1. Systems Thinking, System Dynamics, Simulation
James R. Burns
II Summer Semester 2007

2. Our web site

3. Course Content Structure—see Syllabus
Systems Thinking
System Dynamics
Continuous Deterministic Simulation
VENSIM
Goldratt
Discrete Stochastic Simulation
PROMODEL

4. Goals of this course relative to SYSTEM DYNAMICS…
To learn how to solve problems, not just study interesting situations
To learn the basics of causal modeling
known as Causal Loop Diagramming, CLD
To learn how to transfer CLD’s to Stock & Flow Diagrams, SFDs
To learn how to implement SFD’s in VENSIM

5. More Goals of this course….
To learn how to parameterize a VENSIM model
To learn how to validate a VENSIM model
To learn how to conduct what-if experiments
To learn some basic structures, procedures in VENSIM

6. Goals of this course relative to SYSTEMS THINKING…
To learn Senge’s five disciplines
How to build a learning organization
How to challenge mental models
Master the seven laws of systems thinking
Understand the principle of leverage
Master the FIVE DISCIPLINES
Understand openness, localness, a manager’s time, micro-worlds, archetypes

7. How do these goals align with your…
goals for the course
expectations for the course in general?

8. Would you like to …. learn about the Archetypes
learn how to recognize and apply the Archetypes

9. What kinds of processes, systems?
Global warming
Agricultural processes
Project management
Enronitus
Growth and over-investment
WHAT ELSE?
Project proposal is due Sept 13 (Tuesday)

10. Main Thesis of Course:
models can make us better decision makers and problem solvers
Do we have to use models to solve problems and make decisions!!!???
What is a model?
A paradigm, a description and an explanation of the relationship of the parts of the problem to each other
Can be self-fulfilling--a caveat

11. Just how do you make decisions?
Emotional direction
Intuition
Analytic thinking
Consultation of experts
Are you an intuit, an analytic, what???

12. Problems
Arise whenever there is a perceived difference between what is desired and what is in actuality.
Problems serve as motivators for doing something
Problems lead to decisions 42

13. Problem Problem SD Model Mental Model Mental Model Action Action
Decision
Decision
Action
Action

14. Requirements for Completion
Midterm worth 25%
Final worth 30%
Homework worth 10%
Term project worth 20%
Presentation worth 5%
Class participation worth 10%
5% FOR PARTICIPATION
5% FOR AN IN-CLASS PRESENTATION

15. Pace
More relaxed
Driven more by the needs of the students

16. Grades??!!
If you satisfactorily complete all the work required in this course, you will get at least a B
My guarantee
If you turn in unsatisfactory work, I will ask you to redo it
To get an A you must have a course grade above

17. Term Project You get to choose the topic Due on 7-13
Will ask you to turn-in as homework your
Causal loop diagram
Stock-and-flow diagram

18. Definitions and Terms ST--Systems Thinking SD--Systems Dynamics
CLD--Causal Loop Diagram
BOT--Behavior Over Time Chart
SFD--Stock & Flow Diagram
Also called Forrester Schematic, or simply “Flow Diagram”
quantity--any variable, parameter, constant, or output
edge--a causal link between quantities

19. Senge’s Five Disciplines
Personal Mastery
because we need to be the very best we can be
Mental Models
because these are the basis of all decision-making
Shared Vision
because this galvanizes workers to pursue a common goal
Team Learning
because companies are organized into teams
Systems Thinking
because this is the only tool for coping with complexity

20. 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:
Robust--including parametric data fitting and optimization
best fit for higher education
Powersim
What Arthur Andersen was using

21. 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 that control the flows of material into and out of stocks
Auxiliaries are variables the modify information as it is passed from stocks to rates

22. Basic Building Blocks
Reinforcing Loops
Balancing Loops
Delays

23. A Simple Methodology Collect info on the problem
List variables on post-it notes
Describe causality using a CLD
Translate CLD into SFD
Enter into VENSIM
Perform sensitivity and validation studies
Perform policy and WHAT IF experiments
Write recommendations

24. Causal Modeling A way to characterize the physics of the system
Lacking: a Newton to describe the causality in these systems

25. Key Benefits of the ST/SD
A deeper level of learning
Far better than a mere verbal description
A clear structural representation of the problem or process
A way to extract the behavioral implications from the structure and data
A “hands on” tool on which to conduct WHAT IF

26. Stock and Flow Notation--Quantities
RATE
Auxiliary

27. Stock and Flow Notation--Quantities
Input/Parameter/Lookup
Have no edges directed toward them
Output
Have no edges directed away from them

28. Inputs and Outputs
Inputs
Parameters
Lookups
Outputs

29. Stock and Flow Notation--edges
Information
Flow

30. 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

31. New Topic—Translating Causal Loops into Stock-and-Flow Diagrams

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. Rates and their edges

35. Parameters and their edges

36. Stocks and their edges

37. Auxiliaries and their edges

38. Outputs and their edges

39. A Methodology for Mapping CLDs into SFD’s

40. STEP 1: Identify parameters
Parameters have no edges directed toward them

41. STEP 2: Identify the edges directed from parameters
These are information edges always

42. STEP 3: By consistency identify as many other edge types as you can

43. STEP 4: Look for loops involving a pair of quantities only
Use the rules for robust loops identified above

46. Distinguishing Stocks & Flows by Name
NAME UNITS Stock or flow
Revenue
Liabilities
Employees
Depreciation
Construction starts
Hiring
material standard of living

47. The VENSIM User Interface
The Time bounds Dialog box

51. A single-sector exponential growth model
Einstein said the most powerful force in the world was compound interest
interest taken in relation to principal
Each stock requires an initial value

52. Let’s DO IT Create the stock principal Include the rate interest
Include the information connector
Initialize the stock
Simulate

53. John vs. Jack Each works for 30 years before retiring
John makes $2000 contributions to his IRA each year for the first five years and none there after.
Jack makes $2000 contributions to his IRA each year beginning in year six and continuing through year 30
Each IRA yields a 15% compounded return
Which turns out to be larger?

54. John vs. Jack--two interest accounts.mdl

57. Another single-sector Exponential growth Model
Consider a simple population with infinite resources--food, water, air, etc. Given, mortality information in terms of birth and death rates, what is this population likely to grow to by a certain time.
A population of 200,000, growing at 1.3% a year.
A population of 1.6 billion with a birth rate norm of .04 and a death rate norm of .028

58. Homework
Build the simple WORLD model in VENSIM, assuming that

59. Experiments with growth models
Models with only one rate and one state
Average lifetime death rates
Models in which the exiting rate is not a function of its adjacent state

60. Example:
Build a model of work flow from work undone to work completed.
This flow is controlled by a “work rate.”
Assume that are 1000 days of undone work
Assume the work rate is 20 completed days a month
Assume the units on time are months
Assume no work is completed initially.

61. Solving the problem of negative stock drainage
pass information to the outgoing rate
use the IF THEN ELSE function

62. Shifting loop Dominance
Rabbit populations grow rapidly with a reproduction fraction of .125 per month
When the population reaches the carrying capacity of 1000, the net growth rate falls back to zero, and the population stabilizes
Starting with two rabbits, run for 100 months with a time step of 1 month
(This model has two loops, an exponential growth loop (also called a reinforcing loop) and a balancing loop)

63. Shifting loop Dominance
Assumes the following relation for Effect of Resources
Effect of Resources = (carrying capacity - Rabbits)/carrying capacity
This is a multiplier
Multipliers are always dimless (dimensionless)
When rabbits are near zero, this is near 1
When rabbits are near carrying capacity, this is near zero
This will shut down the net rabbit birth rate

66. Dimensionality Considerations
VENSIM will check for dimensional consistency if you enter dimensions
Rigorously, all models must be dimensionally consistent
What ever units you use for stocks, the associated rates must have those units divided by TIME
An example follows

67. Cascaded rate-state (stock) combinations
In the oil exploration industry, unproven reserves (measured in barrels) become proven reserves when they are discovered. The extraction rate transforms proven reserves into inventories of crude. The refining rate transforms inventories of crude into refined petroleum products. The consumption rate transforms refined products into pollution (air, heat, etc.)

68. Another cascaded rate-stock combination
Population cohorts. Suppose population is broken down into age cohorts of 0-15, 16-30, 31-45, 46-60, 61-75, 76-90
Here each cohort has a “lifetime” of 15 years
Again, each rate has the units of the associated stocks divided by time

69. A single-sector Exponential goal-seeking Model
Sonya Magnova is a resources planner for a school district. Sonya wishes to a maintain a desired level of resources for the district. Sonya’s new resource provision policy is quite simple--adjust actual resources AR toward desired resources DR so as to force these to conform as closely as possible. The time required to add additional resources is AT.

70. The Sector Approach to the Determination of Structure
What is meant by “sector?”
What are the steps
to determination of structure within sectors
to determination of structure between sectors

71. Definition of sector All the structure associated with a single flow
Note that there could be several states associated with a single flow
The next sector in the pet population model has three states in it

72. Sector Methodology, Overall
Identify flows (sectors) that must be included within the model
Develop the structure within each sector of the model.
Use standard one-sector sub-models or develop the structure within the sector from scratch using the steps in Table 15.5

73. Sector Methodology, Overall Cont’d
Develop the structure between all sectors that make up the model
Implement the structure in a commercially available simulation package

74. Steps Required to Formulate the Structure for a Sector from Scratch
Specify the quantities required to delineate the structure within each sector
Determine the interactions between the quantities and delineate the resultant causal diagram
Classify the quantity and edge types and delineate the flow diagram

75. Resource, facility and infrastructure (desks, chairs, computers, networks, labs, etc.) needs for an educational entity are driven by a growing population that it serves. Currently, the population stands at 210,000 and is growing at the rate of two percent a year. One out of every three of these persons is a student.
One teacher is needed for every 25 students. Currently, there are 2,300 actual teachers; three percent of these leave each year. Construct a structure for each that drives the actual level toward the desired level. Assume an adjustment time of one year. Set this up in VENSIM to run for 25 years, with a time-step of .25 years.

76. One teacher is needed for every 25 students
One teacher is needed for every 25 students. One-hundred square feet of facility space is needed for each student. Thirty-five hundred dollars in infrastructure is needed for each student. Currently, there are 2,300 teachers; three percent of these leave each year. Currently, there is five million sq. ft of facility space, but this becomes obsolescent after fifty years. Currently, there is $205,320,000 in infrastructure investment, but this is fully depreciated after ten years. For each of infrastructure, teachers and facility space, determine a desired level or stock for the same. Construct a structure for each that drives the actual level toward the desired level.

77. Set this up in VENSIM to run for 25 years, with a time-step of
Set this up in VENSIM to run for 25 years, with a time-step of .25 years. Assume adjustment times of one year. DETERMINE HOW MUCH IN THE WAY OF FACILITIES, TEACHERS AND INFRASTRUCTURE ARE NEEDED PER YEAR OVER THIS TIME PERIOD.

78. What are the main sectors and how do these interact?
Population
Teacher resources
Facilities
Infrastructure

79. Factors affecting teacher departures
Inside vs. outside salaries
Student-teacher ratios
How might these affects be included?

80. Teacher departure description
It is known that when the ratio of average “inside the district” salary is comparable to outside salaries of positions that could be held by teachers, morale is normal and teacher departures are normal
When the inside-side salary ratio is less than one, morale is low and departures are greater than normal
The converse is true as well

81. Teacher departure description
When student-teacher ratios exceed the ideal or desired student teacher ratio, which is twenty four, morale is low and again departures are greater than normal
The converse is true as well

82. A Two-sector Housing/population Model
A resort community in Colorado has determined that population growth in the area depends on the availability of housing 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.

83. Two-sector Population/housing Model, Continued
The housing construction industry, 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.

84. What are the main sectors and how do these interact?
Population
Housing

85. What is the structure within each sector?
Determine state/rate interactions first
Determine necessary supporting infrastructure
PARAMETERS
AUXILIARIES

86. 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

87. 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

88. What is the structure between sectors?
There are only AUXILIARIES, PARAMETERS, INPUTS and OUTPUTS

89. What are the between-sector auxiliaries?
Housing desired
Housing ratio
Housing construction multiplier
Attractiveness for in-migration multiplier
PARAMETER: Housing units required per person

90. Nature’s 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

91. 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

92. 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

93. Systems Thinking basics
Effects are spatially and temporarily separated from their causes
Today’s problems are yesterday’s solutions
Complexity coping requires understanding dynamic complexity, not detail complexity

94. Nature’s 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

95. 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

96. 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

97. 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

98. Before attacking the ARCHETYPES we need to understand simple structures
The reinforcing feedback loop
The balancing feedback loop

99. 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 balancing process) that eventually slow down the success.
All growth will eventually run up against constraints, impediments

100. Management Principle relative to ARCHETYPE 1
Don’t push growth or success; remove the factors limiting growth

101. 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

102. Structure growing action state of stock slowing action Balancing
Reinforcing

103. Understanding the Structure
High-tech orgs grow rapidly because of their ability to introduce new products
This growth plateaus as lead times become too long

104. How to achieve Leverage
Most managers react to the slowing growth by pushing harder on the reinforcing loop
Unfortunately, the more vigorously you push the familiar levels, the more strongly the balancing process resists, and the more futile your efforts become.
Instead, concentrate on the balancing loop--changing the limiting factor
This is akin to Goldratt’s Theory of Constraints--remove the bottleneck, the impediment

105. 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 one source of limitation is removed, another will surface
Growth eventually WILL STOP

106. 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

107. 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

108. 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.

109. Shifting the burden scenario, continued
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.

110. The Stereotype Structure
Symptiom-Correcting
Process
Addictioin Loop
Problem-Correcting
Process

111. Special Case: Eroding Goals
Full employment meant 4% unemployment in the 1960s, but 6 to 7% unemployment in the early 1980’s
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..”

112. EXAMPLE

113. Another Example

114. Still Another Example Symptom-correcting process Addiction Loop
Problem-correcting
Process

115. Still other Problems What about retention of students
The perceived fix is raise the admission standards
What about drug-related crime
The perceived fix is to remove the drugs from the street

116. “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

117. Senge Says Today’s problems are yesterday’s solutions
We tend to look for solutions where they are easiest to find

118. 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”

119. Create your own “Shifting the Burden” Story
Is there a problem that is getting gradually worse over the long term?
Is the health of the system gradually worsening?
Is there a growing feeling of helplessness?
Have short-term fixes been applied?
The local Mexican restaurant problem of using coupons to generate business and then can’t get away from using the coupons because their customer base is hooked on coupons

120. 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

121. 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 “sentences” become parts of paragraphs
The simple stories become integrated into more involved stories

122. 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

123. Before attacking the ARCHETYPES we need to understand simple structures
the reinforcing feedback loop
the balancing feedback loop
THE DEMO

124. 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.

125. Management Principle relative to ARCHETYPE 1
Don’t push growth or success; remove the factors limiting growth

126. 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

127. Structure

128. Understanding the Structure
High-tech orgs grow rapidly because of ability to introduce new products
This growth plateaus as lead times become too long

129. How to achieve Leverage
Most managers react to the slowing growth by pushing harder on the reinforcing loop
Unfortunately, the more vigorously you push the familiar levels, the more strongly the balancing process resists, and the more futile your efforts become.
Instead, concentrate on the balancing loop--changing the limiting factor
This is akin to Goldratt’s Theory of Constraints--remove the bottleneck, the impediment

130. 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 limitation is removed, another will surface
Growth eventually WILL STOP

131. 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

132. 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

133. 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.

134. The Stereotype Structure
Symptiom-Correcting
Process
Addictioin Loop
Problem-Correcting
Process

135. Special Case: Eroding Goals
Full employment meant 4% unemployment in the 60’s, but 6 to 7% unemployment in the early 1980’s
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..”

136. “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

137. Senge Says Today’s problems are yesterday’s solutions
We tend to look for solutions where they are easiest to find

138. 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”

139. 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 coupons to generate business and then can’t get away from using the coupons because their customer base is hooked on coupons

140. 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

141. 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

142. 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 pay less attention to

144. Model Classification Criteria
Purpose
Perspective
Degree of Abstraction
Content and Form
Decision Environment

145. Purpose
Planning
Forecasting
Training
Behavioral research

146. Perspective Descriptive Prescriptive “Telling it like it is”
Most simulation models are of this type
Prescriptive
“Telling it like it should be”
Most optimization models are of this type

147. Degree of Abstraction
Isomorphic
One-to-one
Homomorphic
One-to-many

148. Content and Form verbal descriptions mathematical constructs
simulations
mental models
physical prototypes