Chapter 5: DEALING WITH VALUE UNCERTAINTIES47

To deal with the future is to deal with uncertainties. The world is characterized by uncertainties; everything undergoes change, often in unexpected and unforeseeable ways. In recent decades, the world has experienced an unprecedented technological revolution. As a consequence, societies are changing in a relatively short period of time.

In forestry there is nothing certain except uncertainty. This can be attributed to forestry’s inherent peculiarities, e.g. long rotation during which forest ecosystems as well as people’s tastes, preferences and perceptions undergo continuous change. There are also other uncertainties related to natural and technological factors.

Although some people claim that it is not possible to predict the future, nor even the probabilities of different futures, this does not mean that nothing can be done. The analyst should be aware of potential uncertainties underlying the data and information used and presented in the analysis, and develop strategies to increase understanding of these uncertainties and how to cope with them. Explicitly recognizing and dealing with uncertainties can reduce the chance of making serious mistakes. Thus, flexibility in adapting to new situations is fundamental. The results of a valuation are site- and context-specific and the context is likely to change over time.

Treating uncertainties is a difficult but necessary task which cannot be ignored. What follows in this chapter is a brief discussion of uncertainties followed by a pragmatic, simple approach of suggested strategies to deal with value uncertainties.

Analysts must always cope with a number of uncertainties in the valuation process. For the purpose of this work they have been grouped into natural factors, technical and socio-economic uncertainties.

Uncertainties originating from natural factors. Biological and other factors associated with climatic processes and their irregularity (e.g. pests, diseases, windstorms, flooding, rainfall frequency, timing, quantity, droughts) are key factors in forestry development. This is particularly crucial in arid regions, where survival and growth of plants is often near the critical level. The climatic irregularities make forecasts of future climatic events uncertain.

It has been widely claimed that forest change has an impact on climate change. For example, it has been suggested that deforestation followed by fire has been responsible for climate change because of release of CO₂ into the atmosphere. However, from current knowledge it is not clear to what extent this additional CO₂ is absorbed, for example, by the vegetation or agricultural crop that replaces the burned land. And the resulting linkages between CO₂ concentration in the atmosphere and specific changes in climate are imperfectly understood. Thus, there remain some uncertainties about the net contribution of deforestation to climate change.

Technological uncertainties. Changes in technology are difficult to forecast. Information about alternative technologies that might be used in forestry development, including management activities, is often difficult to obtain or even unavailable for the particular situation of a valuation study. Technological advances can contribute to establishment of plantations and more intensive production. The production process in a forest may differ considerably from that in a plantation. This can alter the valuation assumptions and introduce the complicating factor of deciding which part of the value derives from the natural forest and which from plantations.

In many instances, analysts have to rely on their expertise and experience to infer what the outputs are likely to be, and a great deal of uncertainty surrounds such estimates.

Socio-economic uncertainties. If technology constitutes an uncertainty factor, uncertainties about socio-economic factors are even greater. Human systems evolve over time; during this century, the development of many countries has been exceptionally rapid. Hence, people’s tastes and preferences are dynamic, and there are innumerable variables that account for their changes over time. For example, political unrest creates economic and social instabilities. These, in turn, will likely influence the future direction of natural resource policy and other policies (such as those on land tenure) which may affect the type of forest use as well as the users, particularly local people. The scale of this disturbance can vary from low to high levels.

The world is undergoing great transformations with direct impacts on socio-economic conditions, especially in developing countries where populations are increasing, urbanization is expanding and economies are evolving. The world economy is becoming globalized; the terms of trade of commodities have a great influence on national markets and, consequently, on the use of forest resources. The demand and supply of many forest products, specially NWFPs, are highly uncertain, although the exploitation of NWFPs has been widely publicized as a way to conserve tropical forests and/or as a source of income.

Because of the intrinsic characteristics of forestry, an analyst carrying out a forestry valuation probably deals with a greater number of uncertainties in gathering information than an analyst in another field. There is no easy and systematic approach for picking the key factors in uncertainty for a given valuation related to a given project type. The analyst has to rely on personal experience and individual judgement and the past records from other projects. However, analysts should be aware that there are strategies for coping with uncertainty that can be incorporated into their forestry valuation process.

Sophisticated probability models are available. However, the approach suggested here is simpler and is based on past experience and available information. Although in both approaches experience and expertise are required, in the former these requirements are greater and can be more time consuming and costly and their results may not be sufficiently better to justify the additional complexity. The suggested approach tries to be workable, practical, cheap to apply and defensible in terms of decision-making. The process recommended is adapted from Lundgren (1983) who has suggested several strategies to cope with uncertainty in forestry planning. These strategies can be grouped under two major headings.

5.3.1 Increase understanding

One approach to dealing with an unknown and uncertain future is to increase our understanding of the world. Strategies for doing this include:

For each likely source, make an estimate of a reasonable range of values for the parameters involved. Past experience and direct evidence can contribute. This should help to increase the understanding of the context.

This may not always be a valid option, because time may be pressing. But careful use of this strategy (namely, avoiding making decisions before they need to be made, thereby obtaining more relevant information) can reduce the uncertainty surrounding a decision.

Systematically explore how changes in assumptions made affect the results. This can help analysts learn a great deal about their model of the world. Critical points can be identified and they can be sensitive to assumptions made and estimates about the world. This technique can even be used for qualitative models of the world, for example, exploring changes in economic policies. It is one of the most useful techniques for analysts⁴⁸.

The future cannot be experienced; it can only be imagined. One powerful planning tool is to imagine alternative futures and estimate the consequences of possible future changes. In planning a valuation, analysts can then consider how they can cope with such alternatives. By confronting these imagined worlds in their planning they may reduce future surprises.

5.3.2 Increase flexibility

Another way of coping with uncertainty is to increase management and organizational flexibility, so that it is easier to take advantage of unforeseen opportunities that arise, or respond quickly to unexpected situations. Strategies related to increased flexibility include:

One strategy for dealing with an uncertain future is to plan for small incremental changes, allowing for constant monitoring and evaluation as the analyst goes along. One does not get locked into planning for a long time period, but rather plans for a step at a time, and for continual revision of plans as new information becomes available.

Things rarely go according to plan. One way to deal with this in planning is to identify where there is a likelihood that things might go wrong, estimate what the consequences might be, and then calculate what might be done if such a thing happened. For example, automobiles may carry a spare tyre, just in case one of the tyres gets a puncture. Thus, contingency planning is common in one’s everyday life. It should be more common in a formal planning.

When faced with uncertainties about the future, one strategy that can be followed is to diversify. For example, future demand may change, so, instead of valuing a particular NWFP to meet a particular demand, try to value another NWFP that can be complementary or substitute. There is another reason for diversifying. Analysts tend to focus on the average condition or typical cases, forgetting about the diversity that underlies any such average. For example, in valuing a forest for local people analysts tend to focus on certain NWFPs, e.g. fuelwood, but overlook the diversity of other needs that villagers may seek to satisfy from this forest.

One strategy for coping with change is planned obsolescence. Rapid and great technological evolution has led to innovation. Societies, also, have experienced fast changes which can influence the use and perception of the forest. Thus, for example, an NWFP (or even a timber species) that is consumed today may no longer be consumed tomorrow. The converse may also occur. Evidence also suggests that many NWFPs are considered inferior goods and, as such, they are no longer consumed or demanded when people become more affluent.

There are no easy answers to dealing with value uncertainty. Ecosystems and societies are not static, but both are continually changing. This change may be slow and gradual, but it may also be dramatic and swift. For example, a long drought period can set the stage for a series of fires that drastically alter a major part of the forest ecosystem. So an ecosystem that took many years to evolve is changed in a short period. Most natural ecosystems are far too complex for an analyst to completely understand and model within a planning framework. An analyst can make use only of whatever data are available in such a way as to reduce the degree of uncertainty.

The above strategies suggest some of the ways to deal with value uncertainty. The potential importance of any of the above strategies will vary from case to case and time to time. The basic point here is that no easy and systematic approaches exist for picking the key factors in uncertainty. The analyst has to rely on personal experience and judgement and past records from other projects. It becomes an exercise in individual judgement.

The major interest of the exercise of valuation is to contribute to more effective decision-making. However, evidence suggests that there has been a greater fascination in finding monetary values than in finding how to integrate these values into forest decision-making processes. A new research agenda should give more consideration to providing an outcome that is in the interest of the decision-maker, and consequently would help to produce a sound forestry development policy, including sustainable forestry management. Ultimately, however, an analyst cannot escape making assumptions and guesses about the future. Points to consider are summarized in box 13.

Box 13. - Uncertainties in the valuation process

REMEMBER:

- Changes are an inevitable part of human society;

- Such changes create many uncertainties regarding the future;

- All valuations incorporate many uncertainties;

- These uncertainties should be recognized and dealt with in the valuation process.

Source: Adapted from FFSD (1989): p. 156.