System Dynamics – 1ZM65/1ZS24 Lecture 2 September 8, 2014

1. System Dynamics – 1ZM65/1ZS24Lecture 2September 8, 2014 Dr.ir. Bob Walrave

2. Agenda Recap of Lecture 1 Structureandbehavior of dynamic systems (chapter 4) Causal loop diagramming(chapter 5)

3. Recap of Lecture 1 Dilbert contemplating policy resistance. “The behavior of a system arises from its structure!”

4. Recap of this lecture (take-aways) • System Dynamics is: • About understanding why and how things usually work out differently than you expected (policy resistance) • About counterintuitive behavior of systems • Looking at the world differently: Feedback view • Seeing the bigger picture (bird’s-eye view) • A methodology to analyze problems • Learning System Dynamics requires a lot of practice! • 5 ECTS = 140 hours • 18 weeks until due date  7.8 hrs/wk

5. Reference: Business Dynamics

6. 1. Problem Articulation (Boundary Selection) your decisions 5. Policy Formulation 2. Dynamic & Evaluation Hypothesis unintended your goals side effects 4. Testing 3. Formulation situation goals of others decisions by others Recap of Lecture 1 • Characteristics of dynamic complex systems: • The modelingprocess: Policy resistance

7. Example of Test Question (Lecture 1) • This figure describes the learning cycle. However, there are many barriers to learning that cause this cycle to fail. • Which of the following examples is NOT a way to break this cycle? (which is NOT a barrier to learning) A) Time delay B) Dynamic complexity C) Misperception of feedback D) Policy formulation

8. Agenda • Recap of Lecture 1 • Structure and behavior of dynamic systems • Causal loop diagramming Sterman, Chapter 4

9. Interactions of Structure and Behavior • The behavior of a system arises from its structure. • Behavior = output of a simulation model • Structure = input of a simulation model, consisting of • Feedback loops (causal loop diagram) • Stocks and flows • Time delays • Nonlinearities

10. chickens chickens + chickens = ??? time time time Interactions of structure and behavior • Structure • Behavior over time Reinforcing Loop Balancing Loop

11. Fundamental modes of behavior of dynamic systems • Basis modes of dynamic behavior • Exponential growth • Goal seeking • Oscillation • Interactions of basic modes • S-shaped growth • Growth & overshoot • Overshoot&collapse • Other forms of behavior • Equilibrium • Random • Chaos

12. Exponential growth Besides growth, we can also have exponential decline! Behavior Structure money on bank account interest per year

13. Goal-seeking desired number of customers of a product actual number of customers Behavior Structure attract more customers by advertising in supermarket This system is characterized by exponential decay (i.e., a half-life).

14. Oscillation desired temperature in the room is 20ºC Behavior Structure actual temperature in the room is 15 ºC increase heater

15. S-shaped growth The interaction between positive and negative loops is non-linear. actual number of people in a bar Behavior Structure is there still room in the bar? people allowed in the bar

16. Growth & Overshoot number of rabbits in a meadow Behavior Structure Food available

17. Overshoot & Collapse Model these fundamental modes of behavior in VENSIM PLE The more infected people, the less people may be infected in the future actual number of people infected with a certain type of flu Behavior Structure number of people that may be infected

18. Vensim illustration • State of the system  Stock • Net increase rate  Flow

19. Systems archetypes • Use these fundamental modes – by combining them – when you are modeling! • Besides these fundamental modes there are generic templates that can be used to … • Interpret a Causal Loop Diagram’s overall nature • Refine a preliminary CLD • See the leverage in the CLD’s structure

20. Four well-known archetypes are: For more information on archetypes, see: Wolstenholme, E.F., 2003, Towards the definition and use of a core set of archetypal structures in system dynamics, System Dynamics Review, 19(1): 7-26 • Fixes that fail • Shifting the burden • Limits to growth • Tragedy of the commons

21. “Fixes that fail” Increase of crime Recruitment of police to reduce reported crime + Problem Fix symptom - + delay + Unintended Consequence Shortage of prison cells, leading to shortening prison sentences

22. “Shifting the burden” Expediting orders for important customers Lead time is too long in a production plant Lead time of all other orders becomes even longer.

23. “Limits to growth” Production capacity cannot keep up with increased demand, leading to longer production delays Increase of sales effort leads to increase of orders Customers are unsatisfied with long delays, leading to decrease of future orders

24. “Tragedy of the Commons” Hoarding or bank-run Increase number of visitors to a national park, which increases profit, but also increases the damage to the park (disturb wildlife)

25. Agenda • Recap of Lecture 1 • Structure and behavior of dynamic systems • Causal loop diagramming Sterman, Chapter 5 5.1-5.4

26. Causal Loop Diagrams (CLDs) • Capture hypotheses about the causes of dynamics • Elicit and capture mental models • Communicate the important feedbacks that are responsible for a problem • See a CLD as a illustration of a story; a narrative that explain how a certain problem came to be • The loops within a CLD a characterized by ‘loop dominance’, which facilitate your story

27. actual work + pressure delay + coaching effort - by experienced total number employees perceived work of productive pressure employees - + + delay hiring new employees - delay Elements of a Causal Loop Diagram • Basic elements: • Variables • Arrows (causal link) • Link polarity (+ or -) • Loop identifiers • Additional elements: • Loop Polarity: • Balancing • Reinforcing • System Delays quality of work

28. - perceived work quality of work pressure Link polarity: definitions and examples • Positive link: The higher the actual work pressure, the higher the perceived work pressure will be, after a certain (time) delay or: lower actual work pressure leads to lower perceived work pressure • Negative link: The higher the perceived work pressure, the lower the quality of work (more errors are made) or: lower perceived work pressure leads to higher quality of work + actual work perceived work pressure pressure

29. CLD Represent causation, not correlation Figure 5-2, Sterman: Causal diagrams must include only (what you believe to be) genuine causal relationships.

30. Label link and loop polarities ? ? Figure 5-3, Sterman

31. Quality Price Product Attractiveness Delivery Delay Functionality + + Demand “Challenge” p.143: assign polarity, add loops • Consider the attractiveness of a product to customers as it depends on various attributes of the product. • Assign link polarities. • What feedback loops might be created as product attractiveness changes the demand for the firm’s product? + - - + Figure 5-4, Sterman: The attractiveness of a product as it depends on various attributes.

32. Challenge p.145: Identify and label the polarity of links and loops + Bank Cash + Attractiveness - + Reserves of Market Perceived Net Number of Solvency of Profits Withdrawals Competitors Bank - + - Price

33. Three ways to determine loop polarity • The fast way: count the number of negative links • A better way: trace the effect of change around a loop • The formal way: do the mathematics + Attractiveness + of Market Number of Profits Competitors - + Price

34. Assign unambiguous polarities ? Figure 5-7, Sterman: Causal links must have unambiguous polarity

35. Name and number your loops Figure 5-9, Sterman: Name and number your loops to increase diagram clarity and provide labels.

36. Indicate important delays in links Figure 5-10 Representing delays in causal diagrams

37. Variable names should be nouns or noun phrases ? Figure 5-12: Sterman

38. Variable names should have a clear sense of direction ? Figure 5-13, Sterman

39. Choose variables whose normal sense of direction is positive Figure 5-14, Sterman

40. Make intermediate links explicit Figure 5-15, Sterman: Make intermediate links explicit to clarify a causal relationship.

41. Make goals of negative loops explicit Figure 5-16, Sterman: Make the goals of negative loops explicit.

42. Distinguish between actual and perceived conditions Figure 5-17, Sterman

43. Using Causal Diagrams to Model an Issue examples

44. Using Causal Diagrams to Model an Issue The majorityofour problems can be captured by a combination oftwo loops: balancing & reinforcing The balancing loop describeswhatour goal is, whatwetry to accomplish The reinforcing loop describeswhatourmainobstacle is or could be

45. Structure & Behavior desired weight Dominant loop: balancing Dominant loop: reinforcing - actual weight + + food intake B deviation week + - First the balancing loop is driving the behavior, because the actual weight is always close to the desired weight - Around week 46 something happens, because the actual weight is not going back to its desired value - The reinforcing loop is now dominant - propensity to eat - + propensity to snack mood R (between meals) - + need for comfort food

46. What do the loops tell us? Balancing loop: • The loop is self-stabilizing • The manager’s primary role is to monitor • Act only when there is an exception or likelihood of one, i.e., gap between desired & actual weight Reinforcing loop: • The loop is not self-stabilizing • The manager’s primary role is to act • If the cycle is vicious, find a way to break it

47. GuestSatisfaction Index in a hotel The GSI in the hotel is measured on a monthly basis When the GSI is above 8.2, the customers are happy, as well as the hotel staff However, the GSI recently dropped below 8.2, and now management is worried During a staff meeting, hotel management tells everyone that customer focus should be increased It is expected that after a while customer happiness returns and that the GSI will rise accordingly

48. Where to start? • Start with a narrative, a story • Underlying a specific problem • What is the goal thatyoutry to reach • Whathappenswhenyoudeviate from the goal

49. Drawing the first loop focus on customer + + customer B GSI shortfall happiness + - + actual GSI GOAL: desired GSI Identify the goal seeking behavior in question Goal: desired GSI Starting point: indication of drift from goal GSI Shortfall(desired – actual GSI) Decision: focus on customer Effects: customer happiness, GSI Link variables & qualify links, insert delays Determine type of loop – balancing or reinforcing

50. The problem is not as easy as it looks The increased focus on the customer leads to extra work for most of the team After a while, the extra work starts to exhaust the team As a result of this exhaustion, some team members start making mistakes Although the customer is still happy with the increased focus, the mistakes made by the staff have a negative effect on the GSI