Introduction to System Dynamics

The art of modeling for consulting assignments

OPTIMIZATION,
SATISFICING, AND
HEURISTIC
APPROACHES
Optimization model:
Finds the best solution, usually the one that will best help the
organization meet its goals.
Optimization problem in Grid Computing.
Xerox- Optimization techniques for increasing printer
productivity. Known as Lean Document Production (LDP).
Satisficing model:
Finds a good, but not necessarily the best, problem solution.
Finding out average CGPA of students in Dubai. Representative
sample might not give exact solution but a close one.
Heuristics:
Commonly accepted guidelines or procedures that usually find a
good solution.
All people around me are Nuts unless proven intelligent.
No Shared Understanding!
The marketing group thought the problem was due to lack
of advertising and promotional support
The sales group blamed lack of promotion and dealer
support
The manufacturing and dist. group blamed inaccurate
forecasting by the marketing and sales groups, causing
poor production planning and high cost
The Finance department blamed budget overruns by all
departments and unreliable forecasting from the marketing
group
The legal department blamed a lack of new franchising
agreements, which meant that the company lacked new
products
A car company lost money and a task-force found that:
The Parable of the Boiled Frog
0%
5%
10%
15%
20%
25%
30%
1962 1968 1974 1982 1989
Japanese car market share in US
The Blind Men and the
Elephant
Characteristics of Complex Systems
Tightly Coupled
Everything influences everything else
You cant just do one thing
Dynamic
Change occurs at many time scales
Policy Resistant
Many obvious solutions to problems fail or actually worsen the
situation.
Counterintuitive
Cause and effect are distant in time and space
Exhibit Tradeoffs
Long term behaviour is often different from short term behaviour
Systems Error
In search of the bigger picture
System Dynamics
As we move our perspective from the event level to the
structural level, we have a better understanding of what
is really going on in a system. We also increase our
ability to influence and change the systems behaviour,
i.e.,we can make adjustments to the structure which are
consistent with the behaviour we would like to produce.
Behaviour
System Structure
Events
Reference Mode
Whenever we study a system, we are interested in a
certain problem, i.e., we are trying to explain a
systems behaviour or its

reference mode
0
5
10
15
20
25
1 6 11 16 21 26 31
Time
S
a
l
e
s
Increasing Crime
Behaviour
System Structure
Events
Drugs are a big worry for me. Not least
because of the crimes that people
commit to fund their dependency. We
want the police to bust these rings and
destroy the drugs. They say theyre
doing it and they keep showing us
sacks of cocaine that they seized but
the crime problem seems to be getting
worse
Increasing Crime
Behaviour
System Structure
Events
What are the main variables described in the statement?




What is the reference mode (behaviour) of this system?
Time
Increasing Crime
Behaviour
System Structure
Events
What is the structure of this system?
What is the causal loop diagram which
explains the observed behaviour?
Call for Police
Action
Drug Seizures
Supply
Price
Demand
Drug Related
Crime
Introduction to Causal Loops
Anatomy of a Causal Loop Diagram
Hunger
Amount
Eaten
B
O
S
The O means that the
two variables move in
opposite directions, all
other things being equal
The S means that the
two variables move in the
same direction, all other
things being equal
Nature of loop. Indicates
whether the loop is
balancing or reinforcing
Causal relationship
between two variables
Reinforcing Loop
Interest
Balance
R
S
The S means that the
two variables move in the
same direction, all other
things being equal
Causal relationship
between two variables
S

or B - Balancing feedback loop that seeks equilibrium

or R - Reinforcing feedback loop that amplifies change

Before Attempting Hands-On
Break the problem into simple relations
Identify Stocks and Flows First
For each component of stock and flow,
identify the relation (proportionality)
Think of the proportion constant in the
relation
Combine all aspects and check the
systems view.
Hands-On 1
Account & Interest Rate
Units Check
Model OK?
Runs- Different Runs and Graphs
Changing names of dataset (multiple runs)
Sensitivity Analysis + Control Panel
Savings Account has 100 Rs. Interest Rate is
5%.
Causes Tree (Click on an element and view)
Check with Excel



Hands On 2
Rekha, the ever-studious student, diligently does
her homework. Sheik, on the other hand, is a
slacker. He lets his work build up. Every week he
receives seven new assignments. Over the
course of the week he completes one or two of
the assignments. (On average, he completes
one and a half). The semester is twelve weeks
long.
How many assignments does Sheik have to do
at the end of the semester, right before his final
exams?
Hands-On 3
Consider the following situation. Sonya Magnova is a
television retailer who wishes to maintain a desired
inventory equal to DI television sets so that she doesnt
have too sell her demonstrator and show models. She is
currently experiencing moderately constant demand of D
units per month. Sonyas ordering policy is quite simple
adjust actual inventory toward desired inventory so as
to force these to conform as closely as possible.
Currently, the inventory is low I
o
units are left. The time
required for inventory to be received once it is ordered is
AT, the adjustment time. Sonyas order rate in terms of
units per month can be approximated by the equation
OR = (DI - I)/AT.



Hands-On 4
Inventory and Workforce
Concept of Net Hiring Rate- Double Arrow
Use of functions in Equations.
Case- You are involved in the production and sale of
prefabricated window frames. Overall your company is
doing quite well, but you often go through periods of low
capacity utilization followed by production ramp up and
added shifts. While all of this is normally blamed on
market demand and the condition of the economy, you
have your doubts. Looking back at sales and production
over the last 8 years it seems that sales is more stable
than production. Your goal is to determine why this might
be, and what you can do about it.