System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World SYSTEM DYNAMICS: SYSTEMS THINKING AND MODELING FOR A COMPLEX WO WORLD IAP 2 2020 S ESSION – J ANUARY 13, 2020 James Paine System Dynamics Group MIT Sloan School of Management Plan for Plan or Tod oday ay 01 01 Welcome me! • Grab some food! • Introduction to the SD Group at MIT 02 02 Ov Overview of Sy Syste tems ms Thinking • What is ‘System Dynamics’? • What is ‘Systems Thinking’? • Tools of the trade and key concepts 03 03 Ha Hands on! Fishbank Si Simu mulati tion • Teams of 4 (+/- 1) • One laptop per team needed 04 04 Debri rief and wrapup • Fishbanks debrief • Tying it into Systems Thinking 1 • Other SD resources at MIT DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 1
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Abo bout ut Me Jame mes Paine • MIT Sloan School of Management • System Dynamics Group, emphasis on Behavioral Operations Management Ba Background • B.S. Chemical Engineering (UF) • M.S. Mechanical Engineering (Ga Tech) • MBA Operations Management and Marketing (WFU) jpaine@mit.edu • Worked for ≈10 years in GE -Hitachi (nuclear engineering), Inmar (reverse jpaine.mit.edu logistics and continuous improvement), HanesBrands (product marketing) Research Inte terests ts • Product development (and failure) • Supply chain management and cost mitigation via behavioral modeling (BOM) 2 • Managerial decision making in non-optimal environments Sys System tem Dynamics ynamics Gr Grou oup p at MIT t MIT https://mitsloan.mit.edu/faculty/academic-groups/system-dynamics/about-us John Sterman Nelson Repenning Hazhir Rahmandad David Keith Jay W. Forrester School of Management Mitsubishi Career Assistant Professor of System Dynamics Professor of Distinguished Professor of Development Professor Management System Dynamics and and Associate Professor of Organization Studies System Dynamics 3 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 2
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Sys System tem Dynamics ynamics Gr Grou oup p at MIT t MIT https://mitsloan.mit.edu/phd/students/current-phd-students Tianyi Li Mahdi Hashemian James Houghton Tse-Yang Lim B.S. Electrical Engineering; S.B. Aeronautics and B.S. Geophysics; B.S. Applied B.S. Biology; Master of M.S. Management Astronautics Mathematics; M.A. Environmental Management Geosciences Jose Luis Lopez James Paine Jad Sassine B.S. Chemical Engineering; B.S. University of Costa Rica; M.S. Applied Mathematics M.S. Mechanical INCAE Business School, M.B.A. Engineering; M.B.A. 4 Sys System tem Dynamics ynamics Gr Grou oup p at MIT t MIT A (very) brief history MI MIT-originated field Created by Dr. Jay Forrester in the mid- 1950’s while at MIT First formalized in 1958 with “Industrial Dynamics - A Major Breakthrough for Decision Makers" Origins in control theory Ori Dr. Forrester had background in EE and pioneer in early digital computers. Inventor of Random Access Memory while working on MIT’s WHIRLWIND I “Everything I have ever done general purpose digital computer has converged to become Came to understand that social systems are much harder to control than physical system dynamics.” systems, and often source of difficulties faced in projects First major application was stock-flow-feedback structure of GE appliance plant -Jay W. Forrester three-year employment cycle, refined ideas of System Dynamics at the 1989 International meeting of Broadened beyond corporate management throughout 60’s and 70’s, including the System Dynamics Society resource management such as WORLD2 simulation for Club of Rome Evolved beyond methodology to thinking framework with applications in numerous fields 5 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 3
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World OVE VERVI VIEW EW OF F SY SYSTE STEM M DYN YNAMIC AMICS S AN AND D SY SYSTE STEMS MS THIN TH INKIN ING *Portions of the following overview slides are modified from source material by Drs. John Sterman, Hazhir Rahmandad, and Robert Nachtrieb Open Op en Lo Loop op Think hinking ing Identify Gather Evaluate Select Implement Problem Data Alternative Solution 7 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 4
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Op Open en Lo Loop op Think hinking ing Decisions Goals State of the System 8 We e ar are e emb embedded i in n a a lar large ger r sy system stem Decisions DELAY “Side Goals DELAY DELAY Effects” DELAY DELAY State of the System DELAY DELAY “Side Goals of DELAY DELAY Effects” Other Agents Actions of DELAY Others 9 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 5
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Sys Systems tems Think hinking ing Fou ounda datio tions What is a System? m? A system is a set of interdependent parts sharing a common purpose. The performance of the whole is affected by each and every one of its parts. Social and Economi mic Systems ms Are highly complex systems: • Dynamic • Tightly coupled • Governed by feedback • Nonlinear • Limited Information • Ambiguity and delays in cause and effect …and are typically more complex than human - made, physical made, physical systems. systems. 10 Sys Systems tems Think hinking ing an and d Sys System tem Dynamics ynamics ...is not ...is not onl only y tools tools and and but r but rather ther fr framew amewor ork k to to help ‘close the loops’ and: Elicit and articulate mental models and impact of social and organizational structure Expand mental models by explicitly accounting for feedback Test and improve mental models and structure via simulation Develop shared mental models and more effective organizations The simulation’s purpose is not to ‘be right’ but rather to help improve mental models and identify high leverage policy choices 11 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 6
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Sys Systems tems Think hinking ing Fou ounda datio tions Str Structur ucture e Gener Generates tes Beha Behavior vior Dynamics emerge from the interaction of: • Physics • Information availability • Decision rules Mental Models Mental Models Ma Matter tter (a lot!) (a lot!) It’s not enough to change the physical structure, information, and incentives. The he Fundamental Fundamental Attribution Attribution Er Error or Our first instinct is to blame the people in the system. Almost always this is a low-leverage response 12 Brea eaking king Away ay fr from om the the Fu Fund ndamenta tal l Attributio ttribution Er Error 13 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 7
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Str Struc uctu ture Ge Gene nerates s Beh ehavi vior or EVENT EV ENTS PATT TTER ERNS NS OF OF BEHA BE HAVIOR VIOR ST STRUCT UCTURE URE 14 Struc Str uctu ture Ge Gene nerates s Beh ehavi vior or • EV EVENT ENTS “Drunk trader caused a spike in oil prices” (NY Post, 2012) • “Oil prices keep falling — this is why” (Washington Post, 12/21/15) • “OPEC Rumors Continue To Pull Oil Prices Higher” PATTERNS TTERNS OF OF (Oil Price, Aug 2016) • BEHA BEHAVIO VIOR “Trump slams OPEC for high oil prices” (Fortune, 4/20/18) • “Another Sign of Economic Worry: Tumbling Oil Prices” (NYT, 6/5/19) • “Oil prices surge after tanker attack in Gulf of STRUCTURE STR UCTURE Oman” (CNN, 6/13/19) 15 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 8
System Dynamics: Systems Thinking and 1/13/2020 Modeling for a Complex World Str Struc uctu ture Ge Gene nerates s Beh ehavi vior or • Chronic boom and bust cycles EVENTS EVENTS • Real Prices rising on average $160 $140 $120 PATT TTER ERNS NS OF OF 2018 $/bbl $100 BE BEHA HAVIOR VIOR $80 $60 $40 $20 $- STRUCTURE STR UCTURE 1860 1880 1900 1920 1940 1960 1980 2000 2020 16 Str Struc uctu ture Ge Gene nerates s Beh ehavi vior or • Physical structure: EVENTS EVENTS o Stocks and flows o Material delays o Feedback processes • Information availability PATTERNS TTERNS OF OF o Delays, biases, error, gaps BEHAVIO BEHA VIOR o Access & transparency • Mental Models o Actor goals and incentives o Time horizon, model boundary STRUCT ST UCTURE URE o Misperceptions of feedback 17 DO NOT DISTRIBUTE: Intended for registrants of the MIT System Dynamics Group IAP 2020 Session only 9
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