System Dynamics

System dynamics is a powerful methodology and computer simulation modeling technique for framing, understanding, and discussing complex issues and problems.

Originally developed in the 1950s to help corporate managers improve their understanding of industrial processes, system dynamics is currently being used throughout the public and private sector for policy analysis and design.

System dynamics was created during the mid-1950s by Professor Jay W. Forrester of the Massachusetts Institute of Technology. Forrester arrived at MIT in 1939 for

graduate study in electrical engineering. His first research assistantship put him under the tutelage of Professor Gordon Brown, the founder of MIT's Servomechanism Laboratory. Members of the MIT Servomechanism Laboratory, at the time, conducted pioneering research in feedback control mechanisms for military equipment.

Forrester's work for the Laboratory included traveling to the Pacific Theater during World War II to repair a hydraulically controlled radar system installed aboard the aircraft carrier Lexington. The Lexington was torpedoed while Forrester was on board, but not sunk.

At the end of World War II, Jay Forrester turned his attention to the creation of an aircraft flight simulator for the U.S. Navy. The design of the simulator was cast around the idea, untested at the time, of a digital computer. As the brainstorming surrounding the digital aircraft simulator proceeded, however, it became apparent that a better application of the emerging technology was the testing of computerized combat information systems. In 1947, the MIT Digital Computer Laboratory was founded and placed under the direction of Jay Forrester. The Laboratory's first task was the

creation of WHIRLWIND I, MIT's first general-purpose digital computer, and an environment for testing whether digital computers could be effectively used for the control of combat information systems. As part of the WHIRLWIND I project, Forrester invented and patented coincident-current random-access magnetic computer

memory. This became the industry standard for computer memory for approximately twenty years. The WHIRLWIND I project also motivated Forrester to create the technology that first facilitated the practical digital control of machine tools.

After the WHIRLWIND I project, Forrester agreed to lead a division of MIT's Lincoln Laboratory in its efforts to create computers for the North American SAGE

(Semi-Automatic Ground Environment) air defense system. The computers created

by Forrester's team during the SAGE project were installed in the late 1950s, remained in service for approximately twenty-five years, and had a remarkable "up time" of 99.8%.

Forrester's experiences as a manager led him to conclude that the biggest

impediment to progress comes, not from the engineering side of industrial problems, but from the management side. This is because, he reasoned, social systems are much harder to understand and control than are physical systems. In 1956, Forrester accepted a professorship in the newly-formed MIT School of Management. His initial goal was to determine how his background in science and engineering could be brought to bear, in some useful way, on the core issues that determine the success or failure of corporations.

Forrester's insights into the common foundations that underlie engineering and

management, which led to the creation of system dynamics, were triggered, to a large degree, by his involvement with managers at General Electric during the mid-1950s.

At that time, the managers at GE were perplexed because employment at their appliance plants in Kentucky exhibited a significant three-year cycle. The business cycle was judged to be an insufficient explanation for the employment instability.

From hand simulations (or calculations) of the stock-flow-feedback structure of the GE plants, which included the existing corporate decision-making structure for hiring and layoffs, Forrester was able to show how the instability in GE employment was due to the internal structure of the firm and not to an external force such as the business cycle. These hand simulations were the beginning of the field of system dynamics.

During the late 1950s and early 1960s, Forrester and a team of graduate students moved the emerging field of system dynamics, in rapid fashion, from the

hand-simulation stage to the formal computer modeling stage. Richard Bennett created the first system dynamics computer modeling language called SIMPLE (Simulation of Industrial Management Problems with Lots of Equations) in the spring of 1958. In 1959, Phyllis Fox and Alexander Pugh wrote the first version of DYNAMO (DYNAmic MOdels), an improved version of SIMPLE, and the system dynamics language that became the industry standard for over thirty years. Forrester published the first, and still classic, book in the field titled Industrial Dynamics in 1961.

From the late 1950s to the late 1960s, system dynamics was applied almost exclusively to corporate/managerial problems. In 1968, however, an unexpected occurrence caused the field to broaden beyond corporate modeling. John Collins, the former mayor of Boston, was appointed a visiting professor of Urban Affairs at MIT.

Collins had been stricken with polio during the 1950s and, as a result, required an office in a building with automobile access to the elevator level. By chance, Jay Forrester's office was located in such a building and the office next to his was vacant.

Collins thus became Forrester's work-day neighbor, and the two began to engage in regular conversations about the problems of cities and how system dynamics might be used to address the problems.

The result of the Collins-Forrester collaboration was a book titled Urban Dynamics.

The Urban Dynamics model presented in the book was the first major non-corporate application of system dynamics. The model was, and is, very controversial, because it illustrates why many well-known urban policies are either ineffective or make urban problems worse. Further, the model shows that counter-intuitive policies -- i.e., policies that appear at first glance to be incorrect, often yield startlingly effective results. As an example, in the Urban Dynamics model, a policy of building low income housing creates a poverty trap that helps to stagnate a city, while a policy of tearing down low income housing creates jobs and a rising standard of living for all of the city's inhabitants.

The second major nonprofit organization application of system dynamics came shortly after the first. In 1970, Jay Forrester was invited by the Club of Rome to a meeting in Bern, Switzerland. The Club of Rome is an organization devoted to solving what its members describe as the "predicament of mankind" -- that is, the global crisis that may appear sometime in the future, due to the demands being placed on the earth's carrying capacity (its sources of renewable and nonrenewable resources and its sinks for the disposal of pollutants) by the world's exponentially growing population.

At the Bern meeting, Forrester was asked if system dynamics could be used to address the predicament of mankind. His answer, of course, was that it could.

In 1991, three of the original authors of The Limits to Growth redid the study in preparation for the twentieth anniversary of the book's publication. The results were published in a book titled Beyond the Limit. The revised system dynamics model created for the study was called WORLD3-91. Once again, the results presented in Beyond the Limits were consistent with the results presented in World Dynamics and The Limits to Growth, although Beyond the Limits included a significant amount of numerical data that did not exist when the original studies were undertaken. Beyond the Limits also contained a careful presentation of arguments aimed at counteracting the criticisms that were directed at the earlier world modeling books.

During the last twenty years, Jay Forrester's attention has been focused primarily in two areas: 1) the creation of a system dynamics model of the United States economy,

and 2) the extension of system dynamics training to kindergarten through high school education. Forrester sees the former project as leading to a new approach to

economic science and a fundamental understanding of the way macroeconomic systems work. He views the latter project as crucial, not only for the future health of the field of system dynamics, but also for the future health of human society.

Although Forrester's national economic model remains unfinished, early and

intermediate results have been published. The most noteworthy of the results is that the model generates a forty- to sixty-year economic cycle or "long wave" that not only explains the Great Depression of the 1930s, but also shows that deep economic slumps are a repetitive feature of capitalist economies. At that time, Forrester's model shows that the United States economy is just beginning to rise out of the trough of the latest long wave downturn.

Forrester's efforts to extend system dynamics to K-12 education have, in a sense, taken him full circle, as the story begins with his original MIT mentor Gordon Brown.

Brown retired from MIT in 1973 and began wintering in Tucson, Arizona. During the late 1980s, Brown introduced system dynamics to teachers in the Tucson school system. The results were remarkable. System dynamics spread, not only through the original junior high in which it was introduced, but through the entire school district.

Subjects as diverse as Shakespeare, economics, and physics are today taught in the school district, wholly or in part, via system dynamics. Moreover, the district itself is using system dynamics in an effort to become a learning organization.

2.1.2 Modeling Procedure

2.1.2.1 Sterman’s Modeling Process

There are 5 steps to construct System Dynamics Model:

Figure -2.1 Sterman’s Modeling Process

Source: Sterman, John, Buainess Dynamics, 2000, p87.

1. Problem Articulation (Boundary Selection)

2. Formulation of Dynamic Hypothesis

3. Formulation of a Simulation Model 4. Testing

5. Policy Design and Evaluation

2.1.2.2 Forrester’s Modeling Procedure

There are 6 steps to construct System Dynamics Model:

Figure 2.3 Forrester’s Modeling Procedure

Source: Forrester, System dynamics, System thinking, and Soft OR System Dynamics Review, 1994, P245

Step 1 Describe

System

Step 2 Transform description

to Level /Rate Equation

Step 3 Simulate

Model

Step 4 Design Feasible

Policy &

Structure

Step 5 Education

&

Discussion

Step 6 Perform Change of Policy

&

Structure

2.1.2.3 Complete Modeling Procedure

There are 8 steps to construct System Dynamics Model:

Figure -2.2 Complete Modeling Procedure

Source: Originated by Forrester, Dr. Tu’s Class Handouts, System Simulation and Dynamics Decision Making, 2003

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2.2 Corporation Strategies and Performance Evaluation