Managing Reliability and Stability Risks in Forest Harvesting

The timing of forest stands harvesting is an important operational decision in forestry. Major goals of private nonindustrial forest owners are to achieve a steady flow of profits while reaching an overall satisfactory and reliable profit level. These goals are pursued under uncertainties in the growth of trees in different regions and in the prices of wood products. We propose an optimization framework that uses financial risk concepts to capture the above goals and uncertainties, and apply it to a real forestry problem in Finland. Our results demonstrate that the obtained harvesting schedules outperform those obtained without the explicit consideration of the stability and reliability requirements in harvest profits. More generally, our results indicate that the forest owner can improve the profit stability by (i) harvesting a greater number of forest stands early and (ii) harvesting in the first periods of the planning horizon stands that are predominantly composed of slow-growing forests. This research responds to the call for scenario-based approaches that represent well, and in a solvable way, multiple uncertainties in large forestry problems. This study fills in a gap in stochastic programming and can be a cornerstone for subsequent improvements in the solution of combinatorial chance-constrained problems with multirow random technology matrix. The online appendix is available at https://doi.org/10.1287/msom.2017.0626 .