Lecture 4

Simulation Approaches:
2. System Dynamics
M05EKM Business Simulation

Dr Ammar Al-Bazi

Lecture Outlines
System Dynamics Approach: Definition Components of System Dynamics Model Structure of System Dynamics Advantages of System Dynamics Methodology of System Dynamics Symbols Used in System Dynamics Modelling System Dynamics Approach: Real Life Case Study Modelling of Financial Problems

System Dynamics Approach: Definition

An approach to understanding the behaviour of complex systems over time, where the states and variables of the system are dominated by feedback.
System dynamics has found application in a wide range of areas, for example population, and economic systems, which usually interact strongly with each other.

Feedback is a process in which outcomes (output) of the system will eventually affect the input of the system.

Components of System Dynamics Model

Positive Feedback: A process characterised by continuous change over time (decline, growth).
Negative Feedback: A process

characterised by fluctuation or movement toward equilibrium (steady-state) over time (thermostat, maintain body temperature).

Components of System Dynamics Model (Cont)

Causal Link: A relationship between
variables or events or states in a system where a change in one will produce a change in the other.
A causes B A and B are events

Structure of System Dynamics

Causal

Loops: A sequence of

causal links ends where start (season sequence). Causal Path: A sequence of

causal links.
Causal Net: A combination of causal links with paths and loops. (Car start up)

Structure of System Dynamics (Cont)

Causal tree: A special case of causal net without paths
and loops (Nuclear Reaction).

Causal Process: when two events or series of events are

linked, so if one is taken place others will eventually follow
up, then their events represent causal process (if you put on a fire, the temperature will rise up).

System Dynamics Advantages

System dynamics models are useful because the mathematical underpinning needed for computer simulation requires that the theory be precise. The process of combining numerical data, written data, and the knowledge of experts in mathematical form often identifies inconsistencies about how we think the system works.

Methodology of System Dynamics

Identify a problem Develops a dynamic hypothesis explaining the cause of the problem builds a computer simulation model of the system at the root of the problem Tests the model to be certain that it reproduces the behaviour seen in the real world. Devises and tests in the model alternative policies that alleviate the problem. Implements this solution.

Symbols Used in System Dynamics Modelling

Causal Link Arrow (Continuous)
Movement of Elements ---- Arrow (Dashed) Positive Relationship (+) Negative Relationship (-) Negative Feedback

Positive Feedback

System Dynamics Approach: Real Life Case Study

A real life case study has been developed as an MSc project under supervision of Dr Ammar Al-Bazi at Teesside University. The case study was about identifying a number of factors that can affect or influence acceptance of a particular construction technology. A survey was developed in order to identify the reaction of people about certain technology used to produce precast buildings.

The Causal Flow Diagram of the influential factors with demand

Modelling of Financial Problems

The relationship between financial factors can be modelled in terms of system dynamics model in order to identify a set of relations that can be used to numerically calculate the desired outputs.
In this model, relationships between imitators, innovators, and adopters have been modelled using the required feedback relationships.