System Dynamics is a powerful way to understand why important factors in the world around us change over time as they do, and what to do to improve them. For example:
- in business – growth of sales and profits, staff turnover, customer satisfaction;
- in environmental issues – levels of fish stocks, greenhouse gas levels;
- in public policy – levels of crime, shortages of nurses or teachers, eradication of disease.
It does this by showing how and why important factors develop over time as they do, and the interdependences between them, e.g.:
- in business – customers, staff, product development, service levels, training;
- in fisheries – the number and effectiveness of the fishing fleet, fish stocks, and controls on catches;
- in health care – numbers of patients, skilled medical staff, hospital capacity
The interdependence between such factors gives rise to complex patterns of performance outcomes, such as cyclicality, boom-and-bust, and vicious cycles of decline – complexity that makes normal spreadsheet analysis and statistical methods not fit for purpose. In contrast, system dynamics captures how the real world works with a networks of simple but rigorous causal relationships between clearly identifiable items.
Origins of System Dynamics
System Dynamics formed at the Massachusetts Institute of Technology in the late 1950s by Professor Jay W. Forrester. Forrester (1961) initially defined System Dynamics as: “The investigation of the information-feedback characteristics of (managed) systems and the use of models for the design of improved organisational form and guiding policy”. System dynamics is a method for studying the world around us. The main concept to system dynamics is to understand how all the objects in a system interact with one another. A system can be anything from a steam engine, to a bank account, to a cricket team.
The objects and people in a system interact through “feedback” loops, where a change in one variable affects other variables over time, which in turn affects the original variable, and so on. An example of this is money in a bank account. Money in the bank earns interest, which increases the size of the account. Now that the account is larger, it earns even more interest, which adds more money to the account. This goes on and on.
Another example of a simple feedback loop, which we have all experienced, is adjusting the water tap to reach a desired temperature. You turn the tap, feel the temperature and compare it to the desired temperature. You continue to adjust the water, with smaller and smaller adjustments, until you reach the desired temperature. What System Dynamics attempts to do is understand the basic structure of a system and therefore understand the behaviour it can produce.
Many of these systems and problems, which are analysed, can be built as models on a computer. System Dynamics takes advantage of the fact that a computer model can be of much greater complexity and carry out more simultaneous calculations than can the mental model of the human mind.
How useful is System Dynamics?
The approach can be used at varying levels, from very short ‘white-board’ analyses of simple issues up to large and complex simulation models of extensive challenges covering many different but inter-related topics.
System dynamics can deliver a very high ROI – a ‘return’ in the form of profit growth or other performance improvements, on the ‘investment’ of money and time. In business cases, results worth millions of pounds can result from just a few thousand pounds of effort, and in public policy and other non-profit cases, major improvements can be achieved with basic adjustment, or even a reduction, in how people and money are used. Click for examples of success stories.