System Dynamics is a popular method of complexity reduction.
The Perfect overview.
Don’t worry, it’s not going on that weird, just a short tribute to history. SD was invented back in the 1970s by a team of scientists at Massachusetts Institute of Technology (MIT) in Cambrige, led by Jay Wright Forrester (also popular for inventing an early concept of RAM, today’s computer Random Access Memory, in the Whirlwind project).
Software in System Dynamics (SD) is able to simulate a Balanced Scorecard over time.
That’s a number of Input Values, Targets and Formulas on a sheet of paper, describing any technical or natural dynamic system (for example, a production circle).
Therefore, SD is used for behaviour prediction, amortization, and all kinds of cost-usage calculations. The prediction aspect comes from calculators like ours, which allow you to see how these values influence each other, and keep changing over time.
You can see a Balanced Scorecard as being just a simple overview of the situation on a sheet of paper. Most collegues from worldwide System Dynamics Society call this kind of sketch a Causal Loop Diagram, and in their language, an Input Value is called an Auxiliary and a Target Value is called a Flow.
As we all know, in nature, Everything Flows, so they gotta point there, but at Dynamic Applications, we prefer understand-ability. So we try to use simple words that are a bit more self-explanatory.
At Dynamic Applications, we are developing a free Business Dynamics Platform for everyone. This means that it’s targeting to be free to use, for all simulation models, and free to try (no limitations) for the premium version, so that’s why we hide Universal Promo Codes on Twitter, world‘s fastest network, and this very Website in all kinds of locations. It’s part of the game, our game of life in being business owners. In contrast to the scientists, who are paid by the state for their experiments and teaching. In a way, that‘s also some kind of balance.
See our brand-new, free do-it-yourself Tutorial on business model development to find out more about that.
At Dynamic Applications, do-it-yourself is free. It‘s part of our culture, our small business company ethics here, so it won‘t be changed. As superior culture, confronted with a lot of different people, will define our success over time. Well, superior does not necessarily mean „better“ or altruistic, you know. Think about Amazon, the largest digital shop in the world of today.
What a long tail of products. What a huge amount of people, hard working conditions, all working for the richest person on earth, Jeff Bezos. You can call that success.
At Dynamic Applications, we‘re much about individualism and personal freedom for everyone. On a Balanced Scorecard, we value any person on earth with 1. As many other companies in Business Dynamics, we do workshops with rich people, and with poor people, and everyone will be allowed to speak and be heard.
This is because we feel here that an important idea for describing a successful company scenario could as well come from a rather poor, seemingly unimportant person.
The reason for this is that poor people have a good feeling for need, and in business development, we say that need is a good measure for success where, ever we meet it in high enough numbers. So if we don’t access a true need, our products are garbage to feed the wealthy, the small upper class of idiots looking to be rich on the bank account, on this one world. Even though it’s commonly known that money doesn’t make happy, you know.
Let‘s agree upon that success is a common target in business, just the question what is success has various interpretations, or scenario variations, as we call them in System Dynamics expert language. So we calculate all kinds of scenarios means we check all kinds of options, and in allowing you to change any single driving screw of your company scenario over time, we allow you to check a lot of options in short time.
Finally, you can select your Target Value of choice and maximize its outcome. It could be net profit over time, so you can pay your employee‘s salaries.
But it could also be natural growth, it could be contribution, it could be better material, it could be usability, reduction, beauty, customer productivity, website visitors, positive feedback loops, or excellence.
To achieve excellence, for example, you may choose not to rise your prices, as a general habit. So you don‘t buy better material just to sell your products at a higher price. That’s also possible, but that‘s what we call just a switch of market segment, and your natural trade-off will be less customers.
To achieve excellence, you buy better material whenever someone comes up with a good idea on how to optimize your production circle. It allows you to produce cheaper, and so you‘ll have additional income over time, as you can sell more products, even higher quality products, at the same price.
You let your Team test it, and as soon as you have a proof-of-concept, as the first very few customers love it, you can invest your money ahead of time. You keep fine-tuning your process to be able to offer a better product at a lower price. In case you wonder what we mean by better, or how to measure and now you wonder what that really is, check out the Dynamic Idea and Roadmap competition, a pretty fine approach in online democracy.
It’s based upon Swarm intelligence, which we have implemented in a small algorithm written in Twitter, a fairly modern programming language, upon their 400 million user database. Be free as a bird, you know. I thought it fits, somehow. Aren’t we all free, in our mind? – gotcha. a universal belief. So, what do we learn from that? – Tweet your thought to me. Make it better, and get the winner, for free. Or just let it be, and use it, as you prefer.
Pay with a Tweet.
So now you know how we do interprete success over time, at Dynamic Applications, but as i said, if you look very closely, there‘s as many interpretations of success or so many important Targets as there are people on earth. Just my 2 ct as a small family business founder, you know, writing an early article.
Content is key.
Understanding each other, in high conflict productivity. Person seen equal, emotion is different, argument is key. Everyone allowed to contribute an idea here, even from that smallest Island in the large, deep blue sea of The International Network.
As long as convincing in argument, it’s already on the roadmap, just a tweep, and where those are in conflict, we’re voting in online democracy. Our target? – solutions. For a better world. It’s up to you guys to decide, you know. How could i dare to tell you what to do?
Thank you to Dr. Peter Lohse, Dr. Michael Fette, Marco, Jana and Vanessa Path, Eva Mettenmeier, Dr. Sabrina Geissler, and Petra Zude for consulting Dynamic Applications.
We feel that the general approach of System Dynamics is outstanding, and way too good to be forgotten. When talking about Business Dynamics, this basically means SD for business applications. So we invent all kinds of 21st century micro-business models, and write calculations in Desire, our very own System Dynamics-based formula language.
A Balanced Scorecard is basically a sheet of paper where you put all main topics of interest of your discussion into a circle. It could be a cost, a benefit, a profit, a target, a desire. Then, you interconnect these circles with any number of arrows. So you get a good picture of the situation, and are able to see the interdependencies, even if the system or topic of discussion is complex. You get a pretty good overview pretty fast.
As Wikipedia describes it, Balanced Scorecards are forming the qualitative approach of System Dynamics. It is a Top-Down approach, and qualitative means that there are no numbers on the sheet. In the beginning, it’s just about Connections, you know.
Add a few numbers, derive some early formula from it, now we call that a quantitative approach. If you ask me, some people have invented all those complicated words just to show how genius they are, so they can sell at a higher price. Still, numbers.
More thinking gives larger diagrams, more precise, but after a while the overview gets lost. World’s details are endless. So a good Balanced Scorecard is in balance, itself. Not too complex, not too detailed. No arrows for rare cases of interconnection. Who’s gonna check.
However, there is one Key Benefit: Understanding.
Basic understanding of the interconnections any kind of complex problem, like developing a new product, a service, or a specific, fine-tuned solution in detail. World’s details are endless, so there’s always the problem of missing the big picture. This is the kind of problem that Balanced Scorecards can solve. Understanding of all Interactions. Getting an overview of your current situation.
Oh, by the way. Lots of people in the SD community are talking about causal loop diagrams. It’s basically teh same thing, We just liked the word Balanced Scorecard, as it sounds a little more easy to understand. Expert language, you know. There must be a clue in making things sound more complicated as they are (thanks to Robert Koshinskie from North Carolina, of ringbolt consultancy solutions, for his fine review and contribution to this article at this point). Let’s see this paragraph as a contribution to the (exceptional) expert reader, so we don’t lose or start confusing any of them ahead of time.
The team around Jay W. Forrester were working on something better. They were developing an approach to not only look at the sheet of paper. They began to separate the things on that sheet from each other. Circles with a single or multiple arrows starting from them, but no incoming arrows, were typically describing input parameters. Like steering wheels for everything that follows. Circles with arrows going through them were forming formulas. Like, A+B = C, where A and B are Input Values, C is the Target, the result, and the whole thing is a Formula. Circles where all those arrows were ending in, are forming the main Targets of Interest, then. The things to optimize.
And so, these people were developing a methodology to quantify basically any kind of Balanced Scorecard. Then, they put their methodology, their procedure, their algorithms in software, and developed the first specific programming language suitable to describe complex problems: DYNAMO.
After working a while on DYNAMO, they were the first team in the world to feel the capabilities of the approach. So they decided to work on something great. In a time when about everyone around, every country, every nation in the world were industrializing and re-building the world destroyed by World War II as quickly as possible, these people started to develop World Models. Model I was just a prototype. The results were poor, and about noone took interest in the idea. So they developed World Model II. A much better approach, so good that Forrester himself wrote a first book about it, World Dynamics. Apart from a few researchers though, about nobody took any notice.
From within the Ivory Tower, they couldn’t reach the people.
And so, they developed World Model III.
Landscape, Resources, Food per Capita, Resouces per Head. And prediction of ongoing developments, as good as possible. And results were showing that the proceedings of mankind were pretty similar to what Algae do with a fresh garden’s fishpond.
They populate it, then they get greedy. Others are dying, then Oxygen gets low, and in the very end, almost all Algae are dying from greed, their cells falling to the bottom, and the garden’s pond is clean again. Only very few Algae remain to re-populate it as soon as resources and food would ever return, for example, by stupid careless humans.
You and me. Dumbos.
Reduction of Resources by Mining and Oil Production. Worldwide pollution of air, rivers, garbage hills, and ground water. The results hit them like a thunderstroke. And when nobody took notice in the U.S., Forrester decided to speak to a few people forming a discussion circle, an early “think tank”, in Switzerland.
The Club of Rome.
And when the Club of Rome became aware of the results and had verified them, they wrote their own book about the limits of growth, of world-wide exaggeration. At a time when the first oil crisis was just through, the world was ready for a new message. Bigger, Higher, more Spectacular. Limited.
The Limits to Growth became a world wide bestseller in the last 1970s.
There’s one important thing to know about these kind of predictions, though:
they are made to predict scenarios that are not going to become true! So don’t you fear. This is because the system just shows a
Perfect in Theory, milkmaid in Practice.
Still, there is a point in founding a business, it’s better to have a plan, than to have got no plan at all. Or let’s say, that’s what i thought. I’m just fired and forgotten. Who cares anyway.
The simulation gives everyone transparency about the situation and its consequences. Then, as with any complex scenario there’s always a hundred or more Input Parameters influencing the outcome of the simulation. In this case, since the calculation goes over more than 100 years, there’s enough time to solve the problem.
So that’s what we mean by transparency as the central benefit, and not the Target Values, as such. In every System Dynamics calculation, there are various Input Parameters, so in the end, all Targets are adjustable. The outcome, your optimal solution, depends on what you think realistic to achieve, what you are willing to do, and eventually, which of your Targets you are willing to sacrifice, to optimize a more important one.
At Dynamic Applications, we felt it’s a little sad that such a fine approach is nowadays almost forgotten, or never really made it past science. The world around us is changing, and things like the Internet have been invented, that haven’t been thought of in these days. Some people say progress is accelerating, as much as computing power does. The People start looking for orientation. For understanding. And so, we decided to develop simulation models for problems of public interest, like, for example, a forecast on your own bank account’s development perspectives. A free platform to run them and get to know how to solve any kind of complex problem, whether in School, at University, or in Business. Our Vision. Oh, by the way. I like to see it so that we’re doing this project, together. Wishful thinking, you know. Our way of thinking creates the world we see.
Our platform, based upon Perfect Desire, our infinite Target, can be used pretty well for Return-on-Invest (ROI) calculations, forecasts, planning, political election training, prognosis and simulation of system and value developments over time, and amortization calculations. Any operative system that features Input Parameters, Formulas, and Target Values calculated in x&y by these formulas is suitable for simulation. This may as well be a production cycle, a public transport chain, any interaction of things in nature, business and even finance, the science of artificial values, or a critical situation with limited possibilities, a strategic invest decision with long-year consequences, well, almost everything measured by numbers over time as good as possible.
Combining all the knowledge understood about singular aspects of a Problem in one simulation.
A good example of System Dynamics is to calculate the amortization calculation of a Photovoltaic System (PV System) over time. Amortization against a projection net price developments of electricity, as described here.
It can’t give a final answer, as we all do not know the net price for electricity in the year 2040, when a today-built PV system will reach its end-of-lifecylcle.
But it allows us to get a pretty good picture of the interactions of all those input parameters, like sunshine, battery, and average household usage profiles.
In all these situations, we are typically looking for optimal behaviour – formally spoken, a parameterization of adressable input values to get a maximum, minimum, or balanced behaviour of a specific, interesting target value over time.
Sounds complicated? – yes!
That’s why System Dynamics is a Top-Down approach. For any complex problem, we start from a single sheet of paper. The perfect overview. From there, we can always refine one of the circles and think what does that depend upon. So the trade-off is that the simulation model gets more complex. It doesn’t hurt much in the beginning, but in the long run, it’s key to success to concentrate on important influences. The good news? well, we start from The Perfect Overview: No Details! – we instantly see where exactly do we desparately need more detail information, and how,urgent that is.
And so we keep heading in the right direction over time.
Where right means honest, secure, safe, private, recreative, participative, and tolerant here.
Yes, Yes! – unbelievable, isn’t it? – You’re looking at a Dynamic Applications website.
Squaring the Circle.
If we can find this parametrization and the relevant formulas of the describing model are correct, process of application can be adjusted accordingly, and the proposed results will occur in due time. So by applying System Dynamics, we are solving optimization problems. Squaring the Circle, that’s what we do here, that’s how we call it, here. A very typically solution. In most cases, the best solution is not either extreme. We call help up, and there you are. So, well well, our language, our words may seem a little extreme at first, you know. For those who are living inside the wall, the kingdoms of money and celebrities, you know. It’s you. It’s me. I am no better than you. But when we sleep in privacy, our thoughts, our thoughts be free. So i am inspired sometimes by your ideas, your thousands to come comments on the all of this, or so. I think it’s gonna work out, at least i hope so.
So at least i got a good time for, let’s say, 90% of this project. Which is pretty almost 90% of my remaining lifetime. Interesting thought, isn’t it? – Founders. So let’s go back to where we started, for a minute. Extremes. What’s the perfect measure if you dunno exactly, you just gotta have some idea about extremes, as usual, from somewhere, you know how it is.
It’s the optimally weighted out distance, the point in the middle between them.
And the quantification of Balanced Scorecards will help us to find a measure.
We’re aiming at the best possible measure we can get.
Sometimes when we have calculated the middle this way, we feel like it’s too low or too high.
A small tip from me: Follow your intuition.
Well you know. We’re just doing it as good as we can, here.
The special thing about a System Dynamics Application is that it allows you to change any single input parameter over time, even in combination, and take a look at results beforehand. To reflect that in nature about every existing thing will change over time, and conclude from that.
In the most easy approach, this can be done from past to present, so the outcome is alredy known – a verification of approach, to make sure the formulas are working. However, the same approach can be used to describe the changes of input parameters (personal and material cost, revenue, sales) anticipated from present to future. The remaining guess, the uncertainity here is that we can’t usually forecast things not yet invented.
As the software always works in the same way, the results will be correct in both cases. So, to predict future changes, it is just necessary to anticipate all influential parameters, correctly. The good thing is that whenever we are planning something, we use to guess upon the future change of driving parameters anyway.
Just most people would combine these in their mind, or search for a compromise in discussion. Theory says that a standard person is able to combine 2-3 different, changing parameters in their mind. Only a genius like Albert Einstein could have forecast more than 4 changing over time parameters. About noone can combine the results of five or more changing parameters in complex interaction in their mind.
But i thought, a Computer can do it. Some people from Berlin showed such a program to me. It had a few bugs, but we fixed them. So it must be possible.
A System Dynamics software application will allow you to anticipate as many changing parameters as you want, and still be able calculate all formulas, resulting target values, and consequences correctly in itself, restricted only by the accuracy and detailedness of the underlying formula. And so, while we can’t predict the future (everything we do is a projection from present, a play of mind, you know), at least we it allows us to follow a plan that works out. I prefer these in relation to those where you can see ahead of time don’t.
don’t do it. It’s useless now, and it was crap even before.
A collection of typical basic interactions has been researched to describe common issues.
Well you know, i’m a Pirate. A civilized one, you know. Just liked those old children’s stories, you know, once upon a long time ago. Or so. Sharing the Circle, or was it, the profit? No. Or yes. Oh dear, it’s too long upon a time ago. Children’s Memories…
aren’t they wonderfull, so wonderfully normal, compared to us?
The list of System Archetypes, as found on Wikipedia, describes typical problem patterns:
- Growth but under-Investment.
- Shifting the Burden.
- Tragedy of all Common Goods.
- Unintended Opposition.
- Eroding Goals.
- Fixes that Fail.
- Success to the Successful.
- The Limits to Growth.
- Balancing a Process with Delay.
Wikipedia has a pretty nice explanatory diagram for each of these System Archetypes.
At Dynamic Applications, we feel this approach can very well be adapted to a typical company, as it covers all well-known patterns of typical Business Management situations.
To conclude, for a complex model as the one describing a photovoltaic system installation, system dynamics is a very suitable approach. It allows for the necessary complexity reduction and calculates the consequences of the various described interactions part-by-part. And you can sum up the powers of nature pretty much nicely over time.
They call it differential equations or so, you know. Scientists. All the time, they have to show off how bright they are. It’s for the budget acquisition circle, you know. Don’t worry.
Let’s not care about complicated words and simply solve the easy ones, you know.
If we count 1 & 1 together, then sum up that over time, we’ve already reached the next level of integration, in no time at all. Who cares about how the scientists call it, you know.
If you asks me, it’s gotta do much with peaceful coexistance, you know.
so let’s hope the scientists understand that kind of formal language we chose.
I think most of them are honest people, you know. And that’s a problem.
you never know.
Well, what could we do about that? – hm.
What was it we needed 21st century Universities for, you said? – oops :)
Convergence. That’s the word. Please excuse, dear collegues.
So that’s the point. You could see this website as well as an online university, as you can see it as a pile of hand-written about garbage from history. A standpoint question.
I’ll leave that up to you guys to decide. Don’t beat on me, you know.
I’m just a stupid old guy. Nobody listens to me, anyways. am Keyboarder.
Ooh. .. err .. Thanks for coming by. I better stop this, or i’ll lose the last reader… hm ..
we, the people.
To deliver a very good result in the final formula, amortization: Balance. Transparency. Verify your own thoughts. Insert your own estimate on parameter proceedings and see the combined result. Fine-tune as many input parameters as you want.
See the proposed outcome, the con-sequences, immediately. It allows you to play through all kinds of possibilities, in a minute. That’s the funny part of my work, you know. The one good point. It allows you to verify that you haven’t overlooked an alternative, you know. It allows you to find new alternatives, measure them, validate their consequences, and be ahead of competition anytime. In case of error (or your opponent tricked you again), no worry. Things like that happen to all of us. It’s time to make another plan from present.
We think the general picture here, in Business, in Capitalism and free Entrepreneurship, has pretty much in common with playing The Game of Chess.
There’s always these people around, who swear on Tactics. Concentrate on the next move.
Evaluate your situation, your history. How was the current situation developing? – what did our counterpart do? – and what is the next best move. There are people around who use days, weeks, months, or even years of their life to memorize the best known development openings of their favourite board game. And that’s pretty similar to today’s big data approach in business. Hunt for more data, more understanding of the past. And collect as many of them as possible. It seems intuitively right, as it addresses hunting and collecting in one concept. And the latest hype, BigData Analytics, will even be able to show you statistical interactions within data of any kind, without specific programming of any kind. 75% of your customers older than 45 years will prefer product B instead of A. And then, all of these tactically driven companies start to develop key score criteria, just to be able to raise them from month to month, from year to year. Only a thinker would put that in question.
A System’s Thinker (basically a System Dynamics user, who learned to think over time) would focus on the long-term target instead, on developing either a survival Strategy, or a winning strategy. A System’s Thinker wouldn’t read many books, or take a look at all those BigData Charts. They are useful to deduct a couple of formula from them, as you can derive them from Google or Wikipedia on about every important thing invented so far.
The Strategical Analyst would naturally desire a System Dynamics application, and simulate all possibilities in advance. Move 7, 8, 9 input values, like fine-tuning sliders, right after each other. Preview the consequences. Test everything. Get an overview of options, of possibilities. And then, we decide for the best strategy that there is around. Pretty similar to playing chess, or any other board game around, isn’t it?
So, we could say that System Dynamics against BigData Analytics is much like
Strategy against Tactics.
If you want to see how that works, we recommend you download Startup Product Manager, our free System Dynamics simulation environment, and prepare some really advanced questions for your first day, our free consultancy day on Fridays.
Developing a platform in System Dynamics, you become pretty good in thinking about new and possible scenarios, and evaluate possible alternatives even in the most difficult situation. And always remember:
No problem is too complex to be solved.
In case you’re interested, we offer an introductory, free consultancy day in our article about Dynamic Applications.
Thank you for considering us, we appreciate it.
oops. what was that? gamification :)
We’re pretty sure that after this one day, you’ll find a lot of more problems to be solved for the rest of our common lifetime. You win a free consultancy day, we win a customer, as sooner or later you are going to come back to us. Only if you want, of course.
Apart from that, be invited to use any of our business planners, free of charge, in full functionality from day one. Watch us expanding, grow and contribute, vote or wait.
it’s your business. we respect that.
and so, that’s up to you guys to solve.
i’m just the dumb’o, the stupid old programmer in the 24/7 box of The European Pirate Party.
thank you for watching dna TV.
now you know everyxthing. we love you.
at the moment, we’ll stay tuned under the following conditions: +49 15 25 35 26 101.
 Wikipedia on System Dynamics.
 Wikipedia on Jay W. Forrester.
Dynamic Applications is a small business consultancy focused on customers, product cost, efficiency, sales, and net profit. We support Startups in developing 21st century Business Models. We’re driven by thousands of independent voters. Altogether, we develop Perfect Desire, an evolving platform of free and simple business plan calculators for everyone.
We vote in online democracy, we deliver for free. we work for you, and we call them Dynamic Applications.
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