Lecture 1 - 2023

STRATHCLYDE
BUSINESS
SCHOOL
www.strath.ac.uk/business
X S
TH E APT LHACCLEY DOEF BUUSSEI FNUELS S
TR OG
L ESACRHNOI N L
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S T R AT H C LY D E B U S I N E S S S C H O O L
Business Simulation
Methods (MS926):
System Dynamics
Dr Le Nguyen
Nguyen-le-khanh-ngan@strath.ac.uk
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Timetable
We are in week 28 (week 4)

System Dynamics (SD) – Mondays 9:00 – 11:00
Week 28, 33 – Lecture
Week 30-31, 34-35 – Labs
Discrete Event Simulation (DES) – Thursdays 10:00 – 13:00

Week 32 – 35 (Lecture & Labs)
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Reading Materials
Required text for the class:
• Sterman J, (2000) Business Dynamics: Systems Thinking and Modeling for
a Complex World, McGraw-Hill
Various books can also be used for background reading:
• Morecroft J (2015 or 2007) Strategic Modelling & Business Dynamics,
Wiley.
• Wolstenholme EF (1990) A System Enquiry A System Dynamics Approach,
Wiley Richardson G & Pugh A (1981) Introduction to System Dynamics
Modeling with Dynamo, MIT Press: Cambridge, Mass.
• Forrester J (1961) Industrial Dynamics, MIT Press: Cambridge, Mass.
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Learning Outcomes
• Understand the concept and principles of SD and the SD

modelling process
• Acquire competence in using qualitative SD tools, such as
Causal Loop Diagrams (CLDs) or Stock and Flow Diagram
(SFDs)
• Acquire basic skills in quantitative SD modelling
• Acquire basic competence in STELLA® modelling
software
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Assessment
Assignment (50%)
• 3-page report (excluding references and supplementary
materials) + an SD model
• Deadline Friday 14th April at 5pm
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Let’s start
X S T R AT H C LY D E B U S I N E S S S C H O O L
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8
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Open-Loop Thinking
Identify Gather Evaluate Select

Implement
problem data alternatives solution
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State of the System
Decisions
Feedback:
Goals
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State of the System
Decisions
Feedback:
Goals
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Feedback:
Decisions
”Side
Goals Effects”
State of the System
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Feedback:
Decisions
”Side
Goals Effects”
State of the System
Goals of Others
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Actions of Others
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Feedback:
Decisions
”Side
Goals Effects”
State of the System

”Side
Goals of Others Effects”
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Actions of Others
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System Dynamics are Tools to
• Elicit and articulate mental models and impact of social

and organisational structure
• Expand mental models by explicitly accounting for
feedback
• Test and improve mental models and structures via
simulation
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What Is System Dynamics?

What Is a System?
“A grouping of parts that operate together for a common
purpose”
- Principles of Systems, Forrester 1969
Examples
-A car : a system of components that work together to provide
transportation
-A university : a system which educates people
-Management : a system of people for allocating resources and regulating
the activity of a business
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Systems
Note : relationships between the parts of a system are

important. These determine what the system does and how
it functions. Relationships are often more important than the
individual parts.
Example : family v orchestra - same parts (people), but

different roles and relationships.
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Dynamics
A system is Dynamic when its’ behaviour changes over time

(as opposed to static)
Dynamic/static can depend upon:

Time horizon chosen (is study over 1 week, 1 month, 1 year?)
Variables under observation (a changeable value in the system)
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System Dynamics
A science used to model and understand systems

whose behaviour changes over time
Behaviour depends upon the system’s internal
structure
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System Dynamics - Purpose
To facilitate understanding of the relationships

between the behaviour of a system over time and
its underlying structure…
…to allow the design of effective policies/decision
rules
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System Dynamics
• Managers of organisations face many complex challenges

in a constantly changing world
• Need to identify and solve dynamic problems quickly and to
understand the knock-on effects
• Traditional Problem Solving - looking at individual parts
• But problems may only come to light when investigate
interactions between parts
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System Dynamics
Background:
Industrial Dynamics, Jay Forrester, 1961
Method and discipline later applied to other kinds of systems - physical, global,
organisational
More general methodology System Dynamics
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Jay Forrester (1918-2016)
• IEEE Medal of Honor

• National Medal of
Technology and
Innovation
• Computer History
Museum Fellow
• IFORS Hall of Fame
http://en.wikipedia.org/wiki/Jay_Wright_Forrester
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Introduction Video of SD
https://www.youtube.com/watch?v=rDxOyJxgJeA&ab_channe
l=BEEEnvironmentalCommunication
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Exercise
Name 3 systems of which you are a part
1. What are your functions in each of the systems?
2. Which of these systems can be dynamic?
3. Name one variable that can change over time in each of these
systems.
4. What time horizon must you choose in each of the examples for the
variables to show any changes?
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Examples of SD Modelling
Understanding why complex Projects fail – organisational
learning and litigation
Project management Games - “Flight Simulators” - Allow testing

of managerial strategies in risk-free environment
Strategy development – e.g. telecommunications business unit,

Strathclyde Police
Better Understanding of Business Environment - e.g. Shell,

Future Scenarios for Renewable Energy
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Drilling Ships
Paper Mill
C23B modification
Le Shuttle
Acela
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• The project cost £4.65 billion (equivalent to £12 billion today), 80 per
cent more than expected
• A contractor to the channel tunnel project instigated litigation to claim
for the costs of disruption and delay.
Pictures:
1. https://www.yorkshirepost.co.uk/news/opinion/letters/channel-tunnel-success-shows-why-hs2-must-go-ahead-yorkshire-post-letters-1-9776931
2. 2. https://en.wikipedia.org/wiki/Channel_TunnelReference
References
3. Ackermann, F., Eden, C. and Williams, T., 1997. Modeling for litigation: Mixing qualitative and quantitative approaches. Interfaces,27(2), pp.48-
65.
4. 2. Turner, J.R. & Dawsonera, 2010. Perspectives on projects, London ; New York: Routledge.
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The team from Strathclyde University developed an

SD model in support for the contractor’s claim.
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The Positive feedback loop resulted in huge delay and overrun.

The final settlement was in favour of the contractor.
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• Understanding why complex Projects fail – organisational learning and litigation
• Project management Games - “Flight Simulators” - Allow testing of managerial

strategies in risk-free environment
• Strategy development – e.g. Strathclyde Police, telecommunications business

unit*
• Better Understanding of Business Environment - e.g. Shell**, Future Scenarios

for Renewable Energy
*Maani KE and Cavana RY (2000) Systems Thinking and Modelling: Understanding Change and Complexity
Gary MS et al (2008) System Dynamics and Strategy, System Dynamics Review, 24 (4)
**Morecroft J and Sterman J (1994) Modelling for Learning Organizations
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Strathclyde Police
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strategy focus:
effective mgt of
PI's by SP high/innapropriate
-
agreed Natl Perf
Indicators
NEW CRIME
public
INCUBATING DEMANDS DEMANDS
disappointment v PIs
- -
expectations of
public
TRADITIONAL DEMANDS
- - -
budget decrease
ABILITY TO MEET enforced attention

DEMANDS to traditional
policing
-
strategy focus: HIGH QUALITY STAFF
partnerships strategic focus:
REPUTATION
retention &
strategy focus: recruitment of BEST
increasingly staff
Strategy Making
effective HR
strategy
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X 8,100
1 1 1 1 1
8,000
7,900
total_headcount
2 2 2 1
7,800
Force_effectiveness_FTE
2 2
7,700
7,600
2
0 50 100 150 200
Time
ability_to_manage_deman
d
1.03
1.02
1.01
0 50 100 150 200

Time
1.03
cost_index
1.02
1.01
1.00
0 50 100 150 200
Time
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Understanding why complex Projects fail – organisational learning and litigation
Project management Games - “Flight Simulators” - Allow testing of managerial

strategies in risk-free environment
Strategy development – e.g. Strathclyde Police, telecommunications business

unit*
Better Understanding of Business Environment - e.g. Shell**, Future Scenarios

for Renewable Energy
*Maani KE and Cavana RY (2000) Systems Thinking and Modelling: Understanding Change and Complexity
Gary MS et al (2008) System Dynamics and Strategy, System Dynamics Review, 24 (4)
**Morecroft J and Sterman J (1994) Modelling for Learning Organizations
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Scenarios for Renewable Energy
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297 smaller market

258 General 237 lower
for ROCs 308 operate a
reluctance to invest electricity demand
in power in UK ** successful ROC
274 investing
-
market [R 62 38]
companies lose out
(not paid off CAPEX) (surplus of ROCs
316 flood market relative to demand
with ROCs [R 52 30] and market
liquidity)
209 The value if 269 increase ROCs on
--
ROCs is uncertain - the market
115 increase
uncertainty re 27 Banks unwilling
policy [R 60 26] to finance projects
321 unable to
232 Lack of faith in 238 Alternative provide renewable
ROCs mechanism technology threats energy cost
105 reduce bank 261 Overcapacity esp prevents
imbalancing supply effectively **
confidence [R 61 20] if funding on a PPA construction of
capacity and demand
247 Funding risk
fundamentals
investor confidence
265 Insurance esp
for cutting edge
stuff
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Simulation model
discontinued
Ren_Energy_in_construction Ren_Energy_Online
investment_rate
Ren_En_planning
commence_construction construction_completion depletion_of_ren_energy
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50
1 1 1
2 2 2
1 45
Current_ROC_mk_price
30,000,000
40
actual_RO_elec
20,000,000 1
required_RO_elec
2
35
1
10,000,000 2
30
1
0 5 10 15 20 25 0 5 10 15 20 25
Time Time
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Other Examples of SD in
practice…
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Examples of use: Afghanistan

December 20, 2009: http://blogs.mcclatchydc.com/kabul/2009/12/the-great-afghan-spaghetti-

monster.html
Afghanistan
To demonstrate how difficult it will be for the US military to regain the momentum in Afghanistan -
documents the complex relationships between Tribal leaders, soldiers, aid workers, drug dealers,
militants, ethnic groups, government leaders, etc.
NBC's Richard Engel, "an attempt to show how all things in war – from media bias to ethnic/tribal
rivalries – are interconnected and must be taken into consideration. It represents a new approach to war
fighting, looking beyond simply killing enemy fighters. It underscores what those fighting wars have long
known, that everything matters."
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The Carbon Bathtub – National

Geographic Dec 2009
As long as we pour CO2; into the atmosphere faster than nature drains it out, the planet
warms. And that extra carbon takes a long time to drain out of the tub.
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Have you ever thought about

romantic relationships in terms of

their feedback mechanisms?
SD helps us understand the

problem of ‘waxing and waning
of love between Romeo and
Juliet’
John Morecroft: Romeo and Juliet in Brazil: Use of Metaphorical Models for Feedback Systems Thinking –
Chapter in ‘Tracing Connections: Voices of Systems Thinkers’
Juliets love thrives on affection, whilst Romeos withers with affection
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TH E APT LHACCLEY DOEF BUUSSEI FNUELS S
TR OG
L ESACRHNOI N L
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STRATHCLYDE

We are in week 28 (week 4)

Discrete Event Simulation (DES) – Thursdays 10:00 – 13:00

• Understand the concept and principles of SD and the SD

Identify Gather Evaluate Select

State of the System

State of the System

State of the System

System Dynamics are Tools to

• Elicit and articulate mental models and impact of social

What Is System Dynamics?

Note : relationships between the parts of a system are

Example : family v orchestra - same parts (people), but

A system is Dynamic when its’ behaviour changes over time

Dynamic/static can depend upon:

Variables under observation (a changeable value in the system)

A science used to model and understand systems

System Dynamics - Purpose

To facilitate understanding of the relationships

• Managers of organisations face many complex challenges

Jay Forrester (1918-2016)

• IEEE Medal of Honor

Name 3 systems of which you are a part

1. What are your functions in each of the systems?

2. Which of these systems can be dynamic?

Project management Games - “Flight Simulators” - Allow testing

Strategy development – e.g. telecommunications business unit,

Better Understanding of Business Environment - e.g. Shell,

The team from Strathclyde University developed an

SD model in support for the contractor’s claim.

The Positive feedback loop resulted in huge delay and overrun.

• Project management Games - “Flight Simulators” - Allow testing of managerial

• Strategy development – e.g. Strathclyde Police, telecommunications business

• Better Understanding of Business Environment - e.g. Shell**, Future Scenarios

ABILITY TO MEET enforced attention

0 50 100 150 200

Project management Games - “Flight Simulators” - Allow testing of managerial

Strategy development – e.g. Strathclyde Police, telecommunications business

Better Understanding of Business Environment - e.g. Shell**, Future Scenarios

297 smaller market

Examples of use: Afghanistan

December 20, 2009: http://blogs.mcclatchydc.com/kabul/2009/12/the-great-afghan-spaghetti-

The Carbon Bathtub – National

Have you ever thought about

romantic relationships in terms of

SD helps us understand the

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