Dawson Forest Case Study

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Executive Summary

Dawson Forest Products Inc., is a well-known Canadian company that manages public lands. Dawson manages public lands all around BC, and has several mills located at several points in BC. The case study is all about central BC mill, which has huge differences in its budgeted and actual costs related to its Biomass Conversion Project, due to the incapability of the company to efficiently allocate the costs. However, these differences do not determine the feasibility of the Conversion Project. In order to take decision about whether to cancel or continue the project, the company requires deep analysis of various alternatives. With the increasing environmental regulations and carbon tax rates, the conversion project can be beneficial for the company in the long run.

Although the company has huge differences in its budgeted and actual costs, but these differences are due to the incapability of the company to efficiently allocate the costs. These differences do not determine the feasibility of the Conversion Project. With the increasing environmental regulations and carbon tax rates, the conversion project can be beneficial for the company in the long run.

Issues Identification

Main issues with the overall improvement project is the high actual costs than budgeted, with several projects still remaining to be completed. Along with it, uncertainty of market in terms of demand supply and prices poses great challenges to the company. The budgeted cost for overall project was S35 million, and the actual cost is over budgeted by $6.5 million even with several projects still remaining unfinished. The huge difference in the actual and budgeted cost shows the company’s inefficiency to allocate budgets and the flexibility in the industry.

In particular, one of the ongoing improvement project, the Biomass Conversion Project, has an over budget of $1.2 million and is 3 months delay. The major issues regarding the project in particular for is the completion of the whole project on time with minimum actual and budgeted cost difference. However, the current scenario seems much tricky and poses high risks about completion of the project.  

Other issues for the company is related to the increasing high regulations regarding GHG emissions. The carbon tax rate is expected to increase during the period of 2018 to 2050, which would result in declining revenues. Management of waste products by the process is also one of the major issue requiring huge transportation costs, to be shifted to landfills or pellet manufacturers.

Operating Environment

Operating environment of the company includes various external forces including Political and Legal, Economic, Social and Demographic, Technological and Environmental. The operating environment of the company also includes the overall competition in the industry and the competitors.

PESTEL Analysis

Political and Legal

Political and Legal forces affecting BC mill includes the regulations regarding GHG emissions and the Carbon tax rates. Major example of this is Greenhouse Gas Reduction Targets Act by the government in which BC has given targets of reducing GHG emissions; 33% by 2020 and 80% by 2050. The carbon tax rates are also going to increase by $10 per year from 2018 to 2050 to control Carbon emissions. In order to avoid the negative political and legal forces the company would have to reduce its GHG emissions as soon as possible. (Sammut-Bonnici, 2015)

Economic

Economic forces affecting the BC mill includes the trends of housing market. The products sold by the company are mainly used for housing decorations and appliances. These products cannot be considered as necessary products, therefore a small fluctuation in the purchasing power of a consumer can bring a huge fluctuation in demand and supply.

Social

Social Forces includes willingness of the people to buy housing products along with the income level. People in the country are quite capable of purchasing products with high levels of income, and there is also a trend of house decorations by various wood appliances in the society.  

Technological

Technological Forces for the industry includes the use of latest technologies to increase the production per hour, and to decrease the GHG emissions. Thermal System is one of the technology, which could enable the company to achieve the GHG reduction targets on time and increase the efficiency of the whole production process by reducing drying time required i.e. 1-6 days.

Environmental

Environmental forces increase the seasonal temperature and humidity of the region, which regulates the moisture of the wood and the time required to dry the wood. Highly moisturized wood would require high energy and time to get dry, increasing the cost of the company. Along with it, the environmental concerns regarding GHG emission also act as negative environmental forces for the company.

Root Cause Analysis

Root Causes of the above issues faced by the company includes the incapability of the company to allocate proper budgets, housing market fluctuations, outdated technology, increased GHG regulations and carbon tax rates. The Company’s incapability in planning budgets has lead the company to face huge differences between allocated and actual budgets. The differences increase the risks regarding the future of the improvement project.

Housing market fluctuation is also one of the major causes of the issues faced by the company, as it leads to fluctuating sales volume and attaches several risks with the extension projects. Another major cause of the issues faced by the company is the increased GHG regulations, including the targets to reduce the emissions about 33% by 2020 and 80% by 2050, set under Greenhouse Gas Reduction Targets Act. Increased regulations force the company to improve its technology to a particular level to accomplish the targets, which requires huge capital investment. Biomass conversion project is also one of the project related to GHG emissions.

Along with it, carbon tax rates are also expected to increase in the near future. As increased carbon tax rates would further decline the revenues of the company, therefore the company is forced to implement carbon reduction measures to avoid the carbon taxes. (Freeman, 2017)

Alternatives

In order to face the current issues the company could choose from various alternatives. The alternatives include:

•        Continue Biomass Conversion Project.  

•        Cancel the Biomass Conversion Project and continue Current Practices.