Tree Farmer - November/December 2007 - (Page 27)

Better Tree Farming: By Swearingen with KURT Try a Decision Tree expect by using my time and money elsewhere, say the stock market or working for my clients. In other words, I am comparing the internal rate of return (IRR) with the alternative rate of return (ARR). Guess what? In many cases the ARR will be greater than the IRR for many Tree Farm improvements, such as precommercial thinning, pruning, or even planting, especially on lower-quality lands, at least in a strict financial sense. But, hey, we Tree Farmers do such “improvements” because of so many other reasons: exercise, fire protection, building a legacy, firewood for the winter, or just plain therapy. Try and find a stock that will do that for you! Despite the limitations of using opportunity cost in accurately measuring all of a project’s “values,” it should still be used when comparing alternative treatment scenarios for a particular project. A simple example might help: Lewis BRIAN Photos from left: Great Smoky Mountains National Park Resource Management Archive, USDA National Park Service, ; Brian Lockhart, USDA Forest Service, . Decision, decisions, decisions. We make them almost every minute of the day, some with more consequence than others. And there is no greater consequence to a Tree Farmer than the where, when, and how to a conduct Tree Farm project. From planting trees to precommerical thinning, managing a project will involve numerous steps requiring the inputs of labor, equipment, money, and, of course, know-how. Choosing the wrong scenario for your project can — and often — result in lost revenues, diminished resource values, and mistakes that you will have to live with for decades. Fortunately, there are numerous decision-making tools that work quite nicely in managing a project from start to successful finish. productive red pine in a 10-acre plantation. He can thin to a residual stocking of 150 trees per acre at a total cost of $3,500 (Option 1) or he can thin to 250 trees per acre at a total cost of $2,000 (Option 2). Which should he do? If, for example, the increased tree growth and subsequent shortening of the rotation age resulted in a rate of return of 8.5 percent under Option 1 vs. 6.5 percent of Option 2, then it would seem Option 1 is better, but what about the $1,500 in savings of Option 2? Could he find an alternative investment that would yield more than 2 percent? If so, Option 2 would be better, all things being equal. Of course, rarely is a project this simple. For more complex projects, we need to use more powerful decisionmaking tools that let us see all of the anticipated costs and inputs necessary to complete a specific project, and the risks associated with each action. Then we can make prudent decisions on managing the Tree Farm into the future. Opportunity Cost I use this decision-making tool just about every day, if not every hour! Before I even begin a Tree Farm project, I like to compare the return on my investment (i.e., my time and money) for doing the project with the return I’d Tree Farmer Ed Manatee is planning a precommercial thin of some young, but Tree Farmer NOVEMBER/DECEMBER 2007 27 http://www.bugwood.org http://www.bugwood.org

Table of Contents for the Digital Edition of Tree Farmer - November/December 2007

Tree Farmer - November/December 2007
Contents
Buyer’s Guide and Resource Directory
Associations & Organizations
Certified Group Auditors
Consulting Foresters & Managers
Co-op Resources
Equipment Financing
Fertilizers, Herbicides & Repellents
Forest Appraisal, Analysis & Management
Forest Measuring Instruments & Software
Insurance
Publications
References & Resources
Seeds & Seedlings
Supplies, Gifts & Apparel
Timber Buyers & Loggers
Timber Pricing Services
Tools & Equipment
Tree Paint & Markers
Tree Protectors & Shelters
Wood Manufacturers
Resource Directory
Agencies
American Tree Farm System State Contacts
Associations & Organizations
Cooperative State Research, Education & Extension Services
Grant, Loan & Cost-Share Programs
Publications
State Foresters
Management Tool: Try a Decision Tree
Planting 101: Establish Your Seedlings
Sharing Your Experiences
Gadgets & Gear™
Taxing Issues

Tree Farmer - November/December 2007