Deeper Insights from System Dynamics Models Mark Paich Lexidyne Consulting 10/9/08

Observations from (too much) experience Decision makers are hungry for policy insights –Forecasts are not believed Many SD models leave insight “on the table” –Modeling project time allocation – to much time modeling not enough time on analysis –Techniques for analyzing models and extracting insights are not well developed Simple techniques can yield significant insights –Techniques are know but are not standard in SD –Techniques used in analyzing agent and discrete event models

Concepts that often generate useful policy insights Synergy –Implementing policy A and policy B together produces more improvement that the sum of policy A and policy B individually –Multiple changes are necessary to achieve significant improvement Timing – the timing and ordering of policies significantly change their effectiveness Robustness – the policy is effective enough across many uncertainties –Value of flexibility and policy rules –Real options

Example – Process Improvement Project Project description Synergy analysis –Generate multiple simulations (design of experiments) for Decision variables –can be discrete or continuous –Useful to categorize them into low medium, high buckets Uncertain parameters External scenario variables. e.g. product demand Outcome metrics – what is important Concluded that there are significant synergy effects. Policy changes must be implemented as a total package to get breakthrough results. Leaving elements out greatly increases the likelihood of failure

Example – Process Improvement Project Export data to Excel and import into a standard statistical package Plot relationships between policy variables and outcome metrics Estimate simple statistical models that relate outcome metrics to policy and uncertain parameters –Direct effects –Synergy interaction effects Analyze relationships and outlying data points

Extensions Robustness –How do uncertain values change the effectiveness of policy? Are there strong interaction effects –Many other techniques for “Robust Adaptive Planning” Steve Bankes Rand Corporation Value of flexibility – Real options and SD. (David Ford Texas AM) Data analysis tools –Non linear estimators (neural nets) –Rule induction