Introduction to system dynamics

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session

15.871 Introduction to System Dynamics is a half-semester introductory course. Students can take 15.871 alone, or combine it with 15.872 System Dynamics II. Taken in sequence the courses constitute the introductory sequence in system dynamics. Successful completion of both 15.871 and 15.872 is a prerequisite for advanced courses in system dynamics, work as a research or teaching assistant in the field, or careers using system dynamics.

Permission of instructor. No prior computer modeling experience is needed.

Why do so many business strategies fail? Why do so many others fail to produce lasting results? Why do businesses suffer from periodic crises and fluctuations in sales, earnings, and morale? Why do some firms grow while others stagnate? And how can an organization's leadership and managers identify and design high-leverage policies, policies that are not thwarted by unanticipated side effects?

Accelerating economic, technological, social, and environmental change challenges managers to learn at increasing rates. Today's economy requires us to design and manage complex systems where dynamic complexity is unavoidable, thanks to multiple feedback effects, long time delays, and nonlinear responses to our decisions. Yet learning in such environments is difficult precisely because we never confront many of the consequences of our most important decisions. Effective learning in such environments requires methods to develop systems thinking by representing and assessing dynamic complexity. It also requires tools that managers can use to accelerate learning throughout an organization.

15.871 and 15.872 introduce you to system dynamics modeling for the analysis of business policy and strategy. You will learn to visualize a business organization in terms of the structures and policies that create dynamics and regulate performance. System dynamics allows us to create 'microworlds,' management flight simulators where space and time can be compressed, slowed, and stopped so we can experience the long-term side effects of decisions, systematically explore new strategies, and develop our understanding of complex systems. In these system dynamics courses we use simulation models, case studies, and management flight simulators to develop principles of policy design for successful management of complex strategies. Case studies of successful strategy design and implementation using system dynamics will be stressed. We consider the use of systems thinking to promote effective organizational learning.

The principal purpose of modeling is to improve our understanding of the ways in which an organization's performance is related to its internal structure and operating policies as well as those of customers, competitors, suppliers, and other stakeholders. During the course you will use several simulation models to explore such strategic issues as fluctuating sales, production and earnings; market growth and stagnation; the diffusion of new technologies; the use and reliability of forecasts; the rationality of business decision making; and applications in health care, energy policy, environmental sustainability, and other topics.

Students will learn to recognize and deal with situations where policy interventions are likely to be delayed, diluted, or defeated by unanticipated reactions and side effects. You will have a chance to use state of the art software for computer simulation and gaming. Assignments give hands-on experience in developing and testing computer simulation models in diverse settings.

The required text is:
Sterman, J. Business Dynamics: Systems Thinking and Modeling for a Complex World. McGraw-Hill / Irwin, 2000. ISBN: 9780072389159.

There are additional required readings. Articles and case studies as assigned will be listed in the Readings section. Additional readings will be handed out on an occasional basis.

In this course, we use modeling software. Several excellent packages for system dynamics simulation are available, including iThink, from High Performance Systems, Powersim, from Powersim Corporation, and Vensim, from Ventana Systems. All are highly recommended. You may wish to learn more about these packages, as all are used in the business world and expertise in them is increasingly sought by potential employers. For further information, see the following resources:

The required modeling software is VensimPLE. In this course, we will be using the Vensim Personal Learning Edition (VensimPLE) by Ventana Systems. The current version is 6.1. It is free for academic use and is available for Windows and Mac. VensimPLE comes with sample models, help engine, and Adobe Acrobat format User's Guide, all available from the Vensim web site.

NOTE: The disc that comes with the Business Dynamics textbook includes a version of VensimPLE. However, the version available online is much newer and has enhanced functionality. Be sure to download the current version of VensimPLE from the website above. Vensim models on the textbook CD will work with it.

Assignments are due by 5 pm on the due date—you should never skip class to complete an assignment. Each assignment is graded on a 10-point scale. A minimum of two points will be forfeited for assignments turned in late. Assignments handed in more than one class late receive no credit. This policy is strictly enforced.

Some assignments will be done in teams of three. At the end of the course you will have the opportunity to evaluate your teammates. The Peer Evaluation is confidential. You will assess how well your teammates contributed to your team's assignments and your individual learning. Specifically, each member of a team will assign a total of 20 points to the other two members of the team, with more points indicating higher contribution of that person to the team. Raters must differentiate some in their ratings (this means each rater must give at least one score of 11 or higher, with a maximum of 15, and at least one score of 9 or lower). As a result team peer evaluation will produce differences in grades only within teams. The best strategy is to do your best on each assignment, to help your teammates understand the concepts and to create a constructive, supportive environment that enhances everyone's learning.

Introduction: Purpose and concepts of system dynamics

System Dynamics Tools Part 1: Building a model

System Dynamics Tools Part 2: Problem definition and model purpose; building theory with causal loop diagrams

System Dynamics Tools Part 3: Mapping the stock and flow structure of systems

System Dynamics Tools Part 4: Dynamics of stocks and flows; linking feedback with stock and flow structure

System Dynamics Tools Part 5: Understanding the Dynamics of Simple Systems

System Dynamics Tools Part 6: Analyzing Systems and Creating Robust Policies

Growth Strategies: Network externalities, complementarities, and path dependence

Guest Lecture: Mark Paich System Dynamics at General Motors and beyond

Interactions of Operations, Strategy, and Human Resource Policy: The case of People Express

Lessons from People Express.

Course wrap up and evaluations.

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