11/4/2009

Business Dynamics and System Modeling
Chapter 5: Causal Loop Diagrams
h l i

Pard Teekasap
Southern New Hampshire University

Outline
1. Positive and Negative Links
2. Positive and Negative Loops
3. Guideline for Causal Loop Diagrams

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Positive Link
• If the cause increases, the effect increases
above what it would otherwise have been
b h t it ld th i h b
• If the cause decreases, the effect decreases
below what it would otherwise have been

Negative Link
• If the cause increases, the effect decreases
b l
below what it would otherwise have been
h t it ld th i h b
• If the cause decreases, the effect increases
above what it would otherwise have been

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Above (Below) what if would 
otherwise have been
Because
• To determine what actually happens, you 
need to know how all the inputs are changing
• CLDs don’t distinguish between stocks and 
flows

Causal Loop Diagram Notation
+ -

Birth Rate R Population B Death Rate

+ + + -

Fractional Average
Birth Rate Lifetime

Key
Causal Link
Link Polarity
+

Birth Rate Population

Variable Variable

+ or R Loop Identifier: Positive (Reinforcing) Loop

- or B Loop Identifier: Negative (Balancing) Loop

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Causation VS Correlation
• Every link must represent causal relationships 
b t
between the variables, not the correlations
th i bl t th l ti
• Correlations among variables reflect the past 
behavior of a system. Correlations don’t 
represent the structure of the system
• Correlations among variables will emerge 
Correlations among variables will emerge
from the behavior of the model when you 
simulate it

Causation VS Correlation

Incorrect Correct

+ Ice Cream Murder

Sales Rate
Ice Cream Murder
+ +
Sales Rate

Average
Temperature

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Labeling Link Polarity
Incorrect

Sales from
Customer Customer
Word of
Base Loss Rate
Mouth

Correct
+ -
Sales from
Customer Customer
Word of
R Base B Loss Rate
Mouth
+ +

Create loops and label polarities
Quality

Price
Product
Attractiveness
Delivery
Delay

Functionality

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Determine loop polarity
• Count the number of negative links
– If the number of negative links is even, the loop is 
positive. If the number is odd, the loop is negative
– In a complex diagram, it is all too easy to miscount 
the number of negative links in a loop. And it is 
easy to mislabel the polarity of links
• Trace the effect of a change around the loop
– If the feedback effect reinforces the original 
change, it is a positive loop; if it opposes the 
original change, it is a negative loop

Identify link and loop polarity
Attractiveness Cumulative
of Market Production

Number of Market Unit

Profits
Competitors Share Costs

Price Price

Pressure to Clean Bank Cash

Up Environment Reserves

Perceived
Environmental Cleanup Net
Solvency of
Quality Effort Withdrawals
Bank

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Link and Loop Polarity

Unambiguous polarities
• All links must have unambiguous polarities
• If you have trouble assigning a clear and 
unambiguous polarity to a link, it usually 
means there is more than one causal pathway 
connecting the two variables
• Make these different pathways explicit in the 
Make these different pathways explicit in the
diagram

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Clear polarity

Incorrect Correct

? (+ or -) +
Price Revenue Price Revenue
+
Sales
-

Name the loops
• Numbering the loops R1, R2, B1, B2, and so on 
h l
helps your audience
di fi d
find each loop as your 
hl
discuss
• Naming the loops helps your audience 
understand the function of each loop and 
p
provides useful shorthand for discussion

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Name the loops Time
Remaining

-
Schedule
Pressure
+
B2
Work
Corner Remaining
- Cutting B1
+ -
Time per
Overtime Midnight
Task Oil

Delay
Completion
Rate
+ +
R1 +
Fatigue
Burnout

Productivity
- -
- -
Error Rate
R2
Haste Makes
Waste

Delay

Indicate important delays
• Delays give systems inertia, can create 
oscillations, and are often responsible for 
ill ti d ft ibl f
trade‐offs between the short‐ and long‐run 
effects of policies
• The diagrams should include delays that are 
important to the dynamic hypothesis or 
p y yp
significant relative to the time horizon

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Delays
Price +
Gasoline
Expenditures
Delay +

+ -
Delay Discretionary
Expected Demand for
Trips
Short-Term Gasoline
Price +
Vehicle Miles -
+ +
Delay Car Pooling and per Year
Expected
Long-Term Use of Existing - -
+ Mass Transit
Price
Delay Density of
Settlement Patterns,
Delay + Development of New
Mass Transit Routes
Efficiency of
+ Efficiency
Delay Cars on Road
of Cars on +
Market

Delay notation
Price Supply

Delay +
Price Supply
+

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Variable names guideline
• Nouns or Noun Phrases
• Clear Sense of Direction
• Normal Sense of Direction is Positive

Variable names
Incorrect Correct

+ +
Costs Rise Price Rises Costs Price

+ +
Feedback
Mental Praise from
from the Morale
Attitude the Boss
Boss

+ -
Costs Losses Costs Profit

+ -
Criticism Unhappiness Criticism Happiness

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Tips for CLD layout
• Use curved lines for information feedbacks. 
Curved lines help to visualize the feedback loops
Curved lines help to visualize the feedback loops
• Make important loops follow circular/oval paths
• Organize your diagrams to minimize crossed lines
• Don’t put circles, hexagons, or other symbols 
around the variables in causal diagram
• You won’t know what all the variables and loops 
Y ’t k h t ll th i bl dl
will be when you start, so draw many times to 
find the best layout

Choose the right level of aggregation
If your audience was confused by

-
Market Unit
Share Costs

you might make the intermediate concepts explicit as follows:

+ Production + Cumulative
Production
Volume -
Experience
Market Unit
Share Costs

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Don’t put all the loops in one diagram
• Presenting a complex causal map all at once 
makes it hard to see the loops, understand 
k it h d t th l d t d
which are important, or understand how they 
generate the dynamics
• Build up the model in stages, with a series of 
smaller causal loop diagrams. Each diagram 
p g g
should correspond to one part of the dynamic 
story being told

Make the goals of negative loops 
Incorrect
explicit Correct
Desired
+ Product + Product
Product
Quality Quality
- + Quality

B B Quality
Shortfall
Quality - Quality
Improvement Improvement
Programs Programs +

Coffee Room
- Coffee Temperature Temperature
- + -
Temperature
B Temperature
B Difference

Cooling Rate + Cooling

Rate +

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Distinguish between actual and 
perceived conditions
Bias in
Reporting
System
+
+ Reported Management
Delay Product Bias Toward
Product Quality Delay High Quality
Quality
+ +
+
Management
Perception of
B Product Quality
Delay Desired
Product
- Quality
Quality Quality
Improvement Shortfall
Programs +
Delay
+

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