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Especially during the last decade, the systems approach gained wide spread attention and increased influence in the world of academics and business. The holistic view of how individual elements interact with ea~h other to form an entity -not a collection of isolated parts -becomes more and more important. Whether it is called "integration" as in Computer Integrated Manufacturing, "organism" in ecological studies, or "network" like the communication network, it is the system's idea which opens neVI' dimensions for insights, applications and development. System Dynamics -or Industrial Dynamics as it was called during its early years by its founder and mentor, M.I.T.'s now Professor Emeritus Jay W. Forrester, -pioneered the use of system concepts and computer simulation for the analysis of complex problems in business and management. It was applied to study the dynamics of corporations, cities, national economies and, finally, the global problems of man and in his limited and fragile environment. The field has reached a stage of self sustained development and momentum. A few years ago the System Dynamics Society was founded, a high quality academic journal is now published in its fifth volume, and the annual International Conferences of the Society were institutionalized and took place in America, Europe and Asia. The organization of international meet· ings for this scientific community, however, is older than the System Dynamics Society itself. The first conventions were held as special sections of conferences devoted to simulation or cybernetics.

Inhaltsverzeichnis

Frontmatter

Plenary Sessions

Frontmatter

The System Dynamics National Model: Macrobehavior from Microstructure

The System Dynamics National Model was undertaken to show how local policies governing decentralized decisions in an economy create observed overall economic behavior. I feel we have succeeded well beyond our original expectations. The model, endogenously, without any external driving time series, generates the major observed modes of economic behavior:

business cycles

inflation

stagflation

the economic long wave

and growth.

Jay W. Forrester

The Structured Systems Approach for the Design of Optimisation and Simulation Models

The structured systems approach integrates the design of computerised models and information systems with comprehensive relational data bases. It can be applied to any kind of optimisation and simulation models including system dynamics. In addition, the structured systems approach supports the model design process and its documentation; it stimulates the interdisciplinary and interpersonal participation in the model design process.

Heiner Müller-Merbach

Misperceptions of Feedback in Dynamic Decision Making

In recent years laboratory experiments have shed significant light on human behavior in a variety of microeconomic and decision-theoretic contexts including auctions, bargaining, and preference elicitation (Plott 1986, Smith 1986, Slovic and Lichtenstein 1983). Despite the success of experimental techniques in the domain of the individual and small group, there has been comparatively little work relating the behavior of decision makers to the dynamics of larger organizations such as an industry or the macroeconomy. Experiments in both economics and psychology have focussed (with significant exceptions, e.g. Hogarth and Makridakis 1981, Kleinmuntz 1985, Brehmer 1986, Smith 1986) on static and discrete judgments. Hogarth (1981, 198) emphasizes

…the continuous, adaptive nature of the judgmental processes used to cope with a complex, changing environment…. With few exceptions…judgment researchers have focussed on discrete incidents (particular actions, predictions, and choices) that punctuate these continuous processes; furthermore, task environments are typically conceptualized to be stable.…. [I]nsufficient attention has been paid to the effect of feedback between organism and environment.

John D. Sterman

Synergetics and Social Science

General concepts for the quantitative description of the dynamics of social processes are introduced. They allow for embedding social science into the conceptual framework of synergetics. Equations of motion for the socioconfiguration are derived on the stochastic and quasideterministic level. As an application the migration of interacting human populations is treated. The solutions of the nonlinear migratory equations include limit cycles and strange attractors. The empiric evaluation of interregional migratory dynamics is exemplified in the case of Germany.

W. Weidlich

Corporate Strategic Thinking: The Role of System Dynamics

System Dynamics began thirty years ago as a bold attempt to apply engineering analysis concepts to business systems. But from the late 1960s onward, most System Dynamics research focused on public policy problems. Business applications have grown steadily, though less visibly and primarily outside academia. For example, over the past twenty-five years, Pugh-Roberts Associates has completed hundreds of management consulting assignments using System Dynamics for clients in the financial services, aerospace, electronics, telecommunications, computer, chemical, shipbuilding, transportation, electric power, energy, and natural resources industries. Some of the best-known, most successful businesses throughout the world have used System Dynamics.

Henry Birdseye Weil, Kenneth P. Veit

A System Dynamic Model and Policy Analysis for National Education and Economy Development

Most of the developing countries are faced the problem how to allocate limited resource to education to promote economy growth. In this paper, the System Dynamics methodology is employed to solve the problem. The interactions between education, economy and Science-Technology (S&T), and the inherent mechanism of education and economy are studied. Based on these studies, a system dynamics model for national education and economy development is established. According to the actual social-economic situation of China, several different resource allocation policies for education are tested on the model. Finally, some useful policy suggestions about resource allocation for education are given, such as the proper ratio of education expenditure to national income and the proper ratios of resources allocated to defferent levels of education.

Xu Qingrui, Zhu Keqin, Li Junjei

Parallel Sessions

Frontmatter

Business policy and strategy

Development and use of System Dynamics Models as Tools for Strategic Planning of Flexible Assembly Systems

In recent years the way in which problems are approached in the assembly area within the manufacturing firm has gained increasing importance for economic planning. In connection with this, the demand for a long term economic flexibility of assembly systems comes to the forefront. A firm should not limit itself purely to investment decisions in the planning of assembly systems, if it is to successfully meet growing demand (on both the market and technology fronts). However, it has become essential even in this field that strategic thinking and planning are considered more important than they have been in the past.

Stefan Foschiani

A System Dynamics Model for Automation

A system dynamics model is presented in this paper along with the results of simulation of some policies and their consequences automation. The automation seems to be the answer for faster growth and development throughout the world whether or not there is excessive labor or its shortage in a nation. Higher productivity, lower costs, better quality of products and services, remaining competitive and new innovations are benefits of automation and they are very important factors in industrialization and as well as in sustaining the jobs in the long run. Very often, particularly in the developing countries, the politicians either exploit or in most cases misunderstand the total effects of automation and computerization. In India, for example, computerization of even very important services like airlines and trail reservations, insurance and banking have suffered due to political decisions for two decades. Only recently they have realized their mistakes and are trying to catch up. This simple system dynamics model can be easily used for systems analysis to study the effects of automation and thus can help in making strategic decisions in automation and policy guidelines formulations.

Govind Gupta

Planned Organizational Change: Theory, Model, Data and Simulation

Organizations have to adapt to their environments in order to survive (Lawrence and Lorsch, 1967; Weick, 1969; Galbraith, 1967). Hence, recurrent structural changes are strategic responses of organizations to the growing turbulence of modern society (e.g., Tichy, 1983). While most organizations can alter their strategies, structures and procedures to some extent, many changes do not achieve their stated goals because of inertial forces blocking the way (Hannan and Freeman, 1984). Many of the factors affecting organizational change processes have already been identified (cf. Zaltman and Duncan, 1977), but we still lack a comprehensive view that integrates the various interplaying forces (Nadler, 1981; Carnell, 1986).

Chanoch Jacobsen, Yitzhak Samuel

Accounting Measurement and Methodological Characteristics of Accounting Dynamics

Accounting Dynamics is a methodology for modeling and simulation of accounting using System Dynamics. Our reasons for presenting Accounting Dynamics are as follows. a)Accounting is a primitive quantification of social processes composed of everyday transactions between economic entities.b)Therefore, accounting models, which consist of such transaction data, have their actual counterparts in the real economic world.c)On the other hand, accounting measurement (including double entry bookkeeping) is very adaptable to the System Dynamics observations.d)So that, Accounting Dynamics modeling and simulation seem to be very effective tools for depicting, analyzing, predicting and improving the actual state of resource allocation in social systems.We believe there is no other system that measures each and every routine transaction as completely as business accounting. Furthermore, in most System Dynamics research on social systems, e.g., the System Dynamics National Model, it is emphasized that there is no macrostructure, other than the aggregation of many microstructures. If the national economy’s behavior results from its microstructure, a realistic and reliable model of that microstructure will be an indispensable premise for building a National Model. The accounting Dynamics model will provide such a macrostructural building block at the business level or at the upper social level.In our presentation, we analyze accounting measurement and identify the methodological characteristics of Accounting Dynamics. Accounting measurement has axiomatic rules (primarily represented by double entry) and institutional constraints. Traditionally, accounting measurement is periodic (discrete) and lacks the feedback concept. We introduce the feedback concept into the accounting model and present generic Accounting Dynamics models in some detail.

Saburo Kameyama, Takahiro Kojima, Akira Uchino, Kinya Machida

Flexible Manufacturing and it’s Benefits for the Financial Situation of an Enterprise

— A System-Dynamics-Assessment on Investment Calculation —

Over the past decade, as a result of world-wide stagnation — combined with the entrance of low wage competitors to the market — the situation of the manufacturing industries in the industrialized economies became more competitive. Although it is not accompanied by an increasing output, the application of flexible manufacturing as a new process technology seems to enable the enterprise to gain productivity and to push up it’s competitive strength.

Thomas Klaue, Michael Veitinger

Modelling Business Strategies for Verification of Planning

The state of the art of business strategy design today uses well developed sets of rules. If business segments and competitors are known, then the interaction of the competing firms takes place on two different levels.In the market place one product outcompetes another within the same business segment. Within the different firms clearing of the business portfolio’s takes place across the market.Based on the extensive groundwork by A. Lyneis [1] we prototyped a general strategy-verification model, which not only serves as a training for marketing managers as e.g. Markops [2] but which allows to start the simulation adapted to the specific business context for which a proposed strategy has been formulated.Some cases will be used to illustrate the approach chosen.

U. La Roche

Market Analysis and Forecasting as a Strategic Business Tool

Pugh-Roberts has developed a number of simulation models to forecast the demand for products in specific markets. These models contain key feedback relationships which create growth, decline, and cycles in demand. They are unique in their integrated representation of macro-economic, micro-economic, and regulatory factors. Their broad scope makes them powerful enough to specifically show the relative importance of industry factors such as manufacturer pricing policies, inventory and production policies, capacity expansion policies, and the timing of new product introduction, in creating or magnifying market cycles. These models are highly valuable because, unlike simple statistical models, they explain the root causes of cyclical behaviour and can therefore more accurately predict the timing and severity of market cycles. As a result, the models provide valuable information regarding: * timing of “booms” and “busts”* required production capacity and production rates* “windows of opportunity” for new product introduction* relative growth of market segments* relative importance of growth versus replacement demand* relative importance of price, availability, and technology in determining demand and market share* effects of macro-economic, regulatory, and/or political changes on overall demand patterns. These market models have been used successfully in the aerospace, automobile, computer, container shipping, financial services, industrial coatings, insurance, health care, and mail order retailing industries, so they are quite generally applicable. To illustrate their value versus statistical models, two of the existing aerospace models are examined in detail. With emphasis on the “Macro/Micro” issues, the basic causal structure is described and the importance of feedback is demonstrated with sensitivity tests. General uses, and examples of other potential applications, are also discussed.

James M. Lyneis, Maurice A. Glucksman

Loop-Based Strategic Decision Support Systems — Theory and Application —

During the last few years we have witnessed the development of two main lines in computeroriented strategic decision support — quantitative simulation approaches und qualitative knowledge based (expert-) systems. As we will show in this paper the process of strategy making can be improved by combining the two approaches within loop-based strategic decision support systems.

Peter P. Merten

Modelling a Biotechnology Startup Firm

The top managers of a biotechnology startup firm agreed to participate in a system dynamics modelling project to help them think about the firm’s growth strategy. The paper describes how the model was created and used in order to stimulate debate and discussion about growth management.There were several novel features about the process used for capturing management team knowledge in the model, and for representing unique structural features of biotechnology manufacturing and marketing. The paper highlights these novel aspects of conceptualisation. A heavy emphasis was placed on mapping the operating structure of the factory and distribution channels. In addition, much time and effort was spent on choosing model concepts and vocabulary suited to the business and to thinking carefully about units of measure and dimensions. Qualitative modelling methods (structural diagrams, long variable names and friendly documented algebra) were used extensively to capture the management team’s descriptions of the business.The size of the model (and partial models) was kept deliberately small to ensure the involvement of the management team. Simulation scenarios were designed to stimulate debate about strategic issues such as capacity allocation, capacity expansion, customer recruitment, customer retention and market growth. The paper describes how the management team was ‘drawn-in’ to using the computer to design and debate their own strategic scenarios. The paper concludes with comments on the impact of the project.

John D. W. Morecroft, David C. Lane, Paul S. Viita

Computerbased Decision Support of Strategic Planning and Strategic Management with System Dynamics Models Illustrated by the Example of the German Federal Railway

The competitive situation of the German Federal Railway has visibly intensified due to the following factors: the way in which important customers (the coal and steel and fertiliser industries) are susceptible to crisis; the longstanding political favouring of road construction; the introduction of new technologies (video link-up, electronic mail etc.); and also the europeanisation of the transport market and the associated price decay (Deutsche Bundesbahn, 1987). The precarious financial situation, as well as growing pressure from the public, presents the railway management with the difficult task of, on the one hand, reducing costs, and on the other hand, of improving the standard of the service offered. In order to be able to cope with this problem, it is necessary to identify and formulate corresponding strategies, against the background of existing strengths and weaknesses, as well as growing chances and risks arising from environmental development. Through these strategies, and through innovation, investment and a reduction in costs, the railway can be developed from a bureaucratic institution to a modern and competitive tertiary sector company. Only in this way can the railway’s ability to survive be secured in the long term (Zahn, 1988).

Dieter Schmidt

Teaching and Training

Feedback Delays and Control in Complex Dynamic Systems

Modern technology makes great demands upon people’s ability to understand and control complex dynamic systems, such- as process plants. In such systems, feedback delays are inevitable; everything takes time, and there is little hope that a person will be able to observe all, or even the most important, consequences of his actions immediately. For example, in some industrial processes, the effects of certain control actions may not be apparent until hours later. Whether or not a person is able to develop adequate strategies to cope with such delays will determine the extent to which he/she will be able to control a complex dynamic system. Thus, this is a question of considerable practical importance, as well as a question of theoretical interest.

Berndt Brehmer

A Successful Management Training Institution must Interact Intensively with its Environment

Criteria for evaluating success of management schools in terms of contribution to society are presented.The network of interactions that make a management school successful is described. It contains links with the dominant power groups : business community, government, unions and public institutions in general. It includes students, alumni, and staff. Business needs, research results, schools’ prestige and attractiveness to faculty are also part of it.The nature of the interrelations and their relative importance are examined during the four phases in the life of a management training institution: feasibility analysis, planning, launching and sustained operations.Some causes peculiar to mature management schools’ frequent stagnation and decay are examined and preventive actions suggested.

Andres E. Breiter

A Study on Human Control in Stock-Adjustment Tasks

Results of an ongoing study investigating the effect of different task feedback characteristics on human performance are reported. In a computer-assisted experiment, subjects were asked to perform a dynamic stock-adjustment control. A subject’s control action enters the system in two ways: it effects the stock to be adjusted and it feeds back on the disturbance that impinges on the system. The latter effect is varied with respect to its strength and its delay. The major finding that emerges from the experiment is that increasing strength in the feedback link (in either a positive or negative direction) worsens performance. An effect of delay length on performance could not be shown.

Ernst W. Diehl

A Metalanguage for Communication, Confidence, and Commitment: A New Perspective on Influence Diagrams

Recent international conferences of the System Dynamics Society have emphasized the value of diagrams and models to teach strategic thinking. In addition, these diagrams have proved useful in communication, which, as I. A. Richards states, is the process of eliciting meanings. According to Richards, “the goal of communication is to create a similar mental experience in the other, a goal that can be achieved only when the communicators share a certain degree of past experience”(Richards, 1923). The work of the researchers discussed below illustrates how diagrams are used to effect the sharing of experience to facilitate communication and cooperation in groups.

Julia M. Di Stefano

A Training Game and Behavioral Decision Making Research Tool: An Alternative use of System Dynamics Simulation

The overall design is sketched of a training game and behavioral decision making research tool based on a System Dynamics corporate simulation model of a magazine publishing company. The organization of the program to run the game and the type of output generated is described. Some of the possible uses of the game to investigate behavioral decision making and group learning in a complex decision environment is mentioned.

Roger I. Hall

Organizational Learning: A New Challenge for System Dynamics

The subject of how organizations learn and how organizational learning can be enhanced and accelerated is becoming a major interest in the business world. In the movement to reinvigorate American manufacturing, organizational learning has emerged as a major theme. In Hays, Wheelwright and Clark’s recent book

Dynamic Manufacturing: Creating the Learning Organization

. (Hays, R. H., Wheelwright, S. C. Clark, K. B., 1988) the authors conclude:

“There is one common denominator in high-performance plants: an ability to learn -to achieve sustained improvement in performance over a long period of time. When assessing a manufacturing organization, learning is the bottom line.”

Peter M. Senge

Methodology and theory/optimization

Generic Qualitative Behavior of Elementary System Dynamics Structures

The paper starts with some reflections on the qualitative nature of the concepts involved in system dynamics modelling. To deal rigorously with this nature topological tools are needed. These tools are being developed around the qualitative theory of nonlinear dynamical systems. The relevance of this theory to system dynamics is now begining to be understood.The paper introduces a dynamical system associated to the causal diagram that contains only qualitative information. Some interesting results on the qualitative behavior of the system can be obtained from this dynamical system.

Javier Aracil, Miguel Toro

Tests of Model Behavior that can Detect Structural Flaws: Demonstration with Simulation Experiments

Validation of System Dynamics (SD) models involves two general types of tests: Tests of model structure and tests of model behavior. Yet, since SD models are causal models, the essence of model validity lies always in structural validity: “Right behavior for the right reasons”. (The nature of SD model validity has been discussed in various SD literature. For example, Forrester 1961 (Chapter 13); Forrester 1968; Forrester and Senge 1980; Bell and Senge 1980; Richardson and Pugh 1981 (Chapter 5 and 6) and Barlas 1985). Standard behavior tests, which compare the model-generated behavior to the observed reference behavior are generally “weak” in SD context, since they can not separate spurious behavior accuracy (“right behavior for the wrong reasons”) from true behavior validity. Such tests provide no structural information. Structure tests, on the other hand, are “strong” tests, since they evaluate the model structure directly. But their their major drawback is that they are informal, qualitative, hence difficult to communicate. (See Forrester and Senge 1980, and Richardson and Pugh 1981 (chapter 5) for some specific behavior and structure tests). Thus, it seems like a “third type of test” would be most appropriate for SD validation purposes: Quantitative/formal behavior tests that can provide some structural information (“structurally-oriented” behavior tests). Interestingly, such tests already exist in the SD validation “repertoire”. (For example, “Extreme Condition” simulations, “Behavior Sensitivity” testing, in Forrester and Senge 1980 and Richardson and Pugh 1981). But these tests are usually listed along with all other behavior tests, which undermines the major difference that exists between the former and the latter.

Yaman Barlas

Modeling Control of DNA-Replication in Bacterial Cells

We have developed a dynamic model of DNA replication control in bacterial cells and of the subsequent cell division. The main hypothesis is that a certain protein, which has a negative feedback regulation on its own production, is an essential factor in initiation of the replication. The model is stochastic in the sense that the kinetic association and dissociation processes are assumed to take place in accordance with a Poisson probability distribution with mean values that match experimentally determined constants. An important feature of our model is that it shows correlation between the magnitude of the kinetic rate constants and the size, stability and the dynamics of the cell. The model thus allows us to analyze the distribution of cell volumes at the time of initiation for different growth rates, different association and dissociation constants, and different promoter strengths.

Brian Bodholdt, Bjarke B. Christensen, Jacob Engelbrecht, Erik Mosekilde, Jeppe Sturis

Designing a Manufacturing Policy Using the Reference Approach and Alternative System Dynamics Support Methods

The purpose of this paper is to compare the efficiency and robustness of policies obtained using alternative system dynamics support methods. The comparison shows the need for creating new methods which combine the efficiency of the optimization methods with the robustness of the modal methods. One of these hybrid methods is the recently developed reference approach which exhibits the best efficiency and robustness.

Julio Macedo

Fuzzy Evaluation on the Validity of System Dynamics Models

How to evaluate the validity of the system dynamics models, which is a subject of interest to us. Generally speaking, it is necessary to test the model extensively from different angles, so that people can understand and believe in that model all through, this is so called the validity of the model. Of course, this shouldn’t be all right to evaluate the validity of the whole model only depend on a single test. Hence, the problem is how to evaluate completely the validity of the model through multiple tests. In practice, this is a problem about the synthetical evaluation. The synthetical evaluation can use the approach to find the sum, namely keep the score for the result of each test and then count up them. It can also use the weighted average method. But they aren’t suitable to evaluate the validity of the models. Because the validity is a fuzzy conception. Only using a simple fraction to evaluate the validity of the system dynamics model is not precise. Therefore, it probably is a better method to evaluate the validity of the model synthetically using the fuzzy sets theory. This paper discusses the multilevel evaluation system and fuzzy synthetical evaluation method for the validity of the system dynamics model, and gives a computation example at last. The example proves that fuzzy synthetical evaluation can give satisfactory results.

Weimin Pei

Aggregate Dynamics of a Population of Commodity Cycle Models

A fundamental problem in the understanding of dynamic behavior of complex systems is to determine how the aggregate behavior of the system arises from the behavior of its components. System dynamics models show the importance of representing explicitly the interactions between multiple sectors and policy variables (rates) for understanding behavior in the aggregate. But these models beg the question of explaining the behavior, even of the sub-sectors, by representing in an aggregate way the information flows and the transformations used by decision-makers. For example, in a model of a manufacturing organization, the decisions of individual product-line managers may be represented by a single aggregate rate variable. A more basic problem, and the subject of this paper, is the relationship between the structure and behavior of the aggregate (the organization) and of its components (the individual decision-makers).

R. Joel Rahn

System Formalitation and Models Building

(An approach to Zeigler’s view through a University/Unemployed model)

In this work, we examine advantages of formalization, and specially Zeigler’s system formalization, relating it to the most fundamental concepts used when building models with System Dynamics (SD). This is exemplified through the University/Unemployed model. We finish talking about the relations between model, theory and system concepts1.

Margarita Vázquez, Manuel Liz

Tomorrow, Today: System Dynamics Models or Expert Systems?

It was once suggested to me, half jokingly perhaps, that System Dynamics offers “2nd-Generation Expert Systems — before the 1st Generation”. This paper reconciles the theories and processes, and draws upon business consulting assignments, to examine how close to reality this notion is.

Graham W. Winch

A Study of Sensitive Test

It is necessary to test a newly built model to make sure that it does simulate the actual system. The test may include many aspects, such as sensitive test, comparison test with history data, etc. This paper studies sensitive test and presents some result of the findings.In studying the structure of a given system, the endogenous variables and exogenous variables are given explicitly. If we can not tell the difference between them correctly, it may confuse the real meaning of the sensitive test.In the present analysis we find that the conditions for non-sensitivity of variables to a model are: 1) the change is made for one variable only and 2) the change is small. The conditions for sensitivity of variables to a model are: 1) two or more variables change at the same time and 2) the change is great. A model may also become sensitive for a small change of the exogenous variable.The above results have been thoroughly investigated and the methods of sensitive test are presented.The system always changes from one stable condition to another stable condition in which it is non-sensitive to variable changes, but if the system is in a state between two stable conditions, it is completely possible to become sensitive to variable changes. So we may point out that the model builder and analyst are required to find out the correct boundary of stable conditions.Finally, the simple economic long wave model is tested to confirm the above results.Recent evidence (System Dynamics Review vol.4, No.1–2, 1988) points chaotic modes do exist in the range of models commonly explored by most students and practitioners of System Dynamics. Experiments also demonstrated that chaos can in fact be produced by decision-making processes of real people. Chaos thus appears to be a common mode of behavior not only in physical systems, but also in social and economic systems. However, chaos is a steady-state pheonomena over very long time frame and many policy-oriented models are concerned with transient dynamics with time horizon much shorter than those used in chaotic dynamics. Over such extended time horizons the parameters of the system can’t be considered static, but will themselves evolve with learning and evolutionary processes.With such a viewpoint in mind we have explored a study of sensitive test in the following way.

Ching T. Yang, Ansheng Cao

Gaming & decision theory/computer-based learning

Learning in dynamic simulation games; using performance as a measure

In a dynamic simulation game portraying a multiplier-accelerator investment problem, there are major differences between high and low performers; high performers voice specific concerns for future states of the system, while low performers are less likely to think about the future. Planning, especially incorporating the deceptive nature of feedback, is necessary in systems that exhibit diverging long and short term behaviors. A comparison of game results with written reports shows that there is a positive relationship between performance and understanding of the game. These results are contrary to previous research where performance and understanding have been unrelated (Broadbent et al. 1978, 1986), but can be explained by the added complexity of non-linear feedback tasks with shifts in loop dominance. Such tasks are, in contrast to simple regression model tasks, non-routine and therefore verbal and behavior aspects of decision makers’ mental models correspond.

Bent E. Bakken

Computer-Based Case Studies in Management Education and Research

There is growing interest in combining system dynamics models with conventional case studies in order to create learning environments for management education. Such computer-based case studies promise improvement in strategic thinking skills and better integration of modeling in the policy and strategy area. Moreover, these models-with-cases are tangible products with which to conduct research in computer-based learning. This paper surveys the opportunities for using computer-based case studies in management education and for conducting novel research on management learning.The paper first examines how models-with-cases fit in the established areas of strategic management and business policy. Which issues, in the broad range covered by strategic management, do models-with-cases address? Next, two current examples of computer-based case studies are presented (People Express Airlines and the Intecom PBXs) to show explicitly how cases and models are combined and used. Finally, the paper explores research questions that arise in conjunction with such work: 1) how to teach effective inquiry skills, 2) how to teach conceptualization skills, 3) how to enhance the ability to apply learned theories to new situations, and 4) adapting measurement methods to evaluating the educational effectiveness of computer-based cases in teaching these mental skills.

Alan K. Graham, Peter M. Senge, John D. Sterman, John D. W. Morecroft

Learning Laboratories: Designing a Reflective Learning Environment

The use of interactive gaming environments to teach systems principles has recently been gaining in popularity. One of the most promising applications of system dynamics model-based games is “learning laboratories,” workshops that blend system dynamics principles and repeated simulation game trials with ongoing conceptualization and feedback sessions to help managers gain a deeper understanding of the system within which they operate. This paper will first describe the design of such a learning laboratory, its implementation, and its use as a vehicle for learning to think more systemically. This will be followed by a discussion on how the learning lab helps unearth deep-rooted assumptions and encourages people to challenge them in a “double-loop learning” mode. Finally, the paper concludes with a brief discussion on possible future steps towards developing systems thinking skills in an organization.

Daniel H. Kim

Modelling the process of complex system control

The research reported here Is concerned with the determinants of complex system control. It is part of a rather comprehensive project where subjects are studied when acting in an unfamiliar, dynamic task environment. In the following the research approach as well as some of the empirical results will be reported only briefly. The focus is on the description of a computer programme and its role in the research strategy.

R. H. Kluwe, C. Misiak, H. Haider

Eliciting Group Knowledge for Model-Building

System dynamics models are typically created using multiple streams of information including quantitative data, written records, and information contained in the mental models of both individuals and groups. While qualitative sources of information are widely recognized as important in all stages of the model building process, little systematic research has been completed on how best to elicit and map this knowledge. In this paper, we survey the existing literature on mapping and eliciting knowledge for system dynamics modeling and also explore the literature in the broader fields of cognitive psychology and small group processes. Special attention is paid to new software advances to support these processes.2

George P. Richardson, Jac A. M. Vennix, David F. Andersen, John Rohrbaugh, W. A. Wallace

A Dynex-Based Learning Laboratory for Economic Development Planning

This paper describes a user-friendly learning medium that revisits the problem of economic development with a behavioral perspective. Formal modelling and computer simulation create a laboratory which makes it possible to experiment with ideas without incurring the costs and risks of action research. Besides sharing the insights gained by the author in his experiments, the package also invites further experimentation by the readers through the use of the accompanying software.

Khalid Saeed

Macro economics policy

A Critique of Roemer’s Conception of Exploitation

The paper deals with Roemer’s claims that the Marxian theory of surplus value is logically faulty and should be considered the special case of his own “general theory of exploitation” (the “GTE”). It is shown that Roemer’s model and theorems implicitly confirms the main point of “Das Kapital”s profit does be the converted form of surplus value produced by working class under capitalism.

A. V. Rvzhenkov

A System Dynamics Approach to the Function of the Economic Leverages in China’s Economy

After being overlooked for many years, now the financial and monetary system plays an important role of adjustment and control functions in national economy, relating to which, the four economic leverages--price, tax rate, interest rate and wage are the main tools of carrying out these functions. Based on system dynamics approach, this paper quantitatively studies the long-term development tendency of their interaction and coordination. Based on simulating results under normal economy development, policy tests and analyses have been done to discuss the problems emerging from current economic reform. The reasonable ranges of the adjustment of price, tax rate, interest rate and wage increase rate are suggested and the amount of money supply are discussed. Then some policies of coordinately applying the leverages to improve the behaviors of system are put forward. This paper has made some progress in quantitatively analysing the long-term development of the financial and monetary system, in establishing a credible and practical model for policy analysis to solve the problems emerging from the economy of China.

Qifan Wang, Wang Ying

A Socio-Economy Development Strategy Study of a Typical Underdeveloped Coastal Open City

This study is related to the socio-economic development strategy of a typical underdeveloped coastal open city (named L) which was mainly done by means of system dynamics approach.

Qifan Wang, Hongshan Yang, Manling Yang

Quantitative Analysis of Inflation Issue in China

It is no doubt that China now is facing a challenge of inflation: quick prices rising, over issued monetary, rapid growing total social demand and unsufficient production supply…The present paper studies the inflation issue in China in terns of the macroeconomic theory by system dynamics, in order to find the fundmental causes and the self-promoting mechanism of inflation in China. In this paper, factors of total social demand, monetary issue, etc. have been qualitatively and quantitatively discussed, some policy tests have been made, and finally the new viewpoints and suggestions which will help to cut down inflation are put forward. It is a new test to study inflation by system dynamics instead of by regression or curve fitting.

Xu Jie, Wan Xuemei, Yan Guangle

Government policy and planning

Elements for Periurban Dynamics

Rapidly growing cities cause inadequate transformation in the use of land. Government policies tend to be obsolete shortly after implementation, supply of basic services becomes insufficient and expensive, and food prices tend to increase. All these factors are certainly the case in many developing countries where large amounts of population often migrate to settle down, sometimes in dangerous or unhealthy locations, but other times in areas suitable for agricultural purposes in the periphery of the city.The land surrounding the metropolis enters a transitional stage. The territory becomes uneconomical for rural exploitation, but it requires to be supplied with basic services for urban housing.. The System Dynamics approach is then appropriate to study and plan these unstable systems.This paper presents a model to assess the growth of peripheral districts of the city. It is a useful aid for policy making in land use issues and a good tool for planning basic services such as health, schooling, transport and recreation.A simulation is carried out for the Periurban District of El Corazon in Medellin, Colombia. A good approximation between historical data and model results can be appreciated. Some scenarios of future growth are explored and the consequence of land-use policies are confronted.

Isaac Dyner, Luz Mery Berrio, Adriana Bolivar

Energy Supply Modelling: The Case of Cyclades

The Cyclades, a group of over thirty dispersed islands in the middle of the Aegean Sea can become a case study for energy-driven regional development. High cost, low reliability and scarcity of energy have significantly contributed to the underdevelopment of the, region. There is a lack of local conventional energy sources, but the potential of renewable energy sources, namely geothermal, wind and solar is many times greater than the region’s energy needs.

Th. Goumas, Ar. Papasavvas, D. V. Papaconstantinou

A System — Dynamics Examination of the Effects of the Mahaweli — Project in Sri Lanka

The following System — Dynamics model simulates the effects of a development aid to a certain project on social and economic sectors in a development country.The project, which has been started in 1980, treats the damming up of the Mahaweli — Ganga in Sri Lanka. The advantages of this great project can’t be assessed applying only classical measures of yield.Using System — Dynamics it is possible to analyse the effects of the project on sectors like the labour market, agriculture and the budget of Sri Lanka and to discuss changes of the values in this fields.An improvement of the values of the 4.5 billion US$ project would create the foundation for further investments.Moreover, the effects from the building of hotels and possible direct investments of foreign enterprises in Sri Lanka are to consider.

Frank Lehmann, Thomas Lehner, Jürgen Beckmann

A System Dynamics Model for National Energy Policy Planning

The U.S. energy system has been the subject of intense national interest and policy debate over the past two decades. During that time the U.S. has experienced a steady trend toward increased oil imports, two major oil embargoes, oil price shocks, and a series of government policy initiatives designed to reduce its vulnerability to oil supply disruptions: Project Independence, the National Energy Plan, and more recently oil and gas price deregulation.

Roger F. Naill, Sharon D. Belanger

Schedule Delays and New Financing for the Argentine Electricity Sector Growth

Apparently the electricity sector of Argentina has suffered in the past from excessive capacity planning, owing to overoptimistic forecasts of the demand growth rate. But because of the long delays involved and lack of financial backing this advantage has been progresively lost. The present official planning only provides for renovation and demographic growth, not allowing for economic growth. Therefore, the actual supply-demand balance of electricity can easily be worn away by technical obsolescence and aging process of the actual installed capacity of electricity production.The problem behaviour arises when the timing of new capacity investment is delayed, falling behind the programmed schedule of new plants, without being able to meet the electricity demand . This could happen mainly due to political prices well below costs because of the inflation and or social subsidization, which leads, in turn, to the discapitalization of the sector, that still remains nationalized. A system dynamics model is used to explore the trade-off between construction delays (which entails costs of unsatisfied demand) and construction speed up (which entails financial costs).

J. Rego

Corporate and Statewide Perspectives on the Liability Insurance Crisis

The costs associated with liability insurance in the United States are rising dramatically and persistently. Escalating medical malpractice premiums threaten the scope and availability of health care in many states. Increasing costs for automobile insurance have led to public referenda to cap premiums, in turn driving insurers out of practice in some states. Runaway litigation costs are prompting calls for major revisions in liability statutes and the whole tort liability system.Over the past two years, two independent system dynamics studies of the rising costs of liability insurance have been conducted. One study focused on forces driving rising settlement costs within a leading property and liability insurance provider. That study has resulted in a learning laboratory to help managers throughout the firm form a more systemic perspective on how established policies and practices within the firm might contribute to rising costs. The other study, done for the New York State Insurance Department, looked at the problem of medical malpractice liability from a statewide regulatory perspective. It was designed to provide help to the state legislature in setting the state’s policy on rates over the next three years.This paper assembles some of the work done in these two independent studies, reports on their findings, and discusses their policy implications. Of particular interest are implications of the Internal and external system dynamics perspectives on the problem — where they agree, where they disagree, and where they help to illuminate each other.

George P. Richardson, Peter M. Senge

System Dynamics Applications in the Sector of Electricity

As for as we know there are relatively few examples of application of System Dynamics in the electric power Industry. Some of them are nonetheless of high interest. We can mention the program of the Bonneville Power Administration that had been presented in a previous Conference of the System Dynamics Society. Our purpose at Electricité de France was to scan the areas in which System Dynamics could be helpfull to our company

Maurice Roche

A Study of Shanghai’s Industrial Structure

The main purpose of this paper is to study the dynamic behavior change of Shanghai’s industrial structure. Shanghai’s industry is facing a severe situation now. In one hand, the industry is required to make adjustments in its structure and distribution according to Shanghai economic development strategy; in the other hand, its ageing technology and structure of products, together with the shortage of energy and raw material, result in decline of profits in industrial enterprises and “landslip” of government revenue. Therefore, how to adjust the structure of Shanghai’s industry reasonably is becoming an urgent task. With the aid of industrial development history of western developed countries,this paper analyzes the reasonable development of industry from four aspects, creats a system dynamics model to simulate the dynamic change of city’s industrial structure and tests its validate. At last, the paper uses this model to analyze the trend of Shanghai industrial production and studies several problems in industrial economy, such ass: selecting the leading industrial department of the city; allocating funds reasonably; using energy and raw material efficiently and affecting of technology, pollution and transportation on industry. In policy test, the paper proposes a series policies to authorities responsible for industry development for reference.

Qifan Wang, Tingchun Huang, Huimin Fu, Jinquan Qiu

An Application of System Dynamics to the Research on the Strategy of Rural Development in Heilongjiang Province

By means of a study in the application of System Dynamics theory and approach,a quantitative analysis on the coordinative development of the main agricultural productions in Heilongjiang Province is made, constructing a simulation model of system dynamics which is composed of farming,forestry,animal husbandry fishery,land resoures and population.The relationships between the various productions mentioned above, as well as between the internal variables within each production are correctly described in the model.Simulation analyses on the relationships between various productions and between the internal variables within each pro-duction,by using the model,are made and,at the same time,many programs which have advantages for the coordinative development of various productions result from these analyses.

Zhao Wen-Huang, Wang Hong-Bin, Gu Lin-Ming

The Dynamic Relationship between Transportation and other Industries in China

This paper analyses the dynamic relationship between transportation and other industries with system dynamics theory and method.We develop a system dynamics model to protray how the transportability influences other indistries,and have made some computer simulation in which we simulated the dynamic characteristics of the system at different alternatives of investment.In the simulation, we properly reduced the investment in heavy industry and increase the investment in transportation, while the total amount of the investment is the same. The output value of heavy industry didn’t decrease, on the contrary, it increased. At the same time, the output value of other industries and national income increased too. This indicates that the transportability directly influences the output value of other industries.From the simulation result we also see that the investment in transportation of China is too small and this leads to the situation that the development of transportation can’t meet the demand of national economics in China.This paper is a application example of how system dynamics is used to solve problems of social economics. This research will help people to know the importance of transportation in national economics and government to make policies.

Manlin Yang

A S.D. Model for Rational Exploitation and Utilization of Water Resources in Arid and Semi-arid Areas

This model, composed of 12 subsystems and more than 220 equations, disccusses various factors concerning water resource and the feedback relations of these factors. Through emulations of the different decision plans, it puts foreward the most favorable plans for rational and economical exploitation of water resources, the improvement of water utilization ratio and the best use of water under the conditions of a sound ecological balance.

Li Zhou-wei, Zhou Yong

Modelling technology

System Dynamics as a Tool for Historians: The Role of Software

This paper intends to explore the potential of the System Dynamics approach as a new auxiliary science for the historical analysis. To this end a portable DYNAMO-like package, called STEC, has been developed.The paper, first, describes the peculiarities of the System Dynamics method as a tool for historical research, and gives an outline of the project; second, it argues that the scanty diffusion of System Dynamics might be due, among other factors, to the lack of a public domain software; third, it asserts that the “old style” data processing (command line interface and batch mode) can prove itself still usable and fruitful; and last, it shows the STEC main features.

Nicola Bianchi

Non-Linear Dynamic Phenomena in Electron Transfer Devices

We have modelled the highly non-linear dynamic phenomena which arise in Gunn diodes by interaction between the internally generated domain mode and an external microwave signal. As the frequency of the microwave signal is changed, a devil’s staircase of frequency-locked oscillations develops, interspersed with quasiperiodic solutions. Period-doubling and other forms of mode-converting bifurcations can be seen in the interval of some of the steps. At higher microwave amplitudes, deterministic chaos arises. The transitions to delayed, quenched, and limited space charge accumulation modes are followed.

Rasmus Feldberg, Carsten Knudsen, Morten Hindsholm, Erik Mosekilde

Rössler Bands in Economic and Biological Systems

A Rössler band is presumably the simplest of all chaotic attractors. It can develop in systems with only three state variables if two of these produce an outward spiralling trajectory, and the third folds this trajectory back towards its center when the amplitude of the expanding oscillation becomes sufficiently large. In the present paper we show how Rössler bands can develop through slight modifications of well-established economic and biological models.

B. G. Hald, C. N. Laugesen, C. Nielsen, E. Mosekilde, E. R. Larsen, J. Engelbrecht

Creating System Dynamics Models Hierarchically Using SADT

SADT™ trademark of SofTech, Inc., Waltham, MA), a hierarchical system description notation, was used to create System Dynamics models. This paper discusses the two SADT model types, data and activity, and their correspondence with System Dynamics patterns. Rules for transforming an SADT data model to a System Dynamics model, semi-automatically, are proposed. This information is then used in a step by step translation from a SADT data model to a System Dynamics simulation model. An example is given showing how the SDT hierarchy enhances the understanding of the simulation model.

M. B. Hommel, C. McGowan

Knowledge-Based Modelling

Knowledge-based modelling consists of qualitative models which are implemented in a hybrid, rule- and frame-oriented programming language. Qualitative models achieve flexible and detailed description or both the simulation entities and relationships. This paper presents a simulation expert system which is based on a multi-level representation scheme of causal diagrams. It offers a qualitative “presimulation”, that is conclusions about the sensitivity of the elements, the restrictions and the possible behaviour of the model. It enables explanation of the various implicit structural and dynamic relationships and the user to be guided to efficient quantitative simulation.

Andreas M. Kleinhans

System Dynamics Simulation of Spatial Character

System Dynamics modeling has been applied to regional, urban, and community problem solving where critical policies are concerned with land-use controls. Representation of change in the spatial distribution and physical appearances of various activities have traditionally been achieved by modeling these as transfers between relatively homogeneous sub-area sectors. Due to lack of capabilities for direct representation of physical space showing the distribution and appearances of activities over geographic space, System Dynamics modeling has received little attention in environmental and city planning practice. In this paper, we describe the main components of a methodology to make the System Dynamics modeling more integral in planning and design for community development, also including spatial representation.

F. H. Sancar, S. Allenstein

Chaos Study in System Dynamics

Based on our study of synergetics and dissipative structure theory, by means of mathematics, in terms of the viewpoint of system dynamics, this paper concentrates on the study of chaos in system dynamics: we analyze the nature of chaos phenomenon and the characteristics of system dynamics, put forward the viewpoint that chaos testing should be included in model testing of S.D. ; we investgate several necessary conditions of chaos; we creat a model to question a famous sufficient condition of chaos; then, we shed some light on the way toward which chaos will occur. At last, we successfully apply our theoretic study to a standard nuclear spin generator model.

Qifan Wang, Zhiping Yao, Guangle Yan

Improving Insight and Understanding by Optimising System Dynamics Models

This paper will outline the concept of system dynamics optimisation using the DYSMOD software and present a case study of its use to analyse a defence problem. The insights into the problem, which were generated from a conventional system dynamics model and its policy design experiments, will be given. This will be followed by the presentation of results from a set of optimisation experiments, utilising a range of objective functions and structural design parameters. The paper will focus on the value added to the understanding of the problem which resulted from this process. The overall conclusion is that optimisation subsumes conventional sensitivity analysis as well as providing an holistic interpretation of the behaviour of a system dynamics model.

Eric F. Wolstenholme, Sattar A. Al-Alusi

Technology & project management

A Study on the Coordinated Development of the R&D and Socio-Economy for a Typical Large City in China using System Dynamics Approach

Taking Shanghai as an example, we have studied qualitatively and quantitatively the problems concerned with the coordinated development of the R&D and socio-economy for a typical large city in China. In this paper we first discuss some theoretical problems concerned with the coordinated development, then using the approach of system analysis to investigate the typical phenomena characterizing the imbalances of the development and the main reasons (constraints) which have caused these imbalances. And then we outline our main framework and ideas of the “System Dynamics Model for the Coordinated Development of R&D and Socio-economy” , illustrate the main strategy spectrum analyses and policy tests conducted on the model, and present the main conclusions and policy recommendations.

Qifan Wang, Bingyi Yang

The Coordinative Development between R&D and Tech-Acquisition in China

This paper studies the coordinative development of R&D and tech-acquisition in the industrialization process of China,dealing with the mechanism of interaction between R&D and tech-acquisition.It also deals the mechanism of limited resources allocation in capital investment to R&D and tech-acquisition areas.A system dynamics model about coordinative development of R&D and tech-acquisition is developed.

Xu Qingrui, Jin Keyie

Dynamic Modelling and Policy Analysis on Technological Progress and the Change of Industrial Structure

Based on the mechanism of interaction among R&D, technological progress, the change of industrial structure, and economic growth in both supply and demand sides, and with the help of dynamic input-output analysis, in this paper a system dynamics model is constructed, focusing on the notable impacts of technological change on structural change in the Chinese economy. Through modelling and policy analysis,some new findings and patterns of long-term development, including the preferential consequences and opportunity for industrial development, future prospects for China’s S&T and economy during the next fifty years, the evoluation of industrial structure in the process of industrialization, and resource allocation to different industries and R&D expenditure allocation, are obtained.

Qingrui Xu, Hanping Li

War, peace & conflict management

The Planning and Controlling of Infantry and Artillery Joint Combat Operation

THIS PAPER DEMONSTRATES THE USE OF SYSTEM DYNAMICS AS A DEVICE TO SIMULATE A SYSTEM OF INFANTRY AND ARTILLERY COOPERATING IN JOINT COMBAT OPERATION THE SYSTEM UNDER STUDY DOES NOT REPRESENT A REAL OR ACTUAL BATTLE_FIELD. THE MODEL REPRESENT A SCENARIO DESCRIBES HYPOTHETICAL SYSTEM OF ACCEPTED THEORETICAL STRUCTURE OF HOW INFANTRY AND ARTILLERY MAY CO-OPERATE IN ORDER TO ACHIEVE A DESIRED ADVANCE ON A REAL BATTLE_FIELD.

Mazen J. Alwani

System Dynamics and Defence Analysis

Operational Research (OR) had its origins in the need to make decisions about the use of resources in support of national defence. The specific case was the invention of radar in the late 1930’s and the military problem was to decide how this new technology could best be employed, in conjunction with the existing assets, such as fighter aircraft, for the air defence of the United Kingdom. It was, in short, necessary to conduct research into how military operations could be carried out, and hence the discipline was born. In fact, for the last 50 years, the military have been major users of mathematical modelling. System Dynamics is, however, a relatively new tool in military analysis. This paper surveys a few published applications and suggests reasons why SD is particularly appropriate for certain classes of military problems. The paper then goes on to discuss the potential role of SD in the analysis of strategic problems. Finally, some problems of military theory are discussed.

R. G. Coyle

Systems Dynamics Modeling of Air Warfare

The use of gaming to study contemporary warfare has evolved rapidly in recent years. Particularly important strides were taken during the 1960’s and 1970’s with advances in computer technology and the development of broader ranges of subject matter. The past two decades have seen a tremendous expansion in the role and influence of computer models as “policy assisting” devices — first in the analysis of national security issues, and now for the analysis of problems arising throughout the entire affairs of Government.

Donald R. Drew, Antonio A. Trani, Lev A. Malakhoff

The Origins of Mass Warfare: A System Dynamics Approach

People of different nations often meet with the intent of destroying each other with the technology and techniques of modern warfare. This has come to be the reality of modern politics. Yet mass warfare has not been a permanent fixture throughout the history of mankind. In this paper, an attempt is made to gain a better understanding of what caused the transition from localized tribal feuding

Edward T. Richards

Government’s Ability to Manage Political Conflict over the Course of Economic Development

This paper reports findings of experiments with a system dynamics model of resource allocation in the political system of a developing country. Political patterns resulting from various assumptions about government attitudes are examined with respect to empirical evidence about these. The analysis helps to understand circular cause and effect relationships that shape internal trends affecting the government’s commitment to economic development agenda and its ability to resolve political conflict generated over the course of implementation of this agenda.

Khalid Saeed

Additional Papers

Frontmatter

Gaming to Implement System Dynamics Models

Operational games based on System Dynamics models have been used in System Dynamics teaching since the first days of the field. Already in the text Problems in a Industrial Dynamics (D. Packer, MIT Press, 1962) was described the simple production distribution exercise, widely known as “the beer game.” This game is so effective that it has been used in almost every introductory System Dynamics course over the past thirty years. Nevertheless, until the early 1980s there were essentially no further efforts to develop and use System Dynamics games, except for a few management-training exercises developed by consulting companies.

Dennis Meadows

Water Resources Development Planning

Water resource development requires development and operation of expensive facilities. Planning, design, and execution of water resource projects in Iran have been taking a period of time much longer than what is considered as a normal time. In addition, the projects are costing much more than normal. This paper presents a system dynamics model to analyze the behavior of the water resource development system. The paper shows that high cost and long construction time are results of policies that govern decisions related to budget allocation, start of new projects, and price of water. The paper shows that how alternative policies could improve the behavior of the system. It is argued that appropriate planning approach for. water resource development should consider the feedback mechanism in the water resource development system and concentrate on design policies that control the behavior of the system through those feedback loops.

Ali N. Mashayekhi
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