Lecture 5 –

Build Your System Dynamics Model

IE2141 Systems Thinking and Dynamics
Dr. LI Haobin, Senior Lecturer
Department of Industrial Systems Engineering and Management (ISEM)
College of Design and Engineering
National University of Singapore

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 Let's protect the environment
Lecture notes are subject to change before
the class for further improvement
(Ver. 12 February 2023)

Acknowledgement
The preparation of this module has been made possible by the support from IE2141
teaching team, and the past teaching materials developed by A/Prof. Aaron Chia.

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 Lecture 5 – Build Your System Dynamics Model
▪ Examples of System Dynamics modelling
▪ Growth – Introducing a New Product
▪ Instability – Competition in the Market
▪ Oscillation – Stock Management
▪ Purposes of data for system dynamics modelling
▪ Data source and estimation methods

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 Examples of System Dynamics

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 Growth – Introducing a New Product
Imagine that you have designed a new industrial product, which
is about to be launched on the market, how to understand and
analyze the business growth you are facing?

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 Growth – Introducing a New Product
▪ Draw CLD Product
Life Cycle
▪ What is your goal?
▪ How to achieve it? Profit
Generation
▪ What are the
contributing factors? Market
Saturation Words of Mouth
▪ How to evaluate the
effectiveness of
your approach?
Market
Saturation

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 Growth – Introducing a New Product
▪ Convert CLD to SFD

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 Growth – Introducing a New Product
▪ System Behaviours

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 Instability – Competition in the Market
Imagine that your competitor launches a product similar to yours
on the market around the same time. Whose product will
eventually win in the market, how will you understand the system
dynamics and develop a winning strategy?

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 Instability – Competition in the Market
▪ Draw CLD Words of
Mouth

▪ What is your goal?

▪ How to achieve it?
▪ What are the Stabilization

contributing factors?
▪ How to evaluate the Stabilization Growing of Advantage
market gained by
effectiveness of Black vs.
White
your approach?
Words of
Mouth
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 Instability – Competition in the Market
▪ Convert CLD to SFD

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 Instability – Competition in the Market
▪ System behaviors from multiple random runs Note: Analysis with stochastic system
dynamics model is not required in IE2141
– path dependence

Stabilized while
market grows
Instable in a Stabilized while
small market market grows

Stabilized at arbitrary points where Stabilized at extreme ends

people has diversified preference where people “follow the herd”
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 Instability – Competition in the Market
▪ A Deterministic View

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 Instability – Competition in the Market
▪ System behaviors with different timing of the marketing actions

first mover advantage

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 Oscillation – Stock Management
Imagine that your product has successfully occupied the market and has a
stable customer share. However, because of unexpected market events,
such as a short-term surge in demand, or increased supply to adjacent
markets due to their disruptions, you consumed a large portion of the stock.
How should you analyze and manage your stock and supply chain?

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 Oscillation – Stock Management
▪ Draw CLD
▪ What is your goal?
▪ How to achieve it?
▪ What are the
contributing factors?
▪ How to evaluate the
effectiveness of
your approach?

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 Oscillation – Stock Management
▪ Convert CLD to SFD

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 Oscillation – Stock Management
▪ System behaviors – How stock management strategies affect
the performance your supply line? What is the delay time
increases? What if it is extended to a supply chain?

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 Purpose of Data

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 Purpose of Data
1) Identification of Behaviour Over Time
▪ Simplify time series data to identify BOTG
2) Model Formulation
▪ Build relationships between variables
▪ Set equations for the causal relationships
3) Input Parameters
▪ Set values for the independent variables in the model
4) Validation
▪ Check if the output of the model is valid by comparison

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 Purpose of Data
1) Identification of Behaviour Over Time (Lesson 4)
2) Model Formulation
3) Input Parameters
4) Validation (Lesson 10)

Input Real-life Output

System

Performance
Parameters Model Measure

Formulation /
Equations
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 Endogenous vs. Exogenous
▪ Ensure that relationships in the system (endogenous) cause
the behavior of the system, not external forces (exogenous).

Input Real-life Output

System

Performance
Parameters Model Measure

Formulation /
Equations
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 Data Sources

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 Data Source
▪ Actual Observations, E.g., Time-Motion Studies

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 Data Source
▪ Survey – Questionnaire Design, Survey Data Analysis

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 Data Source
▪ Expert Opinions – E.g., Interviews

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 Data Source
▪ Library / Literature https://scholar.google.com/

https://nus.edu.sg/nuslibraries

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 Data Source
▪ Database / Public Domain Statistics

https://data.gov.sg/
https://www.singstat.gov.sg/

https://www.forbes.com/sites/bernardmarr/2016/02/12/big-data-35-
brilliant-and-free-data-sources-for-2016/?sh=784e3809b54d
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 Data Estimation Methods

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 Data Estimation – Graphical
▪ Plot of number of people based on age
▪ How do you estimate the number of babies below 2 years old?

Equation:

Lumped Method
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 Data Estimation – Division
▪ Find the volume of a dollar bill
▪ How to find Height which is very thin?
▪ Estimate it by measuring a stack of papers and dividing it by the
number of papers.

Volume = Length x Width x Height

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 Data Estimation – Scale Up
▪ How many bed pillows can fit in the back of a tractor trailer?

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 Data Estimation – Aggregation
▪ Estimate the capacity of roads (no. of cars every hour)
▪ Divide road into 3 lanes (or depending on the width of the road)
▪ Assume 2 second rule between each car

▪ For each lane,

▪ For 3 lanes, capacity = 3 x 1800 = 5400 cars / hr (Flow)

Estimate capacity of roads by

number of people?

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 Data Estimation – Aggregation
▪ Estimate the peak capacity of a MRT Train at peak hour.
▪ Assuming there are 20 train carriages with each carrying 150
passengers at peak hour and 1 train every 10 mins

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 Data Estimation – Extrapolation
▪ How much fuel is burnt by Texas A&M students for all the
Thanksgiving visits?

Fuel Used
Number of Students

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 Data Estimation – Analogies
▪ Estimate the volume of an average-sized man.

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 Data Estimation – Geometry
▪ Estimate the surface area of an average sized man

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 Reasonability Checks

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 Tautological Reasoning
▪ A tautology states the same thing twice in slightly different wording, or
adds redundant and unnecessary words.
▪ Tautological reasoning is logic that uses the premise as the conclusions,
or is too obvious as to be necessary.
▪ For example, saying, “When we get a pet we will either get a dog or some other
animal” is tautological, as every pet is necessarily either a dog or not a dog.

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 Circular Reasoning
▪ Circular reasoning, or circular argument, is a logical fallacy in which a person
attempts to prove something using circular logic; they use the conclusion as
evidence to show that the reasons for the very conclusion are true.
▪ For examples,
▪ Everyone loves Rebecca, because she is so popular.
▪ You must obey the law, because it’s illegal to break the law.
▪ Harold’s new book is well written, because Harold is a wonderful writer.
▪ Violent video games cause teens to be violent, because violent teens play violent video
games.

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 Not necessarily true, but
can be assumed and tested.

Falsifiability
▪ A theory or hypothesis is falsifiable (or refutable) if it can be logically
contradicted by an empirical test that can potentially be executed with
existing technologies.
▪ The purpose of falsifiability, even being a logical criterion, is to make the
theory predictive and testable, thus useful in practice.
▪ Falsifiability is a standard of evaluation of scientific theories and hypotheses.
▪ For example, “All swans are while” is falsifiable by “Here
is a black swan”
▪ Check your hypothesis on system dynamic theories, and each
causal relationship, is it falsifiable (imagine a false case)?

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 Falsifiability
▪ A theory or hypothesis is falsifiable (or refutable) if it can be logically
contradicted by an empirical test that can potentially be executed with
existing technologies.

Not necessarily true, but a causal relationship

that can be tested (by data), or assumed.

Always true, but not a causal relationship

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 Evidently False
▪ Something is obviously wrong.
▪ For example,
▪ The earth is flat.
▪ Flowing water into the bottle lowers down the water level.

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 Selection Bias
▪ Selection Bias
is the bias introduced by the selection of individuals, groups, or data for analysis in such a
way that proper randomization is not achieved, thereby failing to ensure that the sample
obtained is representative of the population intended to be analyzed.
▪ Survivorship Bias
is the logical error of concentrating on the people or things that made it past some selection
process and overlooking those that did not, typically because of their lack of visibility. This can
lead to some false conclusions in several different ways. It is a form of selection bias.
▪ For example,
The damaged portions of returning planes show locations where
they can sustain damage and still return home; those hit in other
places presumably do not survive. (Image shows hypothetical
data.)

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 Are Assumptions Sound?
▪ An assumption is something that you assume to be the case, even
without proof or sufficient evidence.
▪ Make assumptions if a specific aspect is on focus, or with lack of data
▪ State the assumptions clearly, and understand
▪ How likely is the assumption true?
▪ How useful is the conclusion with the assumption?
▪ Up to which extent is the conclusion applicable?
▪ Example
▪ Price change has no impact on the demand with an addictive behavior

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 Correlation vs. Causation
▪ However, we cannot simply assume “A causes B” even if we see two
events happening, seemingly together, before our eyes. There are
many other possibilities for an association, including:
▪ The opposite is true: B actually causes A.
▪ The two are correlated, but there’s more to it: A and B are correlated, but
they’re actually caused by C.
▪ There’s another variable involved: A does cause B—as long as D
happens.
▪ There is a chain reaction: A causes E, which leads E to cause B (but you
only saw that A causes B from your own eyes).

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 Correlation vs. Causation
▪ Ways to conclude Causations
▪ Domain Knowledge
▪ Expert opinions
▪ Design of Experiment (DOE)
▪ In its simplest form, an experiment aims at predicting the outcome by introducing a
change of the preconditions.
▪ Note that, conducting DOE is NOT required for IE2141
▪ Role of Data
▪ Make hypothesis
▪ Reject hypothesis
▪ Causation cannot be concluded ONLY from the data

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 How Strong is the Causation?
▪ What is the confidence level for the causation between two variables?
▪ Is there a missing factor?
▪ If yes, it shall be considered in the analysis.
▪ Are there random factors (noise)?
▪ Consider causations with strong connection between variables

Strong Week
𝑌 = 𝑋3
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 How to Quantify Causation by Equation?

Variable 2
Variable 1

Source: https://www.geogebra.org/m/P58s2T58

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 Statistical Tests
▪ A statistical hypothesis test is a
method of statistical inference used
to decide whether the data at hand
sufficiently support a particular
hypothesis.

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 Next Week after Recess – Quiz 1 in Week 7
▪ Register your timeslot by 21 Feb (Tuesday) on CANVAS
▪ Take Quiz 1 at MPSH – detailed to be announced later

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 The Week after – Lecture 6…
▪ Overview on system archetypes
▪ System archetypes for growth
▪ System archetypes for fixing problems
▪ BOTGs, mental models and strategies

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 Let's protect the environment
Lecture notes are subject to change before
the class for further improvement

THANK YOU
The preparation of this module has been made possible by
the support from IE2141 teaching team, and the past
teaching materials developed by A/Prof. Aaron Chia.

IE2141 Systems Thinking and Dynamics – ISEM Department, National University of Singapore 53