o s i t i o n must a l s o be i n hand and  pated orders  and  This information  stored containing  the c o n t r a c t p r i c e , i f any,  the r e s e r v e s should  be  any  expected or  o f timber h e l d i n s t o c k p i l e by  t i e d to a s p e c i f i c  Data C.  The  firm operating  The  e x t e r n a l t o the f i r m and  suggested  as  anticifirm. simulation, by  suffice. w i t h i n the  s u b j u g a t e d t o the a c t i v i t y o f t h a t system. is  the  f i r m f o r an a c t u a l  though f o r gaming i n p u t d a t a based on r e a s o n a b l e v a l u e s e x p e r i e n c e d p e r s o n n e l would  information  The  beyond i t s c o n t r o l  exogenous v a r i a b l e s o f i n t e r e s t t o the  socio-economic system i s a c t i v i t y within that (see s e c t i o n s 6.4  f i r m are f i r s t l y  and  system 6.5.1).  the demand  and  100.  p r i c e trends;  h i s t o r i c a l p r i c e and  demand s t a t i s t i c s w i l l be made a v a i l -  a b l e t o the management and w i l l be based on p u b l i s h e d F u r t h e r , and  of v i t a l  interest  t o the f i r m ' s r e q u i r i n g o u t s i d e  f i n a n c i n g , i s the c o s t of c a p i t a l .  The  g i v i n g the p e r i o d i c i t y and  r a t e o f l o a n s and  available. ways. will  The  discount  data.  p r e v a i l i n g r a t e s a t any  c o s t t o the company o f c a p i t a l may  time,  bonds, w i l l  be  be determined i n s e v e r a l  F i r s t l y t h e r e i s the prime l e n d i n g r a t e o f commercial banks which i n d i c a t e the minimum c o s t .  S e c o n d l y , the r e c o r d s o f the f o r e s t f i r m ,  which w i l l g i v e the r a t e p e r i o d i c i t y o f l o a n s and bonds a t i s s u e .  The  l e n d i n g r a t e o f bonds a v a i l a b l e f o r n e g o t i a t i o n are p u b l i s h e d a t the p r i c e and  "ask"  a r e a v a i l a b l e a t the bond market o r from l o c a l newspapers.  t h e r i n f o r m a t i o n as t o l o c a l  i n t e r e s t r a t e s , which are a p p r o p r i a t e  Fur-  to  s m a l l e r f i r m s , w i l l be a v a i l a b l e from I.I.P.S. Present unions.  l a b o u r c o s t s by  P r o j e c t i o n s of labour  t r a d e and supply  tivity,  The  investment and  are a v a i l a b l e from  the  are a v a i l a b l e from the I.I.P.S.  and, the Government o f B r i t i s h Columbia Data D.  skill  study  (1969).  o p e r a t i n g c o s t s o f equipment, p r o d u c -  r a t e s o f p r o d u c t i o n d e c l i n e and  alternative capital:,  b i n a t i o n s i n f o r m a t i o n i s a v a i l a b l e from v a r i o u s s o u r c e s .  l a b o u r com-  Besides  the  forest  companies themselves t h e r e i s the a p p r a i s a l i n f o r m a t i o n from the Bureau o f Land Management  (1972) and  the Department o f N a t u r a l Resources  (1970).  Both s e r i e s o f i n f o r m a t i o n w i l l have t o be c o r r e c t e d f o r the h i g h e r c o s t i n B r i t i s h Columbia. the B.C.F.S. and  Similar appraisal information  the C o u n c i l o f F o r e s t I n d u s t r i e s  (1961), i f c o r r e c t e d f o r i n f l a t i o n ,  provided  i s a v a i l a b l e from  (.19691.  information  magnitude o f c o s t s as would the Vancouver F o r e s t D i s t r i c t  capital  Smith et  al.  indicating  the  investment  and  101.  l a b o u r i n p u t f i g u r e s from t h e Department o f I n d u s t r i a l Development, Trade and  Commerce  (Cartwright,  1972).  P r i c e i n f o r m a t i o n as r e g a r d s o f F o r e s t I n d u s t r i e s i n Vancouver.  l o g s i s p u b l i s h e d monthly by t h e C o u n c i l Information  as t o the expected  distri-  b u t i o n o f l o g s b y s i z e and grade from a h a r v e s t would be based on V a l g (1962), Sydney-Smith Data E. "Guru", who w i l l no  (1964), and Dobie  (1966, 1970).  I t i s proposed t h a t t h i s d a t a f i l e w i l l be r e s e r v e d f o r s e t t h e r e s t r i c t i o n s as t o where l o g g i n g may o c c u r Ce.g.  l o g g i n g o f compartments w i t h s l o p e over a c e r t a i n g r a d e ) ,  the c o n t r o l s  as t o the c u t (e.g. e q u a l annual o r annual o r p e r i o d i c maximum and minimum harvests). and  Also contained  i s the stumpage a p p r a i s a l t h a t i s t o be charged  t a x a t i o n , based i n p a r t on i n f o r m a t i o n from the F e d e r a l and P r o v i n c i a l  Departments o f F i n a n c e . A t t h e p o i n t o f l o g s a l e a p r i c e must be charged and the revenue a c c r e d i t e d t o the f i r m .  The a c t u a l p r i c e a c h i e v e d w i l l be s e t by "Guru"  and based on s u p p l y and demand p r o j e c t i o n s from the same d a t a base as presented  6.6  t o the management^  INITIAL MODEL STATUS  P r i o r t o use o f t h e model t h e b a s i c model d a t a s t o r a g e must be s e t , the exogenous d e c i s i o n s made and the i n i t i a l v a l u e o f the endogenous v a r i a b l e s d e c i d e d upon. groupings  That i s , "Guru" must go through t h e s e r i e s o f d a t a  and i n i t i a l i s e  a l l free variables.  As an a l t e r n a t i v e t o "Guru", t h e model may be r u n w i t h h i s t o r i c a l d a t a but w i t h o n l y t h e i n f o r m a t i o n p r i o r t o the year o f s i m u l a t i o n a v a i l a b l e t o management, o r p r i c e may be g e n e r a t e d i n t e r n a l l y by a p r e d i c t i v e model.  102.  In "Data A", t h e f o r e s t i n v e n t o r y , few o r no d e c i s i o n s w i l l be r e q u i r e d u n l e s s experiments i n v e s t i g a t i n g d i f f e r e n t r e s o u r c e bases a r e planned. Several a r b i t r a r y decisions w i l l  be r e q u i r e d f o r "Data B" u n l e s s  a c t u a l company d a t a a r e b e i n g employed.  The s e r i e s o f d e c i s i o n s t h a t must  be made a r e : 1)  Capital 1.1  complete a r a t e / t i m e m a t r i x o f o u t s t a n d i n g  1.2  r e p e a t a g a i n f o r a m a t r i x o f bond i s s u e s ;  1.3  complete t h e i n f o r m a t i o n as r e g a r d s p r e f e r e n c e and common shares  1.4  loans;  i s s u e d by t h e company;  s e t the values o f the matrix  species/grade  f o r the logs stock-  p i l e d by t h e company. 2)  Production The  systems  f o l l o w i n g i n f o r m a t i o n must be s t o r e d f o r each o f t h e p r o d u c t i o n  f u n c t i o n s o f t h e company: 2.1  capital  investment  2.2  production potential o f that plant;  2.3  labour requirements  2.4  expected  The  historical  f o r that sector;  operating costs per unit of production.  the d a t a i n p u t s t a g e . of  i n plant;  i n f o r m a t i o n o f "Data C" w i l l be c u t l a r g e l y d u r i n g However, t h e i n f o r m a t i o n as t o t h e amount and form  l o a n and bond c a p i t a l a v a i l a b l e t o t h e f i r m must be s e t . M a t r i c e s o f  y e a r s o f i s s u e a g a i n s t r a t e f o r b o t h l o a n s and bonds w i l l lisation.  These combinations  initia-  n o t a v a i l a b l e t o t h e f i r m s h o u l d be s e t t o  y e a r s and t h e o t h e r s c o n t a i n t h e maximum amount a v a i l a b l e . and wage r a t e s w i l l  require  a l s o be i n i t i a l i s e d ,  i f necessary.  Labour  supply  Changes w i t h i n the p r o j e c t i o n s o f equipment p r o d u c t i v i t y r a t e s d e p r e c i a t i o n may  be made i n "Data D"  I t i s , however, w i t h i n exerted  by  "Guru".  The  i f desired.  "Data E" t h a t the g r e a t e s t  i n f l u e n c e may  d e c i s i o n s made f o r t h i s d a t a group  policy  be  are:  1)  harvesting  2)  stumpage payment and  3)  taxes  4)  replanting regulations  (acres per  annum to be p l a n t e d ,  5)  a r e a s where h a r v e s t i n g  prohibited  (steep s l o p e s , r e c r e a t i o n  ( l o g g i n g and  (even f l o w ,  of  no r e s t r i c t i o n s , e t c . ) ;  b a s i s f o r stumpage;  company  taxes); etc.); areas,  stream s i d e s , e t c . ) ; 6)  logging  standards  7)  post-harvesting  8)  stream  9)  other  (close u t i l i s a t i o n , e t c . ) ;  policy  (e.g. s l a s h  burning);  rehabilitation; l a n d use  a l l o w a n c e by  zoning  (e.g. r e c r e a t i o n a l l a n d  use  allowance); 10)  a c t u a l l o g p r i c e s t h a t a r e deemed t o p r e v a i l a t the time o f s a l e . The  annually  made d e c i s i o n s  such as  "actual" log p r i c e i s stored  as h i s t o r i c a l d a t a as the model p r o g r e s s e s through the annual  6.7  PLANNING PROCESS AND  DECISION MAKING  T h i s s e c t i o n r e f e r s t o phases two are being  considered  operations.  together  between the d a t a a n a l y s i s and  and  t h r e e o f the model.  They  because o f the r e p e t i t i v e feedback i n t e r a c t f e a s i b i l i t y a n a l y s i s and  The  phases are e n t e r e d  i n t o f o l l o w i n g the  and  p o l i c i e s b e i n g made a v a i l a b l e .  information  d e c i s i o n making. as t o system  states  104.  In the  first  i t e r a t i o n the management w i l l be r e s p o n s i b l e  several p o l i c y decisions.  These p o l i c y d e c i s i o n s may  stage d u r i n g model f u n c t i o n i n g . degree by  the o f f i c i a l  decisions. 1)  The  c o n s t r a i n t s s e t , i f any,  any  d e c i s i o n s w i l l be tempered t o a  large  l a t i t u d e f o r these  comprise:  the h a r v e s t i n g p o l i c y o f the f i r m .  decide  be r e v i s e d a t  f o r e s t p o l i c y r e s t r i c t i n g the  These p o l i c y d e c i s i o n s  f o r making  to vary  The  f i r m has  latitude within  i t s harvesting p o l i c y .  to operate i n a cost minimising  way  It  the  may  and p l a n f o r an even  flow  o r c a r r y spare c a p a c i t y t o take advantage o f h i g h p r i c e s ; 2)  p o l i c y of depreciation, depreciates  3)  A p o l i c y t h a t m i n i m i s e s t a x payments o r  the equipment over i t s p r o d u c t i v e  c a p i t a l or labour  intensity.  The  f i r m may  l i f e may  be  attempt t o reduce  i n p u t or c a p i t a l i n p u t , depending upon i t s p r o j e c t i o n s o f c o s t s and On own  p o l i c y d e c i s i o n s the p r o d u c t i o n  c o n s t r a i n t s , the planning  sequence b e a r s a r e l a t i o n s h i p t o s e c t i o n 4.4  from the  given  general  future  access  and  and  the  system s t a t e and i t s  sequence i s c a r r i e d o u t .  This  above.  development f o r a t e n y e a r p e r i o d i s chosen  s t o c k map.  The  choice  i s conditioned  by  the e x p e c t e d h a r v e s t y i e l d s f o r the p e r i o d from a  area. The  information  y e a r p e r i o d and are noted and The 1)  area of harvest  inventory data  the p r e s e n t  labour  shortages.-  the b a s i s o f the o p e r a t i n g  The  adopted;  i s more t h o r o u g h l y  the p l a n s  the  laid  analysed  i n more d e t a i l .  f o r the  The  forthcoming  e x p e c t e d timber  five  flows  investment r e q u i r e m e n t and p o t e n t i a l s a l e s n o t e d .  annual o p e r a t i o n s  are the most d e t a i l e d .  the t o t a l c a p i t a l investment needed;  The  f i r m must p l a n :  105.  2)  the o p e r a t i n g c o s t s  3)  the t o t a l budget f o r the  4)  the s o u r c e  5)  the investment  6)  the f i x e d investment be  7)  and  expected; year;'  amount o f new i n new  c a p i t a l i f needed;  equipment f o r each f u n c t i o n a l element; i n terms of roads,  d i s t a n c e s and  grades,  to  built;  the compartments t o be h a r v e s t e d ,  the type o f h a r v e s t i n g and  the  degree o f u t i l i s a t i o n ; 8)  the compartments to be t h i n n e d and  the type and  the amount;  9)  the areas t o be p l a n t e d w i t h the degree o f s i t e p r e p a r a t i o n  and  the d e n s i t y o f p l a n t i n g ; 10)  the annual budget t o each o p e r a t i n g s e c t o r ;  11)  the allowance  12)  the l a b o u r t o be h i r e d by each o p e r a t i n g s e c t o r .  f o r c o n t i n g e n c i e s and  overheads;  These d e c i s i o n s form the b a s i s f o r the o p e r a t i n g o f the model f o r production period.  6.8  DESCRIPTION OF THE  ELEMENTS OF PRODUCTION  In t h i s s e c t i o n , Phase IV, the a c t u a l f u n c t i o n i n g o f the f i r m the b a s i s o f the above d e c i s i o n s , i s r e v i e w e d . o p e r a t i o n s o f the f i r m are p r o c e e d i n g be c o n v e n i e n t l y s e p a r a t e d any  almost s i m u l t a n e o u s l y ,  The  o p e r a t i o n s may  i n t h r e e s t e p s , namely, the p r e - p r o d u c t i o n , stages.  they  into temporarily disjunct a c t i v i t i e s  insurmountable disadvantage.  production  Though i n r e a l i t y  the may  without  be viewed as  the p r o d u c t i o n and  on  the  being post-  one  106.  During  t h e p r e - p r o d u c t i o n stage t h e f i r m attempts t o match i t s  a v a i l a b l e c a p i t a l r e s o u r c e s t o i t s planned I f the planned  expenditure  f i r m must r a i s e c a p i t a l  investments  and e x p e n d i t u r e s .  exceeds t h e a v a i l a b l e l i q u i d a s s e t s , then the  i n t h e l o a n and t h e bond market.  On t h e b a s i s o f  the t o t a l l i q u i d a s s e t s t h e f u n c t i o n s o f the v a r i o u s p r o d u c t i o n t i e s can be s e t by investment  activi-  i n c a p i t a l p l a n t , a l l o c a t i o n o f an o p e r a t i n g  budget and t h e h i r i n g o f l a b o u r . The  p r o d u c t i o n stage i s then c a r r i e d o u t i n t h e sequence o f t h e  o r d e r s g i v e n and a c c o r d i n g t o t h e s e t p r o d u c t i o n f u n c t i o n f o r each F o l l o w i n g p r o d u c t i o n , the harvested  timber  i s marketed, the  activity. capital  equipment d e p r e c i a t e d and t h e f i n a n c i a l p o s i t i o n o f t h e f i r m e s t a b l i s h e d t o t h e end o f t h e p e r i o d .  6.8.1  SYMBOLS AND VARIABLE NAMES USED IN FLOW DIAGRAMS  The  symbols used d u r i n g t h e f o l l o w i n g f l o w diagrams have been  m o d i f i e d from F o r r e s t e r  (1961).  instructional  process  conditioned decisions  information  flow  10-7.  optimal information flow  orders or i n s t r u c t i o n a l  flow  money f l o w  goods f l o w  personnel  flow  c a p i t a l equipment o r productive capacity  decision functions  source o r s i n k  auxiliary  variable  108.  | ) v-  i n f o r m a t i o n take o f f  UA X A  data storage sources _ information  A  6.8.2  THE  The  of  ACQUISITION OF FINANCIAL RESOURCES  f i r m may  have adequate f i n a n c i a l r e s o u r c e s f o r the p r o d u c t i o n  p e r i o d i n q u e s t i o n whereupon t h i s s e c t i o n i s bypassed.  These funds  have been accumulated from p r e v i o u s l o a n s t o the f i r m , bond o r i s s u e s , r e t a i n e d e a r n i n g s o r from d e p r e c i a t i o n and ances.  stock  ammortisation  allow-  However, s h o u l d t h e r e be a d i s c r e p a n c y between the expected  f l o w f o r investment s o u r c e s o f funds The  and o p e r a t i n g c o s t s and the c a s h r e s e r v e s then  s h o u l d be  f i r m may  may  cash new  found.  r a i s e money from s e v e r a l s o u r c e s .  the i n v e s t e d a s s e t s o f the f i r m which may  Firstly,  be l i q u i d a t e d .  The  there  are  investments  a r e most e a s i l y r e c e i v e d as a r e a d i l y c o n v e r t i b l e l o a n s t o c k o f known i n t e r e s t i n which the f i r m may  i n v e s t o r withdraw a t w i l l .  Bonds up t o a s p e c i f i e d amount and a t a pre-determined i n t e r e s t r a t e and maximum sum, of  may  interest.  the p e r i o d and  i s s u e p e r i o d may  be i s s u e d .  In both cases  the i n t e r e s t r a t e s may  be v a r i e d a c c o r d i n g t o  amount o f the i s s u e o r l o a n .  borrowed from the bank w i l l not be  to a  be d e a l t w i t h simply by a p p l y i n g the bank's l e n d i n g r a t e  In a l l c a s e s the maximum t h a t may  may  Loans, a g a i n up  prevailing  exceeded.  be r a i s e d from the market o r  be s p e c i f i e d by  "Guru" as an a b s o l u t e sum  that  109.  reduce planned expenditures,  ensure e x p e n d i t u r e s and a s s e t s a r e balanced. I f yes f o l l o w A, e l s e B  PLANNED EXPENDITURES  invest ^ \ ^ surplus  i f f l o w becomes zero before asset d e f i c i t r e c t i f i e d then f o l l o w A, e l s e B  planned sources o f capital \ MANAGEMENT y CONTINGENCY ( PLANS  0I  ii  l i q u i d assets of f i r m f o r period  c  raise loan  >1 DEBTS 0F_ FIRM  to labour acquisition  Flow C h a r t 1  FINANCIAL RESOURCES  110.  The  c a s h f l o w p o s i t i o n o f the f i r m w i l l be  the s i m u l a t i o n system as c u r r e n t l y p r o p o s e d .  severely distorted  by  T h i s i s not important- as  the s i t u a t i o n w i l l be r e c t i f i e d a t the end o f the s i m u l a t i o n p e r i o d . However, a r u l e must be made t h a t a f i x e d p r o p o r t i o n a t l e a s t o f the expected expenditure  must be h e l d i n the form o f each.  holding of u n r e a l i s t i c a l l y  This w i l l prevent  l e s s suras o f cash t o cover the f i r m ' s  the  opera-  tions .  6.8.2.1  ENGAGEMENT OF LABOUR  The  o p e r a t i n g and f u n c t i o n i n g o f the f i r m i s dependent upon t h e r e  b e i n g s u f f i c i e n t l a b o u r a v a i l a b l e and planned  l a b o u r requirement  employed.  The model w i l l h i r e  u n l e s s the l a b o u r p o o l becomes l i m i t i n g where-  upon t h a t number a v a i l a b l e w i l l be  hired.  Once the l a b o u r i s h i r e d the f i r m i s committed t o f u l f i l l t h a t guarantees  a minimum annual  income t o the l a b o u r f o r c e .  be a t a s t a n d a r d r a t e though an a l l o w a n c e  may  a contract  The  cost w i l l  be made t o accommodate  d i f f e r e n c e s i n wage r a t e s between d i f f e r e n t c a t e g o r i e s o f employees. may  the This  be done by the. use o f a weighted wage charge t o the f i r m t h a t a l l o w s  f o r the h i g h e r wage c o s t o f s k i l l e d  labour.  charged  f o r i t s l a b o u r i n terms o f  man  the  to the f i r m , which accounts  years of  Thus, a crew average wage i s  activity.  By the s e p a r a t i o n o f a c t i v i t i e s  i n t o temporally d i s j u n c t  a problem a r i s e s when the f i r m wishes t o respond f o r timber.  average-  The  entities,  to changes i n the demand  employment o f a f i x e d l a b o u r f o r c e f o r the year i m p l i e s  o n l y a minimum f i x e d sunk c o s t .  P r o d u c t i o n below the normal p r o d u c t i v e  c a p a b i l i t y o f the f i r m i s dependent upon the v a r i a b l e c o s t not b e i n g  met,  and p r o d u c t i o n beyond t h i s c a p a b i l i t y r e q u i r e s t h e more i n t e n s i v e use o f the l a b o u r beyond the f i r m ' s commitment.  T h i s i n v o l v e s the use o f o v e r -  time working, which i s a v a r i a b l e c o s t , and i s charged t o t h e budget a t a h i g h e r r a t e than the f i x e d c o s t l a b o u r .  The amount o f overtime i s  limited. No o p p o r t u n i t y w i l l be g i v e n f o r the r e v i s i o n o f the c a p i t a l i n v e s t ment p l a n s , s h o u l d t h e l a b o u r s u p p l y prove inadequate be a l r e a d y committed t o a course o f investment withdraw a t t h i s l a t e  6.8.2.2  as the f i r m would  from which i t c o u l d not  stage.  SETTING THE PRODUCTIVE CAPACITY  A t t h i s p o i n t i n the p r e - p r o d u c t i v e  a c t i v i t y t h e f i r m has a  knowledge o f i t s p r e s e n t p r o d u c t i v e c a p a c i t y , which i t has r e t a i n e d i n a d e p r e c i a t e d form t h e p r e v i o u s p r o d u c t i o n p e r i o d , l a b o u r funds f o r new investment  and t h e working budget.  a v a i l a b l e f o r each o f t h e p r o d u c t i o n A d e s i r e d p r o d u c t i o n output  This information i s  activities.  i s achieved  by v a r i o u s combinations o f  l a b o u r , c a p i t a l and budget t o cover o p e r a t i n g c o s t s . t i o n i s s e t i n t h e l i m i t by the f a c t o r r a t i o p e r person The  availability,  employed), which i s i t s e l f  The p o t e n t i a l produc  (quantity o f c a p i t a l  c o n s t r a i n e d by  availabl  technology.  a l t e r n a t i v e s a v a i l a b l e t o the f i r m may be s t o r e d i n a -manner  s i m i l a r t o t h a t i l l u s t r a t e d below w i t h t h e a c t u a l p o s i t i o n h e l d by t h e firm indicated.  The i l l u s t r a t i o n c o n t a i n s example d a t a f o r t h e h a r v e s t i n g  r o u t i n e with the f i r m p r e s e n t l y having investment  and t e n (10) men  employed.  a combination  o f $500,000  initial  112.  continue  from  financial resources  labour  Flow  LABOUR  Chart  2  ACQUISITION  requirement  113,  Table  6.1  w i t h and w i t h o u t higher productive  c o n t a i n s i n f o r m a t i o n as t o the output new  level,  T h i s i n f o r m a t i o n and depreciation  investment,  The  the average age  be  achieved,  required to maintain  o f equipment and  the  the book v a l u e .  i t s need i s e x p l a i n e d i n the s e c t i o n t h a t r e f e r s  ( s e c t i o n 6.8.4.2).  the a s s o c i a t e d r u n n i n g tion.  the investment  t h a t may  Other i n f o r m a t i o n p r e s e n t e d  c o s t s o f t h i s p a r t i c u l a r l a b o u r and  refers  capital  to combina-  f i x e d c o s t i s i n c u r r e d r e g a r d l e s s o f what a c t i v i t y o c c u r s  the v a r i a b l e c o s t i s deducted from the f i r m ' s budget as the  to  and  production  occurs. Should  a r e a s o f the m a t r i x r e p r e s e n t c o m b i n a t i o n s t h a t are t e c h n i -  c a l l y or economically The  firm w i l l  i n f e a s i b l e then the combination f i n a l l y be a s s i g n e d  t h a t r e q u i r e d to m a i n t a i n the equipment w i l l be  precluded.  i t s p r o d u c t i v e p o s i t i o n on  b a s i s o f the p r e s e n t p r o d u c t i v e p o s i t i o n and the c o n s t r a i n t s o f the l a b o u r s u p p l y .  w i l l be  the new  I f investment  investment,  the new  within  i s made over and  the p r o d u c t i v e p o s i t i o n then  s u i t a b l y updated and  the  above  the average age  productive  of  possibility  calculated. The may  p r o c e d u r e o u t l i n e d has  the disadvantage  be i n c u r r e d i n equipment p u r c h a s i n g  t h a t the d e l a y s which  have been e l i m i n a t e d .  by d e l a y i n g the equipment p u r c h a s e t o the  Further,  l a s t moment the u n c e r t a i n t y  a s s o c i a t e d w i t h p r i c e e x p e c t a t i o n i n the p r o d u c t market has been  reduced  and hence so i s t h a t o f the p l a n n i n g d e c i s i o n s .  6.8.3  PRODUCTION SYSTEMS  The firm.  On  production  systems c a r r y out the o p e r a t i o n a l programme f o r the  the b a s i s o f the p r o d u c t i v e c a p a b i l i t y t h a t the f i r m has  s e t up  \ Labour  capital A (man y e a r s ) B  1. 2. 3. 4. 5. 6. 7. 8. 9. 10, 3^4  Notation:  800,000  500,000 1,000 960 50,000 30,000 60 20 11 4 100,000 .1.1  120,000  1300 84,000 40,000 50 25 11  800,000 .1.2  * * * *  1.  t o t a l p r o d u c t i o n c a p a c i t y i n thousands o f c u b i c f e e t per p r o d u c t i o n p e r i o d i f investment i n new p l a n t made;  2.  p r e s e n t p r o d u c t i o n c a p a c i t y i n thousands o f c u b i c f e e t p e r p r o d u c t i o n p e r i o d i f no investment made;  3.  investment r e q u i r e d t o m a i n t a i n schedule;  4.  f i x e d c o s t s f o r the p r o d u c t i o n  5.  v a r i a b l e c o s t p e r thousand c u b i c f e e t e x t r a c t e d ;  6.  p e r c e n t a g e e x t r a output t h a t can be a c h i e v e d of overtime;  7.  v a r i a b l e cost a t overtime r a t e  8.  average age 'of equipment;  9.  depreciated  10.  book v a l u e  i n i t i a l purchase v a l u e  B.  labour required  **  production  period;  o f equipment;  b a s i c wage r a t e w e i g h t i n g  A.  higher  factor.  o f the equipment;  t o o p e r a t e the equipment  s i g n i f i e s an i n f e a s i b l e Table  combination.  6.1  PRODUCTION FEASIBILITY AND COST DATA  by the use  115.  f o r the a c t i v i t i e s o f f i x e d investment, h a r v e s t i n g , the model f u l f i l l s The i n the allow  the o r d e r s  in a deterministic  t h i n n i n g and  fashion.  i n s t r u c t i o n s t o t h i s sytem have been s p e c i f i e d f o r each  f o r c o n t r a d i c t i o n s i n the o r d e r s  planning.  a s e r i e s o f r u l e s must be  them so t h a t the model w i l l  F o r example, s h o u l d  an a r e a be  acceptable  scheduled area  ignored  and  bad  prior  next  harvested.  o f a f a c t o r becoming l i m i t i n g .  For  example, should  i n an a r e a  and  harvesting  o f t h a t compartment w i l l be completed and  reduce  the c a p a c i t y exhausted b e f o r e  The  harvesting  storage regardless  harvesting  commence  i s completed  the c o s t s  s i z e o f the compartments used, the  e r r o r s i n the d a t a s t o r a g e  and  the  the  allowed  e r r o r t h a t such a move i n c o r p o r a t e s  model w i l l depend upon the  6.8.3.1  the  a c t i v i t y i n a compartment w i l l be completed  f o r as f a r as p o s s i b l e .  established  scheduled f o r harvesting  I t i s recommended t h a t to s i m p l i f y the model and r e q u i r e m e n t s , any  To  continue to operate despite  t o the c o n s t r u c t i o n o f a c c e s s the o r d e r would be  into  the  inherent  capacity descriptions.  FIXED INVESTMENT  The made w i t h the  f i x e d investment, t h a t i s r o a d s , b r i d g e s l o n g term development p l a n i n mind and  specific regulations.  w i l l have two  elements.  The  l i k e t o a c h i e v e and  the  The  and  camps, w i l l  be  i n accordance w i t h  p l a n t h a t i s s e t f o r the model t o  Firstly,  a minimum f u l f i l m e n t g o a l .  the  activity  sequence o f compartments i n which each a c t i v i t y i s t o o c c u r .  to counteract  the  planting,  t h e r e w i l l be an o b j e c t i v e and  complete secondly  f i r s t p a r t i s what the management would  second p a r t i s what must be a c h i e v e d  f u t u r e p l a n n e d a c t i v i t i e s o f the  f i r m are not  hampered.  i n order  that  116.  continue from labour  s e t up the p r o d u c t i v e c a p a c i t i e s o f each activity  s a t i s f y each i n t u r n i f not s a t i s f i e d , f o l l o w A, e l s e B  continue to f i x e d investment  production plans^-  B  acquire new equipment productive \ capacity J activity budget  r  capital investment potential productivity for a c t i v i t y  potential Data D  productivity  Flow C h a r t 3 PRODUCTION FUNCTION  117.  Camps may  be d e a l t w i t h w i t h i n the model by assuming t h a t they  c o n t r a c t e d out and Roads and  so the o n l y charge t o the f i r m , i s a cash  charge.  b r i d g e s a r e , however, the r e s p o n s i b i l i t y o f the company  and must be c a r r i e d out as a cash  charge and  as a r e s o u r c e s  charge.  On  the b a s i s o f the c a p a c i t y s e t i n s e c t i o n 6.8.2.3 above, the f i r m has c a p a c i t y f o r a g i v e n number o f m i l e s o f r o a d .  d i f f e r e n t types o r grades o f r o a d s , w i t h an allowance  for,  f o r example, s l o p e , s o i l type and  c o u l d be  be and  depleted adjustment  remoteness, e t c . , a c c o r d i n g  the d a t a a v a i l a b l e from the i n v e n t o r y r,ap.  Excess demands over  to  capacity  c o n t r a c t e d out w i t h i n the c o n s t r a i n t s o f the f i n a n c i a l  The model o p e r a t e s  a  As t h i s i n f o r m a t i o n i s  s t o r e d as a " s t a n d a r d m i l e s " o f c a p a c i t y , the c a p a c i t y may for  are  resources.  a c c o r d i n g to the o p e r a t i n g i n s t r u c t i o n s s p e c i -  f i e d , u n l e s s an impediment a r i s e s , such as a d e p l e t i o n o f the budget o r p r o d u c t i v e c a p a c i t y , whereupon the s e c t i o n w i l l  terminate.  t i o n s s p e c i f i e d are the compartments i n which the road built, of  the l e n g t h  (or s i z e o f camp), and  b r i d g e s t o be b u i l t .  Unless  specified  The  instruc-  .(or camp) i s t o be  the grade o f road and s o l e l y as a c c e s s  the number  the model w i l l  r e q u i r e a minimum l e n g t h o f road f o r each compartment, depending upon the area. I f the c a p a c i t y i s exhausted b e f o r e the minimum investment completed then overtime  working may  the h i g h e r o p e r a t i n g c o s t . r a t e s and  The  plan i s  be p e r m i t t e d , but t h i s i s charged a t  h i g h e r c o s t w i l l cover  i n c r e a s e d maintenance c h a r g e s .  Should  labour at  the budget be  overtime  exhausted  then e i t h e r more funds a r e v o t e d t o the o p e r a t i o n from the company a s s e t s , i f a v a i l a b l e , or a d e f i c i t curtail  budget i s caused.  o p e r a t i o n s r a t h e r than  incur a d e f i c i t  The management may budget.  opt  to  118.  In the f u n c t i o n i n g o f the model the o p e r a t i o n s p l a n i s s e t out i n the o r d e r o f p r i o r i t y  t o be f o l l o w e d .  Labour and c a p i t a l ,  i . e . the p r o d u c -  t i v e c a p a c i t y , a r e a p p l i e d t o t h i s o r d e r and d e p l e t e d a c c o r d i n g t o :  c a p a c i t y consumed = f ( d i s t a n c e , grade, s i t e d i f f i c u l t y  factor)  where d i s t a n c e i s the l e n g t h o f r o a d b u i l t grade i s the grade o r type o f road s i t e d i f f i c u l t y f a c t o r i s a composite o f s l o p e , remoteness, e t c . based on compartment d a t a .  On t h e b a s i s o f the c a p a c i t y consumed the budget i s d e p l e t e d by making payments t o wages and c o s t s .  When overtime  c a p a c i t y i s used the  r a t e o f c a s h payments i s i n c r e a s e d t o compensate the h i g h e r c o s t s . From t h e road l o c a t i o n on the map need f o r b r i d g e s .  i t w i l l be p o s s i b l e t o note the  I f r e q u i r e d the b r i d g e may  be o r d e r e d  and the c a p a c i t y  d e p l e t e d a f i x e d amount i n accordance w i t h the road grade b e i n g ted. same. file  construc-  T h i s assumes t h a t a l l b r i d g e s o f a c e r t a i n l o a d f a c t o r c o s t the On c o m p l e t i o n  o f the compartment road b u i l d i n g the f i x e d  investment  i s updated and a budget t r a n s f e r o f d o l l a r s t o c o s t s and wages i s made.  As t h e l a b o u r has been c o n t r a c t e d f o r the o p e r a t i n g p e r i o d a t o t a l minimum wage must be met. When the o p e r a t i o n s a r e f i n i s h e d o r the budget exhausted the o p e r a t i o n s are terminated  and the next  stage p r o c e e d s .  ment must be s t o r e d i n two s e c t i o n s .  The d a t a on road i n v e s t -  Those roads c o n s t r u c t e d s o l e l y f o r  l o g g i n g may be s t o r e d a c c o r d i n g t o the compartment number, but f o r those r e q u i r e d f o r access well.  an e s t i m a t e  o f t h e p r o d u c t i v e l i f e must be s t o r e d as  T h i s i n f o r m a t i o n i s r e q u i r e d by the d e p r e c i a t i o n s u b - r o u t i n e ,  s e c t i o n 6.8.4.2.  119.  CONTINUE  /  Flow C h a r t 4  FIXED INVESTMENT  (^operating instructions  120.  6.8.3.2  HARVESTING  As w i t h the f i x e d  investments,  the f i r m w i l l h a r v e s t on t h e b a s i s  o f the p r o d u c t i v e p o t e n t i a l and the budget a l l o c a t e d t o the a c t i v i t y . I f h a r v e s t i n g has been s c h e d u l e d ment i s h a r v e s t e d .  then the a p p r o p r i a t e f o r e s t compart-  H a r v e s t i n g i s c o n d i t i o n a l , however, on t h e r e  being  a c c e s s t o t h e compartment o r t h e r e b e i n g no h a r v e s t i n g r e s t r i c t i o n imposed, e.g. because the compartment i s a d j a c e n t t o a stream. of t h i s a c t i o n are s e v e r a l f o l d .  order  The e f f e c t s  F i r s t l y , t h e p r o d u c t i v e c a p a c i t y i s dep-  leted according t o :  p r o d u c t i v e c a p a c i t y used = f ( v o l u m e ^  x average d i a m e t e r ^ x  difficulty  site  factor)"!" 1  where volume^ i s volume o f t h e i t h s p e c i e s average d i a m e t e r ^  i s averaged  diameter  o f the i t h s p e c i e s  s i t e d i f f i c u l t y f a c t o r i s as b e f o r e .  A monitor  r e g u l a t e s the h a r v e s t i n g c o s t , a p p l y i n g e i t h e r normal o r  overtime  rates, until  ceases.  Logging  the c a p a c i t y i s exhausted  s t a n d a r d s may be imposed by t h e requirement  c e r t a i n percentage  to harvest a  from the s t a n d i n g volume and r e l a t i n g volume e x t r a c t e d  t o t h e c a p a c i t y used.  A uniform  logging standard  the whole f o r e s t as t h e s t a n d a r d w i l l sale  whereupon the h a r v e s t i n g  s h o u l d be a p p l i e d over  i n f l u e n c e the l o g c o n v e r s i o n f o r  (see s e c t i o n 6.8.4.1).  The h a r v e s t i n g f u n c t i o n i s dependent upon the r e l a t i o n s h i p between the average d.b.h. o f the s t a n d and t h e c o s t o f h a r v e s t i n g . See Adams (1967), B a s k e r v i l l e (1964) and Worthington (1966). F o r a complete d i s c u s s i o n o f problems a s s o c i a t e d w i t h modeling a h a r v e s t i n g o p e r a t i o n , see C o t t e l l (1967).  121.  \^ c o n t i n u e  fD X 0  1  rt  •'  •a fD ^5 a Ch  l  H- rt i rt ft C *i fD 1 cn *—' 1  , forest H compartment  1  -< payments  (  ^^ages^)  log inventory^) I  costs  minimum wage ^)  m o n i t o r on L productive | capacity j (exhausted)  Flow C h a r t 5 HARVESTING  122.  Secondly, ment h a r v e s t e d  t h e f o r e s t i n v e n t o r y d a t a i s s e t t o z e r o i n the compart-  and t h e s t a n d i n g timber  inventory i s converted  inventory.  The l o g i n v e n t o r y i s updated by adding  the volume  to  o f s p e c i e s and average diameter b r e a s t  height.  a matrix The  use o f p r o d u c t i v e  A budget  i s m o n i t o r e d and when d e p l e t e d the o p e r a t i o n s cease,  p o l i c y as r e g a r d s d e f i c i t  harvested  c a p a c i t y i n c u r s a c o s t , and hence d o l l a r s  are t r a n s f e r r e d , from t h e budget t o wages and c o s t s . remaining  into a log  has been p r e s c r i b e d .  level unless a  By s e t t i n g a p o l i c y o f  incurring a d e f i c i t  t h e management may h o l d t h e t e r m i n a t i o n o r d e r  the maximum d e f i c i t  i s i n c u r r e d o r the c a p a c i t y i s exhausted.  p o l i c y may be c o n d i t i o n a l on, s a y , p r e v a i l i n g  6.8.3.3  until  The d e f i c i t  price.  THINNING  The  t h i n n i n g o p e r a t i o n may o p e r a t e  harvesting section.  The volume t h i n n e d ,  i n a s i m i l a r f a s h i o n t o the  i f merchantable, w i l l be added t o  the l o g i n v e n t o r y though t h e d i a m e t e r c l a s s i f i c a t i o n  under which i t i s  s t o r e d i n w i l l be assumed t o be the average d i a m e t e r o f the s t a n d , o r computed as g r e a t e r o r l e s s , depending upon the i n s t r u c t i o n s f o r t h i n n i n g . The  change i n volume w i l l be r e c o r d e d  i n the f o r e s t inventory, but  the average diameter w i l l remain the same i f the f i r s t adopted.  As t h e r e i s no dynamic s t a n d  o p t i o n above i s  i n f o r m a t i o n i n the proposed  first  stage o f development, t h e e r r o r i n i n v e n t o r y d a t a f o l l o w i n g t h i n n i n g i s inconsequential.  6.8.3.4  PLANTING  Over the s h o r t term p l a n t i n g i s s t r i c t l y a c o s t t o the f i r m ( i g n o r i n g t h e p o s s i b l e a l l o w a b l e c u t e f f e c t s t h a t may be a s s o c i a t e d w i t h  123.  increased  p l a n t i n g e f f o r t ) and  down o f the p r o d u c t i v e The  may  capacity  p l a n t i n g must a g a i n  procured. be  t i v e c a p a c i t y run down a c c o r d i n g t i o n and  planting.  c e r t a i n e f f o r t , and again the  As  be  s p e c i f i e d by compartment and  such as s c a r i f y i n g w i l l  i f e x p r e s s e d i n terms o f p r o d u c t i v e c a p i t a l and  c r e d i t e d t o the  labour  I f t h i s p r o v e s t o be  a c o s t per As  unit  a v a i l a b l e to the  f i r m , then  prove u n s a t i s -  the case the whole o p e r a t i o n may a c t i v i t i e s , put  activi-  be put  out t o c o n t r a c t  out at  area.  t h i s i s s o l e l y a c o s t t o the f i r m over the time span o f the -model, t o be p l a n t e d ,  harvested,  e i t h e r as an a b s o l u t e  w i l l have t o s p e c i f i e d by  MAINTENANCE AND  The  amount o f p r o p o r t i o n  area  OVERHEADS  T h i s r e q u i r e s the  hence l a c k s a s s e t s ;  of  "Guru".  f i r m must m a i n t a i n an i n f r a - s t r u c t u r e t o c o o r d i n a t e  its activities.  trivial  a  firm.  t o c o n t r a c t , or j u s t the p r e - p l a n t i n g  6.8.3.5  require  the p r o c e s s o f p l a n t i n g i s a s e r i e s o f d i s t i n c t o p t i o n a l  factory.  produc-  c a p a c i t y , which i s  t i e s w i t h w i d e l y d i f f e r i n g f a c t o r r a t i o s t h i s approach may  the a r e a  the  t o the e f f o r t expended i n ground p r e p a r a -  Each o p e r a t i o n ,  a f u n c t i o n o f the  c o s t may  t h e r e f o r e be viewed as a s t r a i g h t run  involvement o f c a p i t a l and  and  labour,  though the e x a c t measurement o f many d i v e r s e and  a c t i v i t i e s would prove an  exacting,  though g e n e r a l l y  oversee and often  uninformative  task. However, throughout the model the c o s t s and f i r m have been r e c o r d e d t i o n o f the wages and  and  costs.  wages i n c u r r e d by  hence the overheads can be The  jobs provided  the  charged a t a p r o p o r -  in supervisory  and  coordina—  124.  t o r y r o l e s may be taken as a r a t i o t o the employment i n d i r e c t l y r o l e s , and hence, u s i n g an average wage r a t e , the l a b o u r  productive  income i s a s c e r -  tained.  6.8.4  POST-PRODUCTION SYSTEMS  Following occur.  the production  The h a r v e s t e d  timber must be graded and s o l d , the equipment d e p r e -  c i a t e d t o o b t a i n the c a p i t a l t i o n s , and pay t a x e s , The  systems s e v e r a l d i s t i n c t a c t i v i t i e s must  investment and the p r o d u c t i o n  capacity posi-  debts and d i v i d e n d s .  a c t i v i t i e s may be d e a l t w i t h i n a s e r i e s o f s u b - r o u t i n e s , t h e  log conversion  and s a l e s , c a p i t a l d e p r e c i a t i o n and f i n a l  financial position  of the f i r m .  6.8.4.1  LOG CONVERSION AND SALES  From t h e h a r v e s t i n g and t h i n n i n g s e c t i o n s o f the model the i n f o r mation as t o volumes h a r v e s t e d t o be s t o r e d . The  by s p e c i e s and average d i a m e t e r o f l o g s has  P r i o r t o s a l e s t h e l o g s must be graded.  g r a d i n g may be c a r r i e d o u t w i t h i n the model by the use o f an  expected d i s t r i b u t i o n o f grades by d i a m e t e r c l a s s and s p e c i e s  array.  Thus, i f i = d i a m e t e r c l a s s j = species k = grade c l a s s V..  = volume i n i t h d i a m e t e r c l a s s f o r j t h s o e c i e s  IT.  P_k  =  p r o p o r t i o n o f t h e i t h diameter c l a s s o f i t h s p e c i e s t o t h e k t h grade c l a s s  125.  where  k  V, . = volume o f the such t h a t The  j t h species  volumes  (V  s t o c k p i l e t o form established  C l e a r l y , t h i s i s a p r o j e c t i o n , but  the management.  a n t i c i p a t e d p r i c e s g i v e n by as the  are  (Vt, . ) . f o r each s p e c i e s f o r the  and  grade c l a s s .  sake o f the game the  omniscient  e s t a b l i s h the p r i c e s based on a s e r i e s o f p r o j e c t i o n s  t o t h a t used by  required  class  .) which form the b a s i s f o r stumpage c a l c u l a t i o n k}  A p r i c e must be  the  kth diameter  V. . x P. ., = V, . iD ljk k}  then added t o the  "Guru" w i l l  i n the  The  p r i c e f i n a l l y chosen may  the management, but  l e v e l o f i n v e s t m e n t i s based on  a two  similar  differ  from  p r i c e system i s  the management e x p e c t a t i o n s  o f p r o f i t , p a r t i c u l a r l y where the management o p t i o n  i s for price  responsive  cutting. The conditions may  be  stumpage and  r o y a l t y payments p r e s e n t some d i f f i c u l t i e s under  of s t o c k p i l i n g .  c a l c u l a t e d on  I f a l l the  timber i s s o l d , then the  the d i f f e r e n c e between the  t o t a l costs  stumpage  and  the  income.  However, w i t h timber s t o c k p i l e d o r s o l d from s t o c k p i l e i t i s d i f f i c u l t d i r e c t l y r e l a t e the therefore, from the  costs  and  suggested t h a t the  revenues f o r stumpage c a l c u l a t i o n . newly h a r v e s t e d timber be  stockpiled harvest, permitting  i f a l l timber was between a c t u a l  costs  then added t o the side contracts,  sold. and  possible  incomes.  (Vs  how .).  The  It i s ,  separately  c a l c u l a t i o n of a possible  stumpage i s t h e n p a y a b l e or the  stockpile for sale.  to s e l l  a management o r d e r  The  the  stored  The  newly a c q u i r e d  management has  much t i m b e r i t l i k e s .  The  the  to  income  difference harvest i s option,  amount to be  out-  sold i s  The  income t o the f i r m i s t h e r e f o r e :  y = n  vs, . x s, .  1 1 where  k  3  k  ^  i s the u n i t v a l u e o f the k t h grade o f the j t h s p e c i e s .  The management may p r i c e , which may  have c o n t r a c t s f o r the supply o f wood a t a  d i f f e r from the p r e v a i l i n g p r i c e , and  p r e v a i l f o r f i x e d q u a n t i t i e s w i t h i n the market p l a c e . meet i t s o b l i g a t i o n s and the timber, p r i c e s and  6.8.4.2  bearing  then  s e v e r a l p r i c e s might The management must  s e t a s e r i e s o f r u l e s f o r the d i s p o a s l o f  i n mind i t s l i a b i l i t i e s ,  the expected  the c o s t s a s s o c i a t e d w i t h m a i n t a i n i n g  an  future trends  CAPITAL DEPRECIATION  economists s i n c e the b e g i n n i n g  of t h e i r trade.  s i m p l e s t n e o - c l a s s i c a l e x p r e s s i o n of output c a p i t a l , where c a p i t a l i s the sum productive process.  The  accounting  s o l d t o another  vexed  As s t a t e d e a r l i e r ,  use  the  i s a f u n c t i o n of labour  and  o f the i n d i v i d u a l machines used i n the  r e a l v a l u e to the f i r m i s the p o t e n t i a l  t h a t c o l l e c t i o n o f equipment.  i s of l i t t l e if  of  inventory.  The model encompasses the c l a s s i c i c a l problem t h a t has  of  fixed  earnings  However, such a v a l u e used by the  as i t m e r e l y s i g n i f i e s the worth o f the  party f o r a similar  firm assets  use.  Y e t , w i t h i n the model, such a measure i s r e q u i r e d , u s i n g the p o t e n t i a l p h y s i c a l output  r a t h e r than p o t e n t i a l e a r n i n g s ,  the p h y s i c a l p l a n n i n g o f f u t u r e o p e r a t i o n s .  The  i n order to  facilitate  economic o p e r a t i o n s o f  f i r m , however, d i c t a t e s t h a t the c o s t o f equipment be measured t o the c a l c u l a t i o n o f cash f l o w s f o r the f i r m . t i o n o f the p o t e n t i a l  earnings.  T h i s measure g i v e s no  the  permit indica-  127. CONTINUE  Flow C h a r t  6  LOG CONVERSION AND SALES  128.  We  are t h e r e f o r e f o r c e d t o c o n c l u d e  must be c a r r i e d w i t h i n the f i r m . v a l u e , and may  bear  r o a d may  depreciation rates  t h e r e i s the f i n a n c i a l o r book  s e c o n d l y , the p o t e n t i a l p r o d u c t i v e c a p a c i t y .  little  Let  Firstly,  t h a t two  These two  rates  r e l a t i o n s h i p t o each o t h e r .  us now  r e v i e w the p o s i t i o n o f the f i x e d c a p i t a l f i r s t .  have a c a p i t a l w r i t e o f f i n e i t h e r o f two ways.  The  E i t h e r the c o s t  may  be d e p r e c i a t e d d i r e c t l y a g a i n s t the timber e x t r a c t e d over i t , o r i t  may  be d e p r e c i a t e d a t the t a x a l l o w a n c e  manner and ted.  former  Access  difficulties.  roads through Probably  areas not s c h e d u l e d  f o r logging present  i s t o take the number o f y e a r s  h a r v e s t i n g t h a t w i l l be made p o s s i b l e by the r o a d , based follow a straight  be r e t a i n e d w i t h i n the model w i t h l i t t l e  the sake o f s i m p l i c i t y  i t i s suggested  t i o n o f the r o a d be assumed c o n s t a n t . the c o s t o f upkeep may  the assumption  real  existence  difficulty,  but  t h a t the p r o d u c t i v e c o n t r i b u -  I f the road i s b e i n g a c t i v e l y  used  be a l l o w e d f o r i n the v a r i a b l e c o s t s o f l o g g i n g o r  i n the maintenance and overheads s e c t i o n . if  The  the  Once the  retains a very  a s s e t , p a r t i c u l a r l y w i t h r e s p e c t t o the more major r o a d s .  for  on e i t h e r  line depreciation.  book v a l u e o r c o s t v a l u e becomes z e r o , the f i r m s t i l l  the r o a d may  bet-  be w r i t t e n o f f when the compartment i s h a r -  the s i m p l e s t way  f i v e o r t e n y e a r p l a n , and  difficulty  (and i n t e r e s t c o s t o f i n v e s t e d c a p i t a l  ween c o n s t r u c t i o n and use) may  of  i s the u s u a l  f o r the book v a l u e p r e s e n t s l i t t l e  w i t h i n the model as the r o a d  of  The  i s o p e r a t e d by a t t r i b u t i n g a "charge" per u n i t o f wood e x t r a c -  Making an allowance  vested.  rate.  were extended  span o f t e n y e a r s the assumption  S e r i o u s d i s t o r t i o n s would o c c u r  o v e r too l o n g a p e r i o d but o v e r a  time  s h o u l d not prove d i s p r o p o r t i o n a t e t o o t h e r s  made and w i l l be q u i t e minor i n n a t u r e .  129.  Camps may a l s o be r e t a i n e d as f i x e d e n t i t i e s  i n terms o f p r o d u c t i v e  use b u t d e p r e c i a t e d i n the books i n t h e normal manner as a p e r c e n t a g e o f the d e c l i n i n g  balance.  S i m i l a r l y , m o b i l e a s s e t s a r e d e p r e c i a t e d on a d e c l i n i n g ( p r e s e n t l y 30%) o f the o u t s t a n d i n g book v a l u e . l i n e d e p r e c i a t i o n (of about 15%) i s f o l l o w e d . w i l l decrease The  and f i n a l l y  equipment w i l l  d e s i s t on a d i f f e r e n t  normally  be scrapped  balance  Occasionally a straight The p r o d u c t i o n c o n t r i b u t i o n schedule  (see F i g . 6.2).  o r r e p l a c e d when the q u a s i - r e n t  becomes z e r o . Two d e p r e c i a t i o n streams must be e s t a b l i s h e d w i t h i n the model, one to  second t h e book o r f i n a n c i a l v a l u e and t h e o t h e r  bution.  the p r o d u c t i o n  contri-  There must be a known r e l a t i o n s h i p between them, such t h a t when  new equipment i s purchased, the f i n a n c i a l and the p r o d u c t i o n streams a r e a p p r o p r i a t e l y updated.  130.  I - productive values to firm I I - p e r c e n t a g e d e c l i n e on the o u t s t a n d i n g  balance  When the average age o f the equipment i s x^, i t has a book v a l u e t o the f i r m o f $B^ and a p r o d u c t i v e v a l u e o f volume output  Figure  DEPRECIATION  e^.  6.2  STREAMS OF MOBILE INVESTMENTS  T h i s must be a c h i e v e d i n a manner t h a t p e r m i t s  t h e expansion  p r o d u c t i o n f u n c t i o n as w e l l as the h o l d i n g o f a c o n t i n u o u s be done so i n the f o l l o w i n g way. investment  of  v a l u e , and may  The book v a l u e i s simply the o u t s t a n d i n g  l e s s the d e p r e c i a t i o n r a t e .  131.  I,  I I , I I I , production p o s s i b i l i t y  labour input  f o r which t h e r e i s an a p p r o p r i a t e  requirement.  Figure  6.3  ALTERNATIVE PRODUCTIVE CAPACITY STREAMS F o r each y e a r o f o p e r a t i o n t h a t p a s s e s the p r o d u c t i v e c a p a c i t y d e c l i n e by a c e r t a i n amount.  F o r example, u s i n g f a c t o r r a t i o n I I I , t h e  a g i n g o f t h e equipment from X^ t o X^ w i l l from Y^ t o h.  will  result i n a decline of capacity  The curve w i l l be o f t h e form: 1 Y = P.C. x  c.x.  where P.C. = p r o d u c t i v e c a p a c i t y c = constant x Should  = average i n i t i a l  age o f equipment - y e a r s o f s i m u l a t i o n  t h e y e a r X^ be p a s s e d t h e p r o d u c t i v e c a p a c i t y w i l l  In t h e case o f f a c t o r r a t i o factor ratio I I .  then become  I, a t y e a t X , the c a p a c i t y w i l l  zero.  decline to  132.  depreciation) allowance (  Flow C h a r t  7  CAPITAL DEPRECIATION  133.  In o r d e r t o m a i n t a i n  the p o s i t i o n o r the p r o d u c t i v e  graph, an investment,  based on the s t r a i g h t  Z^X^), 2^,  b e i n g the i n i t i a l  nations.  2^ and  2^,  the y e a r - ^ 2 ' X  X  t  *  i e  $(Z^-Zj_), t o m a i n t a i n  ^  r i t l  t  o  m  o  v  f  e  r  information table The  preference  (Table 6.1)  i n the investment  HI  m  line  I I I , and  f o r by changing  (  Z  X 2  2  ^"  life  pay  $(.Z^-2,^\  pattern.  o f equipment but  The method was  to  allows  chosen i n  as an e q u i v a l e n t sum  i s involved  f o r by o v e r t i m e  costs.  R i s i n g p r i c e s may  i g n o r e d through  s e r v e s o n l y t o confuse  r o u t i n e i s necessary incomes and and  The  i s r e g i s t e r e d w i t h i n the model w i t h o u t  THE  and  to  the  a l s o be be  the model as  FIRM  to s a t i s f y  simple  the as y e t unaccounted f o r  the d i s b u r s e m e n t o f p r o f i t s i n the payment o f dividends.  an  complicate.  a c o n c l u s i o n t o the p e r i o d i c o p e r a t i o n o f the model a  d i s c r e t i o n a r y debts  i s , in  the s l o p e o f the Zx l i n e , though these would  FINANCIAL POSITION OF  expenses and  pay  F o l l o w i n g d e p r e c i a t i o n the  expectancy  changes as i n f l a t i o n s h o u l d be  a p p r o p r i a t e allowance  accounting  then pay  is  Thereafter, to r e t a i n i t s production  need t o i n t r o d u c e a second a c c o u n t i n g p r o c e s s .  As  That  t o I I , i t must f i r s t  i s accounted  declining production potential  6.9  X  a c o n s t a n t p r o d u c t i o n as the d i f f e r e n c e between p r e s e n t  i n i t i a l productive levels  real price  Z  c o s t v a l u e s o f the equipment combi-  t o a r i s i n g v a r i a b l e c o s t curve  order to maintain  allowed  x  i s updated.  method assumes u n i f o r m  fluctuations  o  i t s p o s i t i o n on  p o s i t i o n i t must i n v e s t a c c o r d i n g t o  and  z  c o s t v a l u e s o f the equipment.  change the p r o d u c t i o n p o s s i b i l i t y .  in  l i n e d e p r e c i a t i o n ( ^ -j.' 2 2 '  To change the p r o d u c t i o n f u n c t i o n , a l l the f i r m need do  the d i f f e r e n c e i n the i n i t i a l  for  possibility  134.  The borrowing  expenses p r i n c i p a l l y i n v o l v e those a s s o c i a t e d w i t h the c o s t o f c a p i t a l , namely i n t e r e s t charges on bonds and l o a n s .  bonds must a l s o be s a t i s f i e d .  Mature  A simple s e a r c h i n g t e c h n i q u e o f the l o a n  and bond m a t r i c e s t h a t c a l c u l a t e s the i n t e r e s t on the o u t s t a n d i n g i s s u e s and a p p r o p r i a t e sum deducted  from the a s s e t s .  The income not accounted  f o r i s t h a t o b t a i n e d from t h e f i r m ' s i n v e s t m e n t s , which i s s i m p l y a p e r centage  o f the t o t a l  investment.  With the n o n - d i s c r e t i o n a r y t r a n s a c t i o n s complete  the information  i s a v a i l a b l e t o a l l o w the p u b l i c a t i o n o f an i n t e r i m statement (see T a b l e 6.2).  On t h e b a s i s o f t h i s  act at i t s discretion.  i n f o r m a t i o n t h e management can  I f the f i r m has made a p r o f i t then t h e p r o f i t can  be used t o pay a d i v i d e n t , s a t i s f y non-urgent profit  o f accounts  i n a n t i c i p a t i o n of future expenditures.  be h e l d as c a s h o r as i n v e s t m e n t s .  debts and r e t a i n some o f t h e The r e t a i n e d e a r n i n g s may  I f a l o s s has been i n c u r r e d and t h e  c a s h a s s e t s a r e r e g i s t e r e d as n e g a t i v e the f i r m must r e d i s t r i b u t e i t s t r a n s f e r a b l e a s s e t s , t h a t i s t h e d e p r e c i a t i o n fund o r the investments u n t i l the cash i s a t l e a s t z e r o .  I f s e v e r a l bonds and l o a n s have been  r e p a i d i t i s t o be expected t h a t t h e c a s h a s s e t s w i l l r e g i s t e r as n e g a t i v e i n the i n i t i a l system  statement  o f a c c o u n t s , b u t , because o f the way i n which t h e  has been o r g a n i s e d , t h i s does n o t n e c e s s a r i l y i n d i c a t e a weak  financial position.  Alternatively,  t h e cash may be borrowed.  Should the management f o r e s e e a p e r i o d o f c o n t i n u e d  profitability,  then t h e r e i s no r e a s o n t o p r e v e n t t h e payment o f a d i v i d e n d from funds.  deficit  135.  A f t e r the r e d i s t r i b u t i o n o r d e r s have been g i v e n t o the model, a r e v i s e d statement o f accounts t a b l e o f d i v i d e n d s payed  i s published  (Table 6.3).  then  (Table 6.2) a l o n g w i t h the  Income Returns from Gross s a l e s  investments  T o t a l income  Expenditure Stumpage and r o y a l t i e s Wages Costs Depreciationand amortisation Overheads I n t e r e s t payments Total  Net  pretax-profit Taxation  Net  profit  Assets Cash ( i n c l u d i n g n e t p r o f i t ) " " Investments Accounts r e c e i v a b l e D e p r e c i a t i o n and a m o r t i s a t i o n C a p i t a l i s e d v a l u e o f f i x e d and mobile a s s e t s Unsold stock 1  Total  In r e v i s e d s t a t e r e a d Cash ( e x - d i v i d e d ) .  Liabilities Bank i n d e b t e d n e s s Accounts payable Bond l i a b i l i t i e s  (Loans)  Total  Table  6.2  INTERIM STATEMENT OF ACCOUNTS  D i v i d e n d payment P r e f e r r e d stock Common s t o c k Total Payment p e r share o f common s t o c k  Table  6.3  DIVIDEND PAYMENT  138.  6.10  GAME EVALUATION  If c a t e the and  the model i s p l a y e d as a game, some measure i s r e q u i r e d to success  achieved.  The  e v a l u a t i o n can be based on the  the o p e r a t i o n s phases o f the model.  indi-  planning  A d e t a i l e d e v a l u a t i o n system  o b v i o u s l y cannot be d e s c r i b e d a t t h i s s t a g e , but the f o l l o w i n g c o n t a i n s a few  comments as t o the p o i n t s t h a t s h o u l d be  ment s e f f o r t s a r e 1  when the manage-  appraised.  In the f i r s t c a s e , rity  considered  the s u c c e s s  between the a c t u a l o p e r a t i o n s  and  o f the p l a n i n terms o f the the planned o p e r a t i o n s may  F o r t h i s purpose the a c t u a l wood income, investment and compared t o the p l a n n e d and p r e d i c t e d v a l u e s .  similabe  gauged.  c o s t f l o w s may  be  However, s t r e s s s h o u l d  not  be o v e r l y p l a c e d on t h i s s e c t i o n o f the e v a l u a t i o n as the p l a n i s merely a means t o an end to  not the end  in itself.  There i s f a r more b e n e f i t  be d e r i v e d by abandoning a p l a n , which i s o n l y a s e r i e s o f g u i d e l i n e s ,  when i t s use completing to  and  becomes i n c o n s i s t e n t w i t h a t t a i n m e n t  the enactment o f a d e f u n c t p l a n .  changing c i r c u m s t a n c e s  i s an important  s h o u l d not be  so l o o s e l y termed and  anomalies and  conflicting  The  o f the o b j e c t i v e s than a d a p t a b i l i t y o f the  c o n s i d e r a t i o n , though the  plan plan  i n e x p l i c i t as to a l l o w f o r c o n f u s i o n ,  i n t e r p r e t a t i o n s . Much o f the e x p l i c i t n e s s i s  d e r i v e d from the c l a r i t y o f statement o f g o a l s and  objectives.  t h e r e be a change i n the g o a l s and/or o b j e c t i v e s the p l a n  Should  immediately  becomes i n a p p l i c a b l e . More important o b t a i n i n g the g o a l s .  t o the p l a y e r o f the game i s the The  achieved  in  o v e r a l l f i n a l p o s i t i o n o f the company i n terms  o f accumulated p r o f i t , a s s e t s goods, and  success  (cash, investments,  debts r e c e i v a b l e ) , l i a b i l i t i e s  c a p i t a l stock, s t o c k p i l e d  (bonds, l o a n s and  debts p a y a b l e )  139.  and d i v i d e n d payments.  The f i n a l p o s i t i o n must be viewed  i n terms o f  the evenness o f the cash f l o w o b t a i n e d over the y e a r and the r e g u l a r i t y and  stability  of thq dividend.  The a c t u a l use o f cash f l o w w i t h i n the  model would p r e s e n t some d i f f i c u l t i e s allowance  b u t the a c c u r a c y o f the budget  and t h e a c t u a l time spent would p r o v i d e an i n d i c a t i o n o f the  p l a n n i n g thoroughness investment, an i m p o r t a n t  and i t s a c c u r a c y .  F u r t h e r , the i n t e n s i t y o f c a p i t a l  e x p r e s s e d i n terms o f t h e e a r n i n g s t o investment  i n d i c a t i o n as t o the e f f i c i e n c y o f use o f the c a p i t a l .  the f i r m has become over-extended  If  i n i t s o p e r a t i o n s t h e n t h i s w i l l be  i n d i c a t e d by an u n f a v o u r a b l e a s s e t s t o l i a b i l i t i e s r a t i o . cut  ratio i s  I f an a l l o w a b l e  has been a s s i g n e d t o t h e f i r m then t h e adherence o f t h e f i r m t o these  g u i d e l i n e s and t h e debt p o s i t i o n i s i n r e l a t i o n t o the c u t e v a l u a t i o n . C l e a r l y , t h e l o n g term i n t e r e s t o f t h e f i r m i s r e f l e c t e d i n t h e c o n d i t i o n o f the f o r e s t , of  i t s basic resource.  Account  s h o u l d be taken  t h e u n f o r e s t e d l a n d w i t h i n t h e a r e a d e s i g n a t e d as p o t e n t i a l l y u s e f u l  for  second growth timber, w i t h r e f e r e n c e t o t h e i n i t i a l s t a t u s a t t h e  b e g i n n i n g o f , and t h e c l e a r e d d u r i n g t h e s i m u l a t i o n p e r i o d .  6.11  FUTURE DEVELOPMENT OF THE MODEL  We have so f a r d i s c u s s e d the g e n e r a l format o f the model a l o n g w i t h the d a t a r e q u i r e m e n t s  and t h e t y p e s o f f u n c t i o n s t o be employed.  format has been e l a b o r a t e d i n t o a g e n e r a l system  structure that  The emulates  the f l o w s o f i n f o r m a t i o n , o r d e r s , goods and d o l l a r s . A f t e r programming the model f o r t h e computer, i t i s n e c e s s a r y  that  the a v a i l a b l e d a t a and d a t a e s t i m a t e s be p r e s e n t e d i n a c o h e r e n t a s s i m i l a t e d form t h a t i s c o m p a t i b l e  t o t h e model.  The a p p r o p r i a t e f u n c t i o n s  140.  may  then be d e r i v e d  o f the model w i t h  to a degree o f a c c u r a c y  i n t e r n a l r e l a t i o n s h i p s consistent with  t o i n d i c a t e the v a l i d i t y o f the The  simulating  considered  h y p o t h e t i c a l data  the model may  Two  then be  system d e s c r i p t i o n .  and  despite  the c o n t i n u e d  modification  use  of  real  partially  be used i n i t s gaming r o l e .  followed,  e i t h e r separately or  The  f i r s t p a t h r e q u i r e s the r e p e a t e d  use  cal  f u n c t i o n s and  Critical  data  system,  a s a t i s f a c t o r y r e p r e s e n t a t i o n o f the  Once t h i s i s a c h i e v e d ,  p a t h s may  operation  the r e a l  model w i l l undoubtedly r e q u i r e some t e s t i n g and  p r i o r to i t s b e i n g system.  t h a t f a c i l i t a t e s the  limitations.  simultaneously.  o f the model t o i n d i c a t e the f u n c t i o n s or d a t a  limita-  t i o n s are those t h a t have a s i g n i f i c a n t i n f l u e n c e on the o u t p u t d a t a there  i s the p o s s i b i l i t y o f improving the f u n c t i o n on d a t a  determination accuracy tions.  as the use  improved s u f f i c i e n t l y  initial  " f i e l d " use w i l l be  to p e r m i t i t s use as a g e n e r a l  in "field"  situa-  industry indicator  resource  base.  second p a t h i n v o l v e s the more d e t a i l e d and  g a t i o n o f the path w i l l  The  o f s p e c i f i c examples w i l l r e q u i r e the r e l a t i n g o f the model t o  an a c t u a l f i r m and The  input.  and  o f the c r i t i c a l p o i n t s o f the model are n e c e s s a r y i f the  i s t o be The  criti-  system to improve the  also f a c i l i t a t e  the  s o p h i s t i c a t i o n and  realism.  Such a  i n t r o d u c t i o n o f a g r e a t e r number o f v a r i a b l e s  and parameters, which i n t u r n w i l l r e f i n e and w e l l as broaden the  inquiring investi-  improve the o u t p u t d a t a  as  scope o f the model.  Some examples o f improvements i n system d e s c r i p t i o n a r e : 1)  reduce the p e r i o d o f o p e r a t i o n a l e v a l u a t i o n t o t h r e e monthly which w i l l p e r m i t g r e a t e r v a r i a b i l i t y allow  " l e a d i n " or " d e l a y "  changes;  i n the p r i c i n g  periods,  structure  and  times f o r company responses t o market  141.  2)  introduce be  a routine  dynamic  and  term e f f e c t s 3)  the  use  may  be  model sion and  on  wind  facilitating  forest  of  company  lands  the model development are  this  i s probably  term  I N I T I A L AND  P O T E N T I A L USE  During  chapter  this  mimicking,  the  unless  the  adopt  great  excessive  much o f  the  data  expected  planning the  care  f o r the  model has  that  the  will In  the  Presently, firm  the  data  increased model  i n a dynamic  length  of  the  complete  science  fic-  form o f  and  based  on  base would  the  deci-  disadvantages.  of r e a l i s m i n terms  of  this  the  model,  and  inherent  some s t a g e  a  and  i t is  would d e c l i n e as and  of  extended  "guestimates"  data  at  the  o f many f a c t o r s  e a r l y stages  handling  and  by  the  of  the  model  example,  t o become u n w i e l d y  this  tainty  advantages gained  tend  of  complexity  the  introduced.  v a r i a b l e s are  reliability  The  long  practicalities.  inclusion  and  extended. system  The  the  n e c e s s i t y be  be  i n realms  at  degree  i s taken,  to  MODEL  a considerable  amounts o f d a t a . must o f  could  i t s advantages  parameters  data the  for  c o n s e q u e n c e s o f many o f  process.  s c o p e was of  THE  such as,  return to  have d i s c u s s e d  to account  system as  require  we  OF  to  of  basis of  requiring a  generations,  a timely point  the  crises,  to  limits  short  the  forest  economic d e c i s i o n s ;  d e t e r m i n i s t i c f a c t o r s as  t h r o w on  the  investigation  term  The  variables within  the  short  the  the  T h o u g h a m o d e l may  of  that allows  of  v a r i a b l e s of  t o be  model  changed, whereupon g e n e r a t e d  that attempts  model,  the  the  replanning  and  6.12  thereby  of purely  extensive  tion  into  the uncer-  outweigh  the  realism.  i s confined  f a s h i o n and  to mimicking  i s only  tied  to  the  actual  functions  the  e x t e r i o r systems  142.  i n a v e r y s u p e r f i c i a l way.  The f o r e s t systems and the socio-economic  systems a r e e q u a l l y dynamic  and prone t o u n c e r t a i n t y .  These systems have  been s u b j u g a t e d i n importance by a s e r i e s o f assumptions. the  On the one hand,  f o r e s t has been assumed t o be s t a t i c and i n f l u e n c e d s o l e l y by the f i r m .  The n a t u r a l growth o f t h e f o r e s t has been stopped and i t s d e s t r u c t i o n f i r e and storm has a l s o been h a l t e d .  from  On the o t h e r hand, the s o c i o - e c o n o m i c  system has been c o n v e n i e n t l y c o n t r o l l e d and r e g u l a t e d by the c r e a t i o n o f a fictitious  "Guru".  Such b r a z e n assumptions a r e n e a r l y i m m a t e r i a l when t h e model i s used i n i t s gaming r o l e .  I t makes no d i f f e r e n c e t o t h e management i f the  i n f o r m a t i o n feedback from e i t h e r system i s r e a l o r c o n c o c t e d as they w i l l r e a c t so as t o o p t i m i s e t h e p o s i t i o n o f the f i r m i n r e l a t i o n t o the s t a t e d objectives. the  What i s o f i n t e r e s t i n t h i s case i s not t h e f i n a l p o s i t i o n o f  f i r m b u t t h e manner i n which t h e management r e a c t s t o the d a t a i n p u t  and system r e s p o n s e s t o t h e i r d e c i s i o n s .  The c r i t i c a l element i s thus t h e  a c c u r a c y o f t h e system d e s c r i p t i o n . In  the p l a n n i n g r o l e ,  mechanisms t o the f i n a l  the emphasis  changes  status o f the v a r i a b l e s .  r e c a l l the adage " g a r b a g e - i n , garbage-out".  We may a t t h i s  Unless the i n i t i a l  the  v a r i a b l e s i s known then t h e f i n a l  the  system, i t i s , i n t h e o r y , i r r e l e v a n t whether  approach i s adopted p r o v i d e d t h e f i n a l  from the system response point status of  s t a t u s w i l l a l s o be unknown.  As t o  a r e a l or h e u r i s t i c  s t a t u s o f the v a r i a b l e s can be  p r e d i c t e d w i t h the system as r e p r e s e n t e d w i t h i n the model. The v a l u e o f t h e model f o r a c t u a l p l a n n i n g purposes w i l l doubt u n t i l the model has been c o n s t r u c t e d and v a l i d a t e d .  remain i n  Experimentation  may then o c c u r t o i n v e s t i g a t e the s o r t s o f q u e s t i o n s t h a t may be  answered.  143.  We  can,  at t h i s  stage, o n l y h y p o t h e s i z e  as to how  the model w i l l  even-  t u a l l y be used but t h i s does not p r e v e n t us musing these c o n j e c t u r e s . One  o f the major problems o f r e s o u r c e use a t p r e s e n t i s r e s o u r c e  conflict.  R i v a l p r e s s u r e groups are c l a m o u r i n g  the f o r e s t and c u l a r whim.  for a greater control  demanding t h a t more a t t e n t i o n be p a i d t o t h e i r own  How  over  parti-  might the model be used to , s o l v e the c o n f l i c t between  r e c r e a t i o n i s t s and  f o r e s t e r s f o r example?  R e c r e a t i o n may  be a l l o w e d  f o r w i t h i n the f o r e s t by r e s t r i c t i n g  the  f o r e s t o p e r a t i o n s , o t h e r than say p l a n t i n g , t o a p a r t i c u l a r a r e a o f the f o r e s t and  a v o i d i n g areas d e s i g n a t e d as h a v i n g p o t e n t i a l f o r r e c r e a t i o n ,  are o f o u t s t a n d i n g n a t u r a l beauty o r abut onto streams which are for fishing.  The  d i f f e r e n c e s i n the  unconstrained  and  the c o n s t r a i n e d s t a t u s may  important  f i n a l s t a t u s o f the f i r m under the then be e s t i m a t e d .  The  d i f f e r e n c e i s i n the c o s t t o the f i r m o f r e c r e a t i o n over the p e r i o d o f simulation.  The  c o s t w i l l v a r y depending upon whether the areas are  manently o r t e m p o r a r i l y i s o l a t e d from the f i r m . the f i r m must r e c a l c u l a t e may  i t s a l l o w a b l e c u t and  In the former i n s t a n c e , i n the l a t t e r ,  be r e q u i r e d i s r e s c h e d u l i n g o f the o p e r a t i o n s and  b a b l y be  insufficiently  would be o f l i t t l e benefit  a l l that  the model would  s e n s i t i v e t o the d i f f e r e n c e s i n c o s t , o t h e r  perhaps an i n c r e a s e d c o s t o f r o a d b u i l d i n g .  The  per-  pro-  than  i n f o r m a t i o n produced  v a l u e i n i t s e l f but would p r o v i d e an i n p u t i n t o a c o s t  study. No  facility  e x i s t s a t p r e s e n t f o r a d i v e r s i f i c a t i o n o f the  o t h e r than i t s investment no reason why latitude  i n c o n v e r t i b l e l o a n s t o c k , but t h e r e i s , however,  this f a c i l i t y  to s e l l  i t s own  firm  s h o u l d not be expanded o r the f i r m be  l a n d f o r r e a l e s t a t e development.  given  I t would  be  144.  expected  t h a t the f i r m would i n v e s t the r e s o u r c e s i n t h e n o s t  e n t e r p r i s e , and  profitable  i f t h i s p r o v e s not t o be f o r e s t r y then the f i r m would  be  a c t i n g c o n t r a r y t o the i n t e r e s t s o f i t s s h a r e h o l d e r s t o c o n t i n u e o p e r a t i n g as a f o r e s t company. propagated  There i s no a priori  in perpetuity.  r e a s o n why  f o r e s t s should  I f i t i s deemed s o c i a l l y d e s i r a b l e t o do  be so,  then s e v e r a l means o f e n s u r i n g . t h e p r o p a g a t i o n , such as a t a x on bare may  be  land,  investigated. As a l a s t example, f o r though s e v e r a l f u r t h e r experiments  proposed,  c o u l d be  t o do so a t t h i s j u n c t u r e p r i o r t o t h e c o n s t r u c t i o n o f the model  i s e s s e n t i a l l y an e x e r c i s e i n t h e f u t i l e ,  l e t us review the use o f the  model i n the c o n t i n u i n g saga o f s u s t a i n e d y i e l d .  The p r o f i t a b i l i t y o f the  f i r m and the h a r v e s t c u t under u n c o n s t r a i n e d c o n d i t i o n s can be  compared  w i t h v a r i o u s i n t e r p r e t a t i o n s o f the c o n s t r a i n e d y i e l d d o c t r i n e , which w i l l form the c o n s t r a i n e d system, and thus the o p p o r t u n i t y c o s t o f the may  be e s t i m a t e d and the d i f f e r e n t  investment  policy  s t r a t e g i e s estimated.  Though  the i n d i v i d u a l f i r m i s assumed t o have no i n f l u e n c e on the market p r i c e s , t h e whole i n d u s t r y c l e a r l y does, and hence the p r i c e s t r u c t u r e used,  because  o f the absence o f a l t e r n a t i v e i n f o r m a t i o n , must be based on the c o n s t r a i n e d system s t a t e . if  T h i s may  l e a d t o e i t h e r an under o r o v e r e s t i m a t e o f the c o s t ,  any. F o r the s o r t s o f experiments  and  the a c c u r a c y and  and a n a l y s e s d i s c u s s e d , o t h e r  techniques  r e l i a b i l i t y o b t a i n e d w i l l p r o b a b l y be e q u a l t o , o r  g r e a t e r than, the i n f o r m a t i o n y i e l d e d by the model i n i t s p r e s e n t form. However, the s i n g l e o b j e c t i v e t e c h n i q u e s o p e r a t e on a s e r i e s o f assumptions w i t h r e s p e c t t o extra-model assumptions reduces  states.  The v i o l a t i o n o f d o u b t f u l n e s s o f the  the v a l i d i t y o f the p r o j e c t i o n s .  In t h i s " c o n t e x t ,  the  145.  m u l t i p l e - s y s t e m s model has the advantage  t h a t many o f the system i n f l u e n c i n g  s t a t e s a r e i n t e r n a t i o n a l and a r e t h e r e b y e s t a b l i s h e d  as system s t a t e s o r  parameters and the i n t e r n a l p r o c e s s r e l a t e d t o these system s t a t e s . and m u l t i p l e  Cross  impact a n a l y s i s a r e made p o s s i b l e over minor and t r a u m a t i c  p e r t u r b a t i o n s anywhere w i t h i n  the system.  146.  CHAPTER 7  CONCLUSION  In  a t h e s i s such as t h i s , where the d i s c u s s i o n has c e n t r e d  initially  on a r e v i e w o f the work t o date and s u b s e q u e n t l y on the p r e s e n t a t i o n o f p o s s i b l e f u t u r e c o u r s e o f a c t i o n , t h e r e can be no p r o f o u n d o r c o n c r e t e conclusions.  The p r e s e n t models t h a t are i n use f o r p l a n n i n g have been  severely c r i t i c i s e d  on account o f the p a u c i t y o f f a c t o r s they c o n s i d e r ,  the "heavy-handedness" w i t h which they approach of  the problem and,  t h i s lack of subtlety, t h e i r inappropriateness for evaluating  e f f e c t s o f minor p o l i c y , In  an attempt  system,  f a c t o r or product  because the  changes.  t o overcome t h e s e shortcomings, models have been  proposed, but the e a r l i e r models, which I termed  " f i r s t , g e n e r a t i o n models",  were c r i t i c i s e d  "second g e n e r a t i o n models"  for their single objective.  The  were a c o n s i d e r a b l e improvement but they s t i l l factory t r a i t s . was  The h y p o t h e s i s was  possessed s e v e r a l  then advanced  a model t h a t s i m u l a t e d the " t o t a l  t h a t what was  unsatisrequired  system".  The p r e s e n t a t i o n o f an o u t l i n e , r a t h e r than the p r e s e n t a t i o n o f a working model, i s perhaps c a l i t y o f the c o n c e p t .  t e s t i m o n y t o the i d e a l i s m r a t h e r than the  practi-  The development o f an i d e a to the stage p r e s e n t e d  w i t h i n t h i s t h e s i s i s a r e l a t i v e l y simple m a t t e r , but the t r a n s f o r m i n g o f t h i s concept t o a f u n c t i o n i n g , a l l s i n g i n g and dancing model i s a quantum  147.  leap forward.  The  stage a c h i e v e d  t i v e s o f model b u i l d i n g ; system more f u l l y . from  The  meets, t o some e x t e n t ,  t h a t o f u n d e r s t a n d i n g and use  one  o f the  comprehending  o f such a model f o r p l a n n i n g  is still  objec-  the far  reality. We  nique and  must q u e s t i o n  as t o whether the improvements i n p l a n n i n g  d e c i s i o n making can  j u s t i f y the  systems model f u l l y o p e r a t i o n a l . As n a t u r a l l y a f u n c t i o n o f the e f f o r t required, present  a s s i s t a n c e by p r o v i d i n g  total  t o whether t h i s i s worthwhile i s  with c o n s i d e r a t i o n given  never r e p l a c e  c o s t o f making a  importance o f the d e c i s i o n s pending, and  d e c i s i o n a i d i n g methods.  model can  e f f o r t and  tech-  t o the o b j e c t i v e n e s s  I t should  be  of  the  the  c l e a r l y understood that  the human d e c i s i o n t a k e r , but  can merely be  l a r g e r amounts o f more r e l i a b l e and  the  of  diverse  infor-  mation. The  r e j e c t i o n o f the t o t a l  systems model because o f the c o s t or  time r e q u i r e d t o b r i n g i t to f r u i t i o n can E i t h e r the modeling concept may sion processes w i l l  l e a d t o two  courses of a c t i o n .  be r e j e c t e d e n t i r e l y , whereupon the  continue to place  r e l i a n c e on the c u r r e n t  deci-  decision  a i d i n g methods, o r , a l t e r n a t i v e l y , s i m p l i f y i n g assumptions as r e g a r d s system may  be made.  The  the  former move i s a v e r y r e t r o g r e s s i v e a c t where  decisions of great  consequence are c o n c e r n e d , and  upon f u r t h e r .  l a t t e r c o u r s e o f a c t i o n has  The  the  w i l l not be  commented  s e v e r a l advantages  and  disadvantages. The  advantages of s i m p l i f y i n g the  produced sooner, w i t h l e s s e f f o r t and  system are t h a t the model i s  at l e s s cost.  Counter t o t h i s i s  the  l o s s o f r e a l i s m , the p o s s i b l e i n t r o d u c t i o n o f i n v a l i d  and  a reduction  assumptions  i n the m a r g i n a l improvement o v e r the p r e s e n t  techniques.  148.  The a r t o f systems modeling, and here I c o n t i n u e t o r e f e r t o the s o c i a l s c i e n c e s and management s c i e n c e s , has perhaps i s p a s s i n g through a phase o f s e l f - q u e s t i o n i n g and to  decision  t a k i n g s i m u l a t i o n may  reached a n a d i r and  stocktaking.  not have been the g l o r i o u s  a n t i c i p a t e d by the e a r l y exponents b u t , t h e stage i s now t i o n can b e g i n t o make v a l i d c o n t r i b u t i o n s . statement is  As an a i d  success  s e t where s i m u l a -  T h i s i s not e n t i r e l y  a  o f f a i t h but a b e l i e f t h a t a f a v o u r a b l e c l i m a t e f o r s i m u l a t i o n  e v o l v i n g , brought  about by the i n c r e a s i n g inadequacy  and methods and the improved  capability  of other  f o r complex models through  a c c u m u l a t i o n o f e x p e r t i s e , e x p e r i e n c e and t e c h n i c a l f a c i l i t i e s , acceptance  by p o l i t i c i a n s and  approaches  and  the g e n e r a l p u b l i c o f computers and  the an  computer  technology. Whatever the f u t u r e use o f s i m u l a t i o n models i n p l a n n i n g and t a k i n g , t h e b a s i c uses o f models f o r the t e s t i n g o f new t r o l l e d c o n d i t i o n s and the c o n d u c t i n g o f experiments,  i d e a s under  which may  be  decision conimprac-  t i c a l o r s o c i a l l y u n d e s i r a b l e w i t h a r e a l system, w i l l never be d i m i n i s h e d .  I hope t h a t the i d e a s p r e s e n t e d i n t h i s t h e s i s w i l l be o f some use, but as w i t h any f u t u r i s t i c work, o n l y time w i l l t e l l  i d e a s t h a t a w a i t someone e l s e t o c o n t i n u e the i f t h a t someone i s f o r t h c o m i n g o r i f the i d e a s  a r e t o be committed t o a d u s t y s h e l f as a monument t o mark but a p o i n t o f r e s p i t e on a s t u d e n t ' s u n c e r t a i n c o u r s e .  149.  REFERENCES  Adams, T.C.  Allison,  1967. 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