Long-term planning is vital to the forest industry. It is also incredibly complicated, as we must create plans for multiple points along our supply chain.
The “upstream” part of the supply chain is the purview of forestry professionals. At its most basic conceptual level, log supply is determined by the rate at which trees grow. When we know the species, age, and site index of a forest today, we can make a fairly good guess at what the forest will look like 10, 20 or even 100 years in the future.
The demand side is the purview of marketers and economists. Although it is impossible to predict the future precisely, by examining the factors driving demand for different forest products, we can make an educated guess about where markets will go next. For example, if we know from experience that interest rates cause housing starts, and hence lumber demand, to decline, we can use this information for planning.
But what about completely unexpected events?
Unfortunately, forecasting is never as simple as the processes I outlined above.
In the forest, although we know how fast trees will grow, we can’t predict natural disasters such as insect outbreaks or fires. Climate change may make such events even more unpredictable. Moreover, in regions with public forest ownership (such as BC), governments can re-distribute forest lands or remove them from economic production entirely.
As for product demand, although the effects of many (perhaps most) forestry demand drivers are well known to us, some events, such as the Covid-19 pandemic and the war in Ukraine, are complete question marks in terms of what will come next.
So where does that leave us? In order to plan, we still need at least some idea of what the future has in store for us.
If we don’t know what will happen, we can still imagine what could happen
This is where the technique of scenario planning becomes useful. Part art, part science, scenario planning seeks not to determine what is most likely to happen (that is the purview of forecasting) but rather to envision what could potentially happen, in order to plan for different eventualities.
The company best known for scenario planning, Shell plc (formerly Royal Dutch Shell), has been creating scenarios since the 1970s. On their corporate website, they explain that because humans think about the future with the same part of our brains that processes memory, we tend to imagine the future as being similar to what we know from the past. Creating “what if?” scenarios encourages leaders to “stretch their thinking” and consider alternatives that are outside of their own experience and comfort zones.
With a few exceptions (such as UPM Kymmene), scenario planning is relatively uncommon in our industry. While few forestry firms have the resources available to global oil giants like Shell, we can nonetheless apply this technique to forestry.
An academic paper by Swedish researcher Ragnar Jonsson (2011) got me started. In this paper, Dr. Jonsson considered how possible future trends in global wood product markets could impact the Swedish forestry sector. Given the uncertainty over whether a) globalization trends would continue and b) concern over climate change would result in changes to consumer preferences and government policies, he envisioned four scenarios for the year 2050, each with varying levels of forest-based bioenergy development. All four scenarios offered opportunities for the Swedish forestry sector to thrive; however, the types of investment would differ between scenarios.
While several methods exist for scenario development, Jonsson’s paper used the seven-step method described in detail in Peter Schwartz’s book The Art of the Long View: Planning for the Future in an Uncertain World (1996). The seven steps are as follows:
Determine the issue you wish to investigate
Identify the key drivers of the issue
Identify which of the key drivers are most uncertain (these become the “key uncertainties”)
Use the key uncertainties as a base for the scenarios
Flesh out the scenarios
Assess implications
Propose actions and policy directions
I’ll use a home-grown example to illustrate how this method works. When Covid-19 expanded to pandemic levels by March 2020, the forest industry had very little idea how it would affect markets for softwood products. I decided use scenario planning to explore the topic (step 1).
Of all of the many drivers of forest products markets (step 2), which had Covid-19 rendered the most uncertain (step 3)? After brainstorming, I settled on two: the resiliency of the world economy, and the degree to which international shipping and logistics would be impacted. This led me to create four scenarios (step 4), ranging from a glum “worst case” of a deep global recession to a more cheerful “best case” of adequate government intervention and a resilient supply chain.
In hindsight, the “pent-up demand & tricky logistics” scenario was remarkably prescient, except that the burst of demand didn’t come from millennials looking to move out but rather from the general population seeking to renovate their homes. Had I taken the time to carefully think through what would happen when logistical hiccoughs were met with increased demand (step 6), I might also have predicted the unprecedented price spike that occurred later that year.
Can scenario planning and forecasting work together?
My original “pitch” to write an article about scenario planning was turned down by the industry publication I pitched it too. Their concern was understandable: the scenarios contradicted their published forecasts.
The contradictory nature of alternative future scenarios can indeed be confusing. However, such internal inconsistency is also one of their most useful qualities. While conventional forecasts determine what will most likely happen, scenario planning helps identify where the conventional forecasts might go wrong. Thus, scenarios are useful for creating “Plan B” strategies, enabling companies to “expect the unexpected” and nimbly respond when it happens.
So, over to you, dear readers. What topics would you like to see explored with scenario planning?
Interesting article! You may find some of these scenario studies useful.
Robinson, A.J., Defrenne, C.E., Roach, W.J., Dymond, C.C., Pickles, B.J. and Simard, S.W., 2022. Harvesting intensity and aridity are more important than climate change in affecting future carbon stocks of Douglas-fir forests. Frontiers in Forests and Global Change Aug. 11 2022.
Dymond, C.C., K. Giles-Hansen, & P. Asante 2020. The forest mitigation-adaptation nexus: economic benefits of novel planting regimes. Forest Policy and Economics, 113, 102124.
Hof, Anouschka R., C.C. Dymond, & D. J. Mladenoff 2017. Climate change mitigation through adaptation: the effectiveness of forest diversification by novel tree planting regimes. Ecosphere 8.11
Dymond, C.C., S. Beukema, C.R. Nitschke, K.D. Coates, & R.M. Scheller 2016. Carbon sequestration in managed temperate coniferous forests under climate change. Biogeosciences 13, 1933-1947.
Dymond, C.C., S. Tedder, D. Spittlehouse, K. Hopkins, K. McCallion, & J. Sandland 2015. Applying resilience concepts in forest management: a retrospective simulation approach. Forests 6 (12), 4421-4438.
Dymond, C.C., S. Tedder, D. Spittlehouse, B. Raymer, K. Hopkins, K. McCallion, & J. Sandland 2014. Diversifying managed forests to increase resilience. Can. J. Forest Res. 44(10), 1196-1205.