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ROI Glossary
B/C – Benefit-cost ratio
Benefit-cost analysis: “an analytical technique that estimates the net benefits of a management option using social (non-market) costs and benefits as well as financial (market) costs and benefits.” (British Columbia, 1992:41) Where possible, benefits and costs are measured in monetary terms and a benefit-cost ratio determined for each option. Intangible impacts which cannot be translated into monetary terms are also recorded for each option. (Field & Olewiler, 1995: 113-114)
IRR (Internal Rate of Return)
Essentially IRR and ROI mean the same thing.
Internal rate of return (IRR) analysis determines “the rate [of interest] earned on all project costs by the anticipated revenues.” It is the rate of interest that makes “…the sum of all discounted project costs exactly equal to the sum of all discounted project revenues, which means it is the discount rate that makes the net present value of a project equal to zero.” (Gregory, 1987:250).
IRR worksheet:
Developed for the Forests for Tomorrow program, the IRR worksheet is also called the Stand Rehabilitation Financial Analysis. It is an Excel spread sheet with macros to calculate IRR and other financial indices from TIPSY generated outputs and is a tool for documenting decisions regarding treatment following disasters.
MAI:
Mean annual increment of growth of the diameter of the tree. After maturity, the rate of growth decreases. cMAI is the cumulative mean annual increment.
NPV (Net Present Value)
Net Present Value (NPV) analysis is an analytical technique that determines whether future income from a project is greater than the costs incurred to generate the income (including the cost of capital) by discounting both income and costs to a single net present value. NPV analysis is one of the most commonly used forms of financial analysis in silviculture investment decision making.
OAF (Operational Adjustment Factors)
OAFs are applied to TIPSY yield predictions in order to compensate for the loss of timber productivity due to such factors as openings in stands, and pests and diseases. The yield tables generated by TASS for use in TIPSY reflect the growth relationships observed in research plots established by the Ministry of Forests and industry. Research plots were generally located in fully stocked, even-aged stands of uniform size, and in forests with little or no pest activity. The influence of stand density on yield is reflected in the yield tables, but full stocking is assumed. As a result, TIPSY yields reflect the potential yield of a specific site, species and management regime given full stocking.
OAFs are applied to potential yields, with inherent assumptions, to make them reflect an operational environment.
In timber supply planning, operational adjustment factors are used to net down potential yields; otherwise yields would be overstated.
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OAF1 is applied to the output regardless of age so it remains constant over time.
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OAF2 is a cumulative reduction that increases with age so an OAF2 of 0.95 means the reduction will be applied as 0.0005 per year targeting 0.95 at 100 years and will keep increasing at that rate beyond 100 years.
For more information see http://www.for.gov.bc.ca/hre/gymodels/tipsy/OAFSV8.HTM and http://www.for.gov.bc.ca/hre/gymodels/tipsy/OAFSV8.HTM
Regeneration delay
The time between the disturbance and the re-establishment of the stand
ROI (Return on Investment)
For the purposes of this course IRR and ROI mean essentially the same thing.
ROI Field Card
a set of charts which can be used as a coarse screening aid for determining whether stocking enhancements will generate at least 2% rate of return in young even-aged stands. It is primarily designed for use on fire origin stands, where the disturbance occurred within the last 5 years. It will help to identify the obvious cases where investment is not warranted.
Site index
The height of the tree at age 50. For a particular target species, site index is the height of the largest diameter (at breast height) site tree on a 0.01 ha plot at breast height age 50, provided the tree is suitable. A suitable site tree is a vigorous dominant or co-dominant tree that has a full crown and a straight, disease-free, undamaged stem. It is free of suppression above breast height, is not repressed, and is not a wolf, open-grown, or veteran tree.
See more information in SIBEC – Site Index Biogeoclimatic Ecosystem Classification at http://www.for.gov.bc.ca/hre/sibec/
TIPSY (Table Interpolation Program for Stand Yields)
TIPSY is a growth and yield program that provides electronic access to the managed stand yield tables generated by TASS and SYLVER. TIPSY retrieves and interpolates yield tables from its database, customizes the information and displays summaries and graphics for a specific site, species and management regime. Yield tables are available for various even-aged coniferous species of commercial importance growing on the coast and in the interior of British Columbia
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