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 System Dynamics for Business Policy  posted by  duggu   on 12/9/2007  Add Courseware to favorites Add To Favorites  
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Morrison, J. Bradley, John Sterman, and Nelson Repenning, 15.874 System Dynamics for Business Policy, Fall 2003. (Massachusetts Institute of Technology: MIT OpenCourseWare), (Accessed 11 Jul, 2010). License: Creative Commons BY-NC-SA

A firefighter and an engineer.

Using tools of system dynamics, students analyze complex management challenges, from fighting forest fires to new product development, and propose policy solutions that promote sustainable improvement. (Images courtesy of U.S. Bureau of Land Management and U.S. Department of Energy.)

Course Highlights

This hands-on course draws from a variety of experiences to teach its material. Students develop and test computer simulation models in the assignments. The reading list consists of the course textbook, authored by one of the instructors, and a variety of articles.

Course Description

15.874 and 15.871 provide an introduction to system dynamics modeling for the analysis of business policy and strategy. Students learn to visualize a business organization in terms of the structures and policies that create dynamics and regulate performance. The course uses role playing games, simulation models, and management flight simulators to develop principles for the successful management of complex strategies. Special emphasis will be placed on case studies of successful strategies using system dynamics.

15.874 is a full semester course and 15.871 is a half semester course. The two classes meet together and cover the same material for the first half of the term. In the second half of the semester, only 15.874 continues.


General Information

Background: 15.871 & 15.874

15.871 (Introduction to System Dynamics) is a half semester (6 unit) course. 15.874 (System Dynamics for Business Policy) is a full semester (12 unit) course. The two courses meet concurrently during the first half of the term and are the same. In the second half of the semester, 15.874 continues.


The course will be taught by Prof. John Sterman, Prof. Brad Morrison, and Prof. Nelson Repenning.

TA Sessions

The TAs will lead a weekly review session in which they will answer questions about assignments in progress and discuss solutions to past assignments.

Grading Emphasis

Assignments 85%
Class Participation 15%

Each assignment is graded on a 10-point scale. Two points will be forfeited for assignments handed in late. Assignments handed in more than 1 class late will receive no credit. This policy will be strictly enforced.

Web Site

We will be using a class server to post course materials online. The 15.871/15.874 area will contain the syllabus, assignments, simulation models, reading list, helpful hints, software access, and other useful information. We will use it to send emails with information such as hints for assignments, schedule changes for TA sessions, etc. You should also use it to find partners for group assignments, or to pose questions to the class as a whole.

Objectives and Scope

Why do so many business strategies fail? Why do so many others fail to produce lasting results? Why do many businesses suffer from periodic crises, fluctuating sales, earnings, and morale? Why do some firms grow while others stagnate? How do once-dominant firms lose their competitive edge? And how can a firm identify and design high-leverage policies, policies that are not thwarted by unanticipated side effects?

Accelerating economic, technological, social, and environmental change challenge managers to learn at increasing rates. And we must increasingly learn how to design and manage complex systems with multiple feedback effects, long time delays, and nonlinear responses to our decisions. Yet learning in such environments is difficult precisely because we never confront many of the consequences of our most important decisions. Effective learning in such environments requires methods to develop systems thinking, to represent and assess such dynamic complexity - and tools managers can use to accelerate learning throughout an organization.

This course introduces you to system dynamics modeling for the analysis of business policy and strategy. You will learn to visualize a business organization in terms of the structures and policies that create dynamics and regulate performance. System dynamics allows us to create 'microworlds,' management flight simulators where space and time can be compressed, slowed, and stopped so we can experience the long-term side effects of decisions, systematically explore new strategies, and develop our understanding of complex systems. We use role playing games, simulation models, case studies, and management flight simulators to develop principles of policy design for successful management of complex strategies. Case studies of successful strategy design and implementation using system dynamics will be stressed. We consider the use of systems thinking to promote effective organizational learning.

The principle purpose of modeling is to improve our understanding of the ways in which an organization's performance is related to its internal structure and operating policies as well as those of customers, competitors, and suppliers. During the course you will use several simulation models to explore such strategic issues as fluctuating sales, production and earnings; market growth and stagnation; the diffusion of new technologies; the use and reliability of forecasts; and the rationality of business decision making.

Students will learn to recognize and deal with situations where policy interventions are likely to be delayed, diluted, or defeated by unanticipated reactions and side effects. You will have a chance to use state of the art software for computer simulation and gaming. Assignments give hands-on experience in developing and testing computer simulation models in diverse settings.

No prior computer modeling experience is needed.

Listeners are welcome only if space permits.

Texts and Software

Required Text

  1. Sterman, J. Business Dynamics: Systems Thinking and Modeling for a Complex World. Irwin/McGraw Hill, 2000. ISBN 0-07-238915-X (Text and CD-ROM); see the textbook's web site for information about the book, including software models.
  2. Reading packet (available from the campus copy center).

The packet includes selected articles and case studies required for certain sessions and supplements the book. We have noted on the readings page the days for which these articles/cases should be prepared (NOTE: before the class in which we discuss them). Additional readings will be handed out on an occasional basis. The readings page also indicates which sections of the text you should be sure to read to learn the material you will need to do the assignments, and which sections you can skim (NOTE: 'skim' ≠ 'skip').

In addition, we will be using modeling software. Several excellent packages for system dynamics simulation are available commercially, including iThink, from High Performance Systems, Powersim, from Powersim Corporation, and Vensim®, from Ventana Systems. All are highly recommended. You may wish to learn more about these packages, as all are used in the business world, and expertise in them is increasingly sought by potential employers. For more information on the software used in this course, please see the tools page.


1 Introduction and Overview: Purpose, Tools and Concepts of System Dynamics
2 System Dynamics Tools Part 1: Problem Definition and Model Purpose
3 System Dynamics Tools Part 2: Building Theory with Causal Loop Diagrams
4 System Dynamics Tools Part 3: Mapping the Stock and Flow Structure of Systems
5 System Dynamics Tools Part 4: Dynamics of Stocks and Flows
6 System Dynamics Tools Part 5: Linking Feedback with Stock and Flow Structure
7 System Dynamics Tools Part 6: Linking Feedback with Stock and Flow Structure (continued)
8 Growth Strategies Part 1: Modeling Innovation Diffusion and the Growth of New Products
9 Growth Strategies Part 2: Network Externalities, Complementarities, and Path Dependence
10 Growth Strategies Part 3: Modeling the Evolution of New Medical Technologies
11 Interactions of Operations, Strategy, and Human Resource Policy: People Express
12 Guest Lecture: Business Dynamics at General Motors (Nick Pudar, Mark Paich)
13 Managing Hyper Growth: Lessons from People Express

End of 15.871
14 System Dynamics in Action: Re-engineering the Supply Chain in a High-Velocity Industry
15 Managing Instability Part 1: Formulating and Testing Robust Models of Business Processes
16 Managing Instability Part 2: The Supply Line and Supply Chains
17 Managing Instability Part 3: Forecasting and Feedback: Bounded Rationality or Rational Expectations?
18 Managing Instability Part 4: Business Cycles: Real Estate and Oil Tankers
19 Guest Lecture: Jay W. Forrester
20 System Dynamics in Action: The Dynamics of Project Management-On Time and Under Budget
21 System Dynamics in Action: Applications of System Dynamics to Environmental and Public Policy Issues
22 System Dynamics in Action: Process Improvement in the Semiconductor Industry
23 Guest Lecture: System Dynamics in Action - Jim Lyneis
24 System Dynamics in Action: The Implementation Challenge
Conclusion: How to Keep Learning, Follow-up Resources, Career Opportunities, Course Evaluations   Tell A Friend