Listen to your CustomersMike Mosman

by Mike Mosman


Vice President, Resources
Port Blakely Tree Farms, L.P.

The added value that a high-quality resource inventory brings to forest management organizations is easily overlooked. Inventory designers and managers legitimately work hard at reducing data costs, but run the risk of costing their enterprise far more than they save if their efforts reduce the data’s quality too far. Inventory managers need to listen to all of their inventory customers to understand the enterprise-wide implications of the resource data they produce. This article briefly describes the characteristics of a quality resource inventory and introduces some of the enterprise inventory customers dependent on high quality information.

Responsible stewardship and smart resource management cannot occur without quality information. The efficiency, effectiveness, and credibility of any forest management organization are directly related to the quality of its resource inventory. Strategic planners and tactical planners, silviculturists and other business investment decision makers, financial managers, tax accountants, public policy advocates, and owners are all inventory customers that cannot effectively operate with bad, inconsistent or non-existent information. These are customers that must assume that the resource information they work with is based on solid, quality data. Their success depends on it.

What makes up a quality inventory?

An inventory can be many things, depending on the resource and management objectives. For this brief discussion I list five characteristics that I believe distinguishes good quality inventories from poor ones, regardless of the resource:

1. Design and sample intensity appropriate to the resource and management objectives.
2. Consistent collection and compilation of reproducible data.
3. Accurate spatial data.
4. Regular data maintenance to keep inventory relevant.
5. Validation and quality control practiced and documented throughout.

1. Design & sample intensity appropriate to the resource and management objectives. To be good natural resource steward today you need adequate data to support your organizations’ planning and decision-making processes at all levels. To be a good inventory manager you need to produce that data in a timely, cost-effective, and credible manner. To be a great inventory manager, your design needs to be robust enough that its accuracy and content will remain relevant to your organization during its planned shelf life. The customers will ultimately determine relevancy.

2. Consistent field data collection and compilation of reproducible data. A quality inventory consistently measures the attributes within the design across the entire inventory block. The sampling precision should be consistent with the inventory design. The precision does not have to be consistent across the landscape, just consistent with the design. No black holes with partial data, arbitrary estimates or broad classifications. Consistent data compilation for all data applications is essential for data credibility among inventory customers.

3. Accurate spatial data. Area estimates are always the number one source of error in cruising and therefore the number one source of error in inventory data. The quality of an inventory’s data is as dependent on accurate spatial measurements as it is on accurate field measurements.

Financial customers in particular depend heavily on an accurate determination of net operable areas. Both the importance and difficulty of this calculation has grown as new spatially specific regulatory constraints are implemented that assume a higher level of precision than traditional resource grade mapping data was originally designed for.

Today, with the incorporation of accessible geographic information systems (GIS), many organizations are building or refining enterprise systems that blend strategic plans, tactical plans and actual operations. In these systems inventory databases are being accessed, worked and evaluated more often by a wider customer base than ever before. Data once thought sufficient for strategic planning is often found wanting for actual operations. Most database managers will tell you that as database customer usage and dependence increases, so does the demand for increased accuracy and precision. Success has a cost.

4. Regular data maintenance to keep inventory relevant. Silvicultural investments such as site preparation, planting stock size and genetics, thinning, fertilization and pruning all affect growth and habitat projections and need to be reflected in the inventory. Harvests, catastrophic losses and ownership changes need to be accounted for as they occur. A quality inventory can deliver current data to its customers in a timely manner.

A quality inventory also includes a regular re-sampling schedule. Forests are complex systems, which limits the effective shelf life of field data no matter how much we want to believe growth model projections.

5. Validation and quality control practiced and documented throughout. Data is nothing without credibility, and credibility comes with proof of quality. Proof of quality starts with an intelligent auditing program of process and measurements and ends with validation of cutout and independent measurements. Cruise cutout records compared to inventory are the most common means of validating an inventory. An up-to-date version of this analysis should be at the fingertip of every inventory forester. Bankers, appraisers, and even IRS agents all cite it as the single most important source of inventory credibility. Cutout and re-cruised stand data provide a regular supply of validation data that a quality inventory incorporates into a continuous improvement routine.

Listen to your customers

Discovering who your customers are and soliciting their opinions are important steps toward understanding the real value a quality resource inventory brings to your organization. Try to do this on a one-on-one basis with professional craftsmen1; real inventory customers. The process will require diplomacy and occasionally an interpreter, but can be quite illuminating. Listed below are the thoughts of some of the professional craftsmen and women that I have had the pleasure to work with; a SFI certification auditor, tax accountant, IRS Agent, two bankers and a corporate appraiser regarding resource inventory data. Listen to your customers.

Len Eddy, Price Waterhouse Coopers, Edmonton, Alberta: “Objective 11 of the AF&PA Sustainable Forestry Initiative (SFI) now requires that a certified organization has systems in place that enables management to review current practices and insure that they are heading towards their desired future outcome. This is part of a continuous improvement cycle. A good forest inventory system is key to satisfying this objective.”

Ed Bancroft, CPA, Partner, Bancroft Buckley Johnston & Serres, Seattle, Washington: An accurate assessment of the standing timber inventory is necessary in connection with federal income tax compliance. The allowance of depletion (a deduction for the cost of capital recovery) is based on the total cost of the timber block divided by the total standing volume of the block. The result is the average unit cost ($ per MBF). IRC Sec. 611 and related Internal Revenue Service rules and regulations require appropriate forest and accounting records be maintained. Plus, upon audit, systematic adjustment to the standing volume for growth, ingrowth, utilization and acquisitions are likely to be tested by IRS forest engineers in accordance with Internal Revenue Service audit manual “Audit Techniques Relating to Forest Industry Taxpayers” (IRM 4232.4)”.

From another accounting viewpoint accurate inventories seem extremely important in a partner relationship. Accurate forest inventories are necessary for combining separate interests into a joint venture, administering the joint venture agreement during the operating period, and finally separating the interests at exit.

Nathaniel Ray, IRS Agent & Forester, Seattle, Washington: “The more accurate an inventory, the better I like it. A sloppy inventory peaks my interest. If there are no records, or if they are inconsistent, I assume that the taxpayer is hiding the ball. I will then drill in or order my own inventory. At that point the taxpayer has lost control of the audit. These instances are commonly associated with estate taxes or depletion calculations.

The biggest issue at the moment is dealing with casualty losses from storms or fire. The biggest problem with these claims is always the original inventory. I don’t think an inventory should have a shelf life more than 3-5 years. I also think the practice of only cruising those stands eligible for harvest is risky.”

Bob Ingram, Senior Vice President, Bank of America, Seattle, Washington: “I consider a quality inventory extremely important. Most of the time forest industry loans are underwritten based on the timberland value. Sawmills are usually limited to liquidation value. If I am not comfortable with an inventory, I will either require a new third party inventory, or just will not participate.

An inventory is a good indicator of the management quality of a company. How can they manage properly and meet their obligations if they don’t know what they have?”

Kristy Searles, Vice President, Farm Credit Services, Salem, Oregon: “A good inventory system is critical to the loan analysis process. The quality of the inventory is often a reflection on the quality of the management team. The more highly leveraged the transaction the more fine tuned the inventory reporting needs to be. The $/mbf is one analysis tool that provides an indication of the risk in the transaction. It's imperative that the volume figure be verified and accurate. The quality of the inventory reporting can make the difference between getting a loan or not.

A third party cruise and appraisal is often required before a loan is approved. During the life of the loan we rely upon our staff foresters to meet with the customer's foresters, to make physical inspections and compare cutout data to the inventory. In addition, the CFO of the company is usually required to provide harvest reports and updates to the inventory on a quarterly basis. Accurate inventory reporting is critical to both the lender and the management team of the company.”

Greg Gilbert, MAI, Corporate Valuations, Portland, Oregon: “The better an inventory, the better a company is treated in my valuation. When I have had doubts about a company’s inventory and thus, their ability to perform, I have adjusted discount rates upward by as much as two full points.”

Finally, consider advocacy. When exposed to political heat public policy makers regularly demonstrate a willingness to act in a data free environment. You may or may not like the Forest and Fish agreement in Washington State, but the final agreement would have been much less credible and much more draconian for landowners if there had not been several organizations with quality resource data to support their positions.

Resource inventory is often viewed as a variable overhead liability that can be deferred or slashed whenever money is tight and budget cutting occurs. Since there are very few times when money isn’t tight, managers are regularly tempted to reduce inventory costs by reducing fieldwork frequency, limiting fieldwork to targeted stands, lowering the accuracy and precision of collected data, eliminating field audits or settling for poor fieldwork substitutes such as remote sensing. Such design changes should only be made after careful consideration; the short-term inventory cost savings may be greatly outweighed by significant expenses the organization incurs if all of the resource inventory customer needs are not considered.

Why not view the resource inventory as an asset? Consider what a favorable loan, a better business plan, a favorable and defendable depletion rate, a quicker catastrophic loss settlement, or a good valuation would be worth to your organization and its owners. What’s your credibility worth? The advantages of having quality data for planning and operational activities are obvious, but sometimes hard to pay for. The takeaway I would like to leave you with is that the cost of poor data is much higher.

It would be nice if this paper contained an original thought, but it doesn’t. In 1934 Bruce and Schumacher2 observed, “Mensuration is a means, not an end. It is an indispensable aid to solving problems in management, finance and silviculture. It must, therefore, be prerequisite to these subjects.” ....… They knew their customers.


1 Iles 1998. Some Practical Aspects of Designing a Large Inventory. IUFRO Conference Proceedings, USDA General Technical Report NC-212.

2 Bruce and Schumacher 1934. Forest Mensuration. The preface should be required reading for all inventory foresters.

Originally published April 2002

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