SYSTEM DYNAMICS and Systems Thinking

1
SYSTEM DYNAMICS and Systems Thinking

• developed by James R. Burns

2
Why????

• Because of the frenetic increases in
  complexitysociety is becoming increasing complex
  and we need tools to cope with it
• This is certainly true in the IS/IT arena as well

3
Coping tools

• Causal modeling
• Simulation
• Discrete stochastic (Promodel)
• Continuous deterministic (Vensim)

4
System Dynamics and Vensim

• A tutorial on Vensim is provided at the end of
  Chapter 6 in your copy packet, beginning on page
  35 of that chapter

5
Dynamic problems appropriate for Vensim (rather
than promodel)

• There is change over time
• The changing character of the situation IS THE
  PROBLEM
• The problem should be studied in aggregates
• The problem does not have a significant
  stochastic component or complexion to it

6
Start with descriptions of the following

• PURPOSE
• PERSPECTIVE
• PROBLEM
• MODE

7
What are we doing here????

• Attempting to characterize, cope with and
  understand complexity
• Especially DYNAMIC complexity
• Inventing a physics for a systems or processes
  for which there exists no physics
• You get to become a Newton, a Liebnitz, a
  Galileo, an Einstein, a .

8
Steps

• Be problem-driven
• Interview people familiar with the problem
• Gather verbal descriptions of the problem
• Formulate a list of variables
• Develop a causal loop diagram
• Develop a stock-and-flow diagram
• Create a working simulation in VENSIM

9
How many of you have used a model to solve a
problem or make a decision?

• Youve been through this drill before!
• All of you have.all of the time!

10
Problem
Problem
SD Model
Mental Model
Mental Model
Decision
Decision
Action
Action
11
Uses to which these models can be put

• What IF experimentshands on experimentation
• Decision making
• Planning
• Problem solving
• Creativity
• Out of the box thinking
• Hypothesis testing
• Finding leverage points, points of intervention
• LEARNING

12
Some notation--

• CLD Causal Loop Diagram
• SFD Stock-and-Flow Diagram
• BOT Behavior Over Time Chart

13
A CLD of the US energy system
14
A roadmap for the U.S. energy system
15
BOTBehavior Over Time chart

• For US energy market

16
US energy consumption, by source, 1850-2000.
(Units quadrillion BTU)
(Source Energy use in the United States.
Available from http//en.wikipedia.org/wiki/Energy
_use_in_the_United_States)
17
From CLD to SFD

• System dynamics model
• Causal loop diagram
• Stock-and-flow diagram

vs.
Mathematical representation for stock
18
Reinforcing loops vs. Balancing loops
19
Stock involving both reinforcing and balancing
loops
20
Stock-and-Flow Diagram
Mathematical representation for Population
INTEGRAL ( ) function in the VENSIM
model Population INTEGRAL (Births Deaths,
Population(t0))
21
The Methodology once problem is identified

• Find substance
• Delineate CLDs, BOT charts
• Submit these for outside scrutiny
• Delineate SFD
• Implement simulation in VENSIM
• Submit for outside scrutiny
• Utilize model for policy experimentation

22
Find substance

• Written material
• Books
• Articles
• Policy and procedure manuals
• Peoples heads
• Order of magnitude more here
• Must conduct interviews, build CLDs, show them
  to the interviewee to capture this

23
Delineate CLDs, BOTs

• CLD Causal Loop Diagram
• BOT Behavior-over-Time chart
• Collect info on the problem
• List variables on post-it notes
• Describe causality using a CLD
• Describe behavior using a BOT diagram

24
Submit these for outside scrutiny

• We simply must get someone qualified to assess
  the substance of the model

25
Delineate SFD

• SFD Stock and Flow Diagram
• Translate CLD into SFD

26
What are stocks and flows??

• A way to characterize systems as stocks and flows
  between stocks
• Stocks are variables that accumulate the affects
  of other variables
• Rates are variables that control the flows of
  material into and out of stocks
• Auxiliaries are variables that modify information
  as it is passed from stocks to rates

27
Stock and Flow Notation--Quantities

• STOCK
• RATE
• Auxiliary

28
Stock and Flow Notation--Quantities

• Input/Parameter/Lookup
• Have no edges directed toward them
• Output
• Have no edges directed away from them

29
Inputs and Outputs

• Inputs
• Parameters
• Lookups
• Inputs are controllable quantities
• Parameters are environmentally defined quantities
  over which the identified manager cannot exercise
  any control
• Lookups are TABLES used to modify information as
  it is passed along
• Outputs
• Have no edges directed away from them

30
Stock and Flow Notation--edges

• Information
• Flow

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Some rules

• There are two types of causal links in causal
  models
• Information
• Flow
• Information proceeds from stocks and
  parameters/inputs toward rates where it is used
  to control flows
• Flow edges proceed from rates to states (stocks)
  in the causal diagram always

32
Robust Loops

• In any loop involving a pair of quantities/edges,
  
• one quantity must be a rate
• the other a state or stock,
• one edge must be a flow edge
• the other an information edge

33
CONSISTENCY

• All of the edges directed toward a quantity are
  of the same type
• All of the edges directed away from a quantity
  are of the same type

34
Population problem

• Population has grown in the last 102 years from
  1.65 billion persons to 6.2 billion persons on
  planet earth today
• WHAT IS THE CARRYING CAPACITY OF THE PLANET??
• Depends on what material standard living you
  assume
• Birth rates, due to improved health, and death
  rates are lower due again to improved health
• Corresponding to each, there is a normal
  condition

35
List VARIABLES

• Population
• Birth rate
• Death rate
• Death rate normal
• Birth rate normal

36
Draw Causal Loop Diagram
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Converting to a STOCK AND FLOW Diagram

• What is a STOCK?
• What is a FLOW?
• What is a RATE?
• What is a parameter?

38
Convert CLD to SFD
39
Determine equations

• BRN .04
• DRN .028
• BR BRNP
• DR DRNP
• P(t dt) p(t) dt(BR DR)

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The Sector Approach to SD model formulation--

• Begin by identifying the sectors
• A sector is all the structure associated with a
  single flow
• There could be several states in a single sector

41
The sector Approach, Continued

• Determine the within-sector structure
• Reuse existing molecules where possible
• Determine the between-sector information
  infrastructure
• There are no flows and therefore no stocks or
  rates here

42
A Single-sector Exponential goal-seeking Model

• Sonya Magnova is a television retailer who wishes
  to maintain a desired inventory of DI television
  sets so that she doesnt have to sell her
  demonstrator and show models. Sonyas ordering
  policy is quite simple--adjust actual inventory I
  toward desired inventory DI so as to force these
  to conform as closely as possible. The initial
  inventory is Io. The time required for ordered
  inventory to be received is AT.

43
A Two-sector Housing/population Model

• A resort community in Colorado has determined
  that population growth in the area depends on the
  availability of hoousing as well as the
  persistent natural attractiveness of the area.
  Abundant housing attracts people at a greater
  rate than under normal conditions. The opposite
  is true when housing is tight. Area Residents
  also leave the community at a certain rate due
  primarily to the availability of housing.

44
Two-sector Population/housing Model, Continued

• The housing construction iindustry, on the other
  hand, fluctuates depending on the land
  availability and housing desires. Abundant
  housing cuts back the construction of houses
  while the opposite is true when the housing
  situation is tight. Also, as land for
  residential development fills up (in this
  mountain valley), the construction rate decreases
  to the level of the demolition rate of houses.

45
What are the main sectors and how do these
interact?

• Population
• Housing

46
What is the structure within each sector?

• Determine state/rate interactions first
• Determine necessary supportng infrastructure
• PARAMETERS
• AUXILIARIES

47
What does the structure within the population
sector look like?

• RATES in-migration, out-migration, net death
  rate
• STATES population
• PARAMETERS in-migration normal, out-migration
  normal, net death-rate normal

48
What does the structure within the housing sector
look like?

• RATES construction rate, demolition rate
• STATES housing
• AUXILIARIES Land availability multiplier, land
  fraction occupied
• PARAMETERS normal housing construction, average
  lifetime of housing
• PARAMETERS land occupied by each unit, total
  residential land

49
What is the structure between sectors?

• There are only AUXILIARIES, PARAMETERS, INPUTS
  and OUTPUTS

50
What are the between-sector auxiliaries?

• Housing desired
• Housing ratio
• Housing construction multiplier
• Attractiveness for in-migration multiplier
• PARAMETER Housing units required per person

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Can you construct the schematic model for this
Causal model?
52
We know what that is
53
How about this one?
54
We know what it is
55
Some rules

• There are two types of causal links in causal
  models
• Information
• Flow
• Information proceeds from stocks and parameters
  toward rates where it is used to control flows
• Flow edges proceed from rates to states (stocks)
  in the causal diagram always

56
Loops

• In any loop involving a pair of quantities/edges,
  
• one quantity must be a rate
• the other a state or stock,
• one edge must be a flow edge
• the other an information edge

57
CONSISTENCY

• All of the edges directed toward a quantity are
  of the same type
• All of the edges directed away from a quantity
  are of the same type

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Rates and their edges
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Parameters and their edges
60
Stocks and their edges
61
Auxiliaries and their edges
62
Outputs and their edges
63
STEP 1 Identify parameters/inputs

• Parameters have no edges directed toward them

64
STEP 2 Identify the edges directed from
parameters

• These are information edges always

65
STEP 3 By consistency identify as many other
edge types as you can
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STEP 4 Look for loops involving a pair of
quantities only

• Use the rules identified above

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System Dynamics Software

• STELLA and I think
• High Performance Systems, Inc.
• best fit for K-12 education
• Vensim
• Ventana systems, Inc.
• Free from downloading off their web site
  www.vensim.com
• Robust--including parametric data fitting and
  optimization
• best fit for higher education
• Powersim
• What Arthur Andersen is using

68
What is system dynamics

• A way to characterize systems as stocks and flows
  between stocks
• Stocks are variables that accumulate the affects
  of other variables
• Rates are variables the control the flows of
  material into andout of stocks
• Auxiliaries are variables the modify information
  as it is passed from stocks to rates

69
A DEMO
70
Natures Templates the Archetypes

• Structures of which we are unaware hold us
  prisoner
• The swimmer scenario
• Certain patterns of structure occur again and
  again called ARCHETYPES

71
We are creating a language

• reinforcing feedback and balancing feedback are
  like the nouns and verbs
• systems archetypes are the basic sentences
• Behavior patterns appear again in all
  disciplines--biology, psychology, family therapy,
  economics, political science, ecology and
  management
• Can result in the unification of knowledge across
  all fields

72
Recurring behavior patterns

• Do we know how to recognize them?
• Do we know how to describe them?
• Do we know how to prescribe cures for them?
• The ARCHETYPES describe these recurring behavior
  patterns

73
The ARCHETYPES

• provide leverage points, intervention junctures
  at which substantial change can be brought about
• put the systems perspective into practice
• About a dozen systems ARCHETYPES have been
  identified
• All ARCHETYPES are made up of the systems
  building blocks reinforcing processes,
  balancing processes, delays

74
Before attacking the ARCHETYPES we need to
understand simple structures

• the reinforcing feedback loop
• the balancing feedback loop
• THE DEMO
• Pages 520-525 in Austin/Burns--your handout

75
ARCHETYPE 1 LIMITS TO GROWTH

• A reinforcing process is set in motion to produce
  a desired result. It creates a spiral of success
  but also creates inadvertent secondary effects
  (manifested in a alancing process) that
  eventually slow down the success.

76
Management Principle relative to ARCHETYPE 1

• Dont push growth or success remove the factors
  limiting growth

77
ARCHETYPE 1 LIMITS TO GROWTH

• Useful in all situations where growth bumps up
  against limits
• Firms grow for a while, then plateau
• Individuals get better for a while, then their
  personal growth slows.
• Falling in love is kind of like this
• The love begins to plateau as the couple get to
  know each other better

78
Structure
79
Understanding the Structure

• High-tech orgs grow rapidly because of ability to
  introduce new products
• This growth plateaus as lead times become too long

80
How to achieve Leverage

• Most managers react to the slowing growth by
  puching harder on the reinforcing loop
• Unfortunately, the more vigorously you push the
  familiar levels, the more strongly the balancing
  proces resists, and the more futile your efforts
  become.
• Instead, concentrate on the balancing
  loop--changing the limiting factor
• This is akin to Goldratts Theory of
  Constraints--remove the bottleneck, the impediment

81
Applications to Quality Circles and JIT

• Quality circles work best when there is
  even-handed emphasis on both balancing and
  reinforcing loops
• JIT has had to focus on recalcitrant suppliers
• THERE WILL ALWAYS BE MORE LIMITING PROCESSES
• When once source of limitatiin is removed,
  another will surface
• Growth eventually WILL STOP

82
Create your own LIMITS TO GROWTH story

• Identify a limits to growth pattern in your own
  experience
• Diagram it
• What is growing
• What might be limitations
• Example--the COBA and University capital
  campaigns
• NOW, LOOK FOR LEVERAGE

83
Test your LIMITS TO GROWTH model

• Talk to others about your perception
• Test your ideas about leverage in small real-life
  experiments
• Run and re-run the simulation model
• Approach possible resistance and seek WIN-WIN
  strategies with them

84
ARCHETYPE 2 shifting the burden

• An underlying problem generates symptoms that
  demand attention. But the underlying problem is
  difficult for people to address, either because
  it is obscure or costly to confront. So people
  shift the burden of their problem to other
  solutions--well-intentioned, easy fixes that seem
  extremely efficient. Unfortunately the easier
  solutions only ameliorate the symptoms they
  leave the underlying problem unaltered. The
  underlying problem grows worse and the system
  loses whatever abilities it had to solve the
  underlying problem.

85
The Stereotype Structure
Symptiom-Correcting Process
Addictioin Loop
Problem-Correcting Process
86
Special Case Eroding Goals

• Full employment meant 4 unemployment in the 60,
  but 6 to 7 unemployment in the early 1980s
• Gramm-Rudman bill called for reaching a balanced
  budget by 1991, but this was shifted to 1993 and
  from 1993 to 1996 and from 1996 to 1998
• If all else fails, lower your goals..

87
EXAMPLE
88
Another Example
Raise tuition, add course fees, etc.
Costs of Higher Ed not funded by State
Perceived cost to the student
Lower enrollments
89
Still Another Example
Symptom-correcting process
Addiction Loop
Problem-correcting Process
90
Shifting the Burden is an insidious problem

• Is has a subtle reinforcing cycle
• This increases dependence on the symptomatic
  solution
• But eventually, the system loses the ability to
  apply the fundamental solution
• The system collapses

91
Senge Says

• Todays problems are yesterdays solutions
• We tend to look for solutions where they are
  easiest to find

92
HOW TO ACHIEVE LEVERAGE

• Must strengthen the fundamental response
• Requires a long-term orientation and a shared
  vision
• Must weaken the symptomatic response
• Requires a willingness to tell the truth about
  these solutions

93
Create your own Shifting the Burden Story

• Is there a problem that is getting gradually
  worse over the long term?
• Is the overall health of the system gradually
  worsening?
• Is there a growing feeling of helplessness?
• Have short-term fixes been applied?
• The Casa Olay problem of using cupouns to
  generate business and then cant get away from
  using the coupons because their customer base is
  hucked on coupons

94
To structure your problem

• Identify the problem
• Next, identify a fundamental solution
• Then, identify one or several symptomatic
  solutions
• Finally, identify the possible negative side
  effects of the symptomatic solution

95
Review

• We have now seen two of the basic systems
  archetypes.
• The Limits to Growth Archetype
• The Shifting the Burden Archetype
• As the archetypes are mastered, they become
  combined into more elaborate systemic
  descriptions.
• The basic sentences become parts of paragraphs
• The simple stories become integrated into more
  involved stories

96
Seeing Structures, not just Trees

• Helps us focus on what is important and what is
  not
• Helps us determine what variables to focus on and
  which to play less attention to

97
WonderTech The Chapter 7 Scenario

• A lesson in Growth and Underinvestment
• What Senge gets out of this is the Growth and
  Underinvestment Archetype
• A combination of variants of the Limits to Growth
  Archetype and the Shifting the Burden Archetype

98
The WonderTech Scenario

• WonderTech continues to invest in the growth side
  of the process. Sales grow but then plateau.
  Management puts more sales people into the field.
  Offers more incentives to sales force. But
  because of long lead times, customers wane. Yes
  you have a great product, but you cant deliver
  on your lead time promise of eight weeks. We
  know weve heard from your other customers.
  In fact, the company relaxed its lead-time
  standard out to twelve to sixteen weeks because
  of insufficient capacity.

99
The Reinforcing Loop
100
The Balancing Loop Following the LTG Archetype
101
The Growth Curve Page 117
102
Whats happened?

• WTs management did not pay much attention to
  their delivery service. They mainly tracked
  sales, profits, market share and return on
  investment. WTs managers waited until demand
  fell off before getting concerned about delivery
  times. But this is too late. The slow delivery
  time has already begun to correct itself. The
  management was not very concerned about the
  relaxed delivery time standard of eight weeks.

103
The WonderTech Scenario

• The firm decides to build a new manufacturing
  facility. But the facility comes on line at a
  time when sales are declining and lead times are
  coming back to the eight-week standard.
• Of every 10 startup companies, 5 will disappear
  with five years, only 4 survive into their tenth
  year and only 3 into their fifteenth year.

104
The Shifting the Burden Component
105
Put the whole thing together
106
Comments on The Senge Methodology

• Sees problems as conforming to a finite number of
  archetypes
• Formulates models based on combinations of the
  archetypes
• Addresses problem-driven situations
• What about situations and systems that are
  technology-driven, dynamics-driven,
  exogenously-driven, anything but problem-driven

107
More Comments on the Senge Methodology

• But does this become sufficiently general to
  accommodate all dynamical scenarios and
  situations?
• It is difficult to translate his archetypes and
  causal models into running system dynamics
  simulations
• A lot of variables (RATE VARIABLES, specifically)
  get left out in terms of connections

108
More Comments on the Senge Methodology

• The focus is on characterizing the dynamics, not
  on how to capture that in terms of stocks, flows
  and information paths
• He doesnt label his edges with or - signs

109
Another methodology The Sector Approach to SD
model formulation

• Begin by identifying the sectors
• A sector is all the structure associated with a
  single flow
• There could be several states in a single sector
• Determine the within-sector structure
• Reuse existing molecules where possible
• Determine the between-sector information
  infrastructure
• There are no flows and therefore no stocks or
  rates here

110
A Single-sector Exponential goal-seeking Model

• Sonya Magnova is a television retailer who wishes
  to maintain a desired inventory of DI television
  sets so that she doesnt have to sell her
  demonstrator and show models. Sonyas ordering
  policy is quite simple--adjust actual inventory I
  toward desired inventory DI so as to force these
  to conform as closely as possible. The initial
  inventory is Io. The time required for ordered
  inventory to be received is AT.

111
A Two-sector Housing/population Model

• A resort community in Colorado has determined
  that population growth in the area depends on the
  availability of hoousing as well as the
  persistent natural attractiveness of the area.
  Abundant housing attracts people at a greater
  rate than under normal conditions. The opposite
  is true when housing is tight. Area Residents
  also leave the community at a certain rate due
  primarily to the availability of housing.

112
Two-sector Population/housing Model, Continued

• The housing construction iindustry, on the other
  hand, fluctuates depending on the land
  availability and housing desires. Abundant
  housing cuts back the construction of houses
  while the opposite is true when the housing
  situation is tight. Also, as land for
  residential development fills up (in this
  mountain valley), the construction rate decreases
  to the level of the demolition rate of houses.

113
What are the main sectors and how do these
interact?

• Population
• Housing

114
What is the structure within each sector?

• Determine state/rate interactions first
• Determine necessary supportng infrastructure
• PARAMETERS
• AUXILIARIES

115
What does the structure within the population
sector look like?

• RATES in-migration, out-migration, net death
  rate
• STATES population
• PARAMETERS in-migration normal, out-migration
  normal, net death-rate normal

116
What does the structure within the housing sector
look like?

• RATES construction rate, demolition rate
• STATES housing
• AUXILIARIES Land availability multiplier, land
  fraction occupied
• PARAMETERS normal housing construction, average
  lifetime of housing
• PARAMETERS land occupied by each unit, total
  residential land

117
What is the structure between sectors?

• There are only AUXILIARIES, PARAMETERS, INPUTS
  and OUTPUTS

118
What are the between-sector auxiliaries?

• Housing desired
• Housing ratio
• Housing construction multiplier
• Attractiveness for in-migration multiplier
• PARAMETER Housing units required per person

119
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120
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121
Experiments with growth models

• Models with only one rate and one state
• Average lifetime death rates
• cohorts
• Models in which the exiting rate is not a
  function of its adjacent state
• Including effects from other variables
• ratios and table functions