Computer Simulation for

Business
MIS 514
Rate Equations and
Dynamics of Stock and Flows

HANNAN MIA
Hannan@du.ac.bd

1
 Learning Outcomes
The learning outcomes for this lecture are as
follows:
• Stock and flow diagrams
• Writing of basic simulation models equations.
• Translate basic feedback structures into
simulation models.
• Determine the data needed in a simulation
model.

2
 Reading
• Sterman (2000) “Business Dynamics:
Systems Thinking and Modelling for a
complex world”. Chapters 7 and 8.

• Morecroft (2007). “Strategic Modelling and

Business Dynamics”. Chapters 3 and 5.

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 Main Icons in IThink Software
Tasks
• Stock

• Flow
Tasks Approv al Rate

• Auxiliary Variable Approv al Productiv ity

4
 First Step in Building a SD Simulation
Model
• The first step is to define the stocks and their
corresponding flows.
• This process is sometimes confusing. However,
you have to know that a stock will remain
intact if time is frozen whereas flows become
nil if time is frozen.
Patients in Hospital

Ref erral Rate Discharge Rate

• If time is frozen, we would be able to count the

number of patients in a hospital.
• Referral rate and discharge rate become nil. 5
 Examples of Stock and Flow Diagrams
• It is possible to have many stocks in a diagram

Cars Manuf actured Cars in stock Cars sold Cars scraped

deliv ery rate Sales rate Scrap rate

• It is possible to have many flows from (or to) one Univ

stock
ersity Students
Company Workf orce Retired Workf orce

Local Students
Retirement Rate Recruitment Rate

Leav ing Workf orce

Leav ing Rate Ov erseas Students

Recruitment Rate
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 Rate Equations (Second step in building a
simulation model)
• 1. Rate as a fraction of a stock

Rate  Stock  Cons tan t

Sav ings
• Example
Pay ement Rate

Fractional Interest

Payment Rate(£ / year )  Savings(£)  Fractional Interest ( Fraction / year )

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 Example (Continued)

• The previous model represents the following

structure

+
Payement Rate R Savings
+
+

Fractional interest

• This is a reinforcing loop

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 Rate as a stock divided by an average
period of time
• The rate equation is as follows

Stock
Rate 
Average Time
• Example Indiv iduals Inf ected Indiv iduals with disease

Disease Rate

Av erage Time to disease

• This rate is suitable to represent depletion processes 9

 Example (Continued)
• The rate equation is

Individual Infected ( Individuals)

Disease Rate( Individuals / year ) 
Average Time To Disease( year )

• The model represents the following structures

-
Infected Individuals with
Individuals disease
B
+

+
Disease Rate
-

Average Time to
disease 10
Rate representing adjustment to a goal
• The rate equation is as follow
Goal  Stock
Rate 
Adjustment Time
• Example
Water Quantity

Water Transf er Rate

Target Water Quantity

Water Transf er Av erage Time

Water Quantity Gap

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 Example (Continued)
• The rate equation is
T arg et Water Quantity(M 3 )  Water Quantity(M 3 )
Water Transfer Rate( M / Week ) 
3

Water Transfer Average Time(Week )

• The model represents the following structure

Water Quantity
+
Target Water
Quantity
Water Transfer B
Rate
+
- -+
Water Transfer Water Quantity
Average Time Gap

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 Rates depending on auxiliary variables
• The rate equation is
Rate  Auxiliary Variable1 Auxiliary V ar iable2
• Example Chips Inv entory

Production Rate

Workf orce

Productiv ity

Pr oduction Rate(chips / Week )  Workforce( People)  Pr oductivity(Chips / Person / Week )

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 Data Input to Simulation Models
• The data needed for a model are as follow
1/ The initial level of each stock. This
represents the level of a stock at the start of the
simulation.
2/ The values of the auxiliary variables.
• You have to check dimensional consistency.
• This means that the dimensions on each side of
each equation have to be similar.
• Half the mistakes in building SD models are
due to problems related to dimensional
consistency.
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