A Computer Simulation of Risk Analysis in Forest Management Planning

Abstract

Risk analysis was developed by David B. Hertz (1964) to provide more realistic information on capital investment returns involving risk. A computer model was developed to calculate the composite internal rate of return for four forest investment alternatives: Jack pine grown to a 50 year rotation, jack pine grown to a 70 year rotation, aspen grown to a 40 year rotation, and aspen grown to a 60 year rotation. Analysis of these alternatives use data from investments of the Superior National Forest, Minnesota. Results indicate the alternative of jack pine grown to 50 years has the highest average composite internal rate of return, 9.5 percent. Aspen with a 60 year rotation has the highest possible internal rate of return, 13.4 percent. Jack pine grown to a 70 year rotation has the least variation in outcome of ±0.6 percent. The best investment alternative is not chosen, but criterion for basing a choice is discussed.