The widespread adoption of spreadsheets has led to
most large companies constructing corporate models. Despite the
desirable qualities that have facilitated their success, some
disadvantages of spreadsheets have become apparent. They have
often become unwieldy and inaccurate, but more fundamentally,
they only incorporate the 'hard' aspects of the environment. System
Dynamics [SD] models with their ability to handle complexity and
to incorporate both 'hard' and 'soft' factors, would seem to offer
advantages in comparison but have been criticised as giving only
indicative results. Is it therefore necessary to sacrifice precision
in order to achieve a wider view? This paper examines the validity
of the 'indicative' criticism by comparing the results from models
with identical logical relationships in the two environments and
demonstrates that identical numeric results can be produced given
the same input data.
Key words: System Dynamics, Spreadsheets, Stella™ MS Excel, Investment Appraisal Model, Higher Education Funding Model
The author is engaged in the investment appraisal of information systems and other capital projects and more general areas of business modelling and information systems management. The problem domain involves both 'hard' (frequently financial) and 'soft' (especially human perception) issues in a dynamic and complex environment. The author has described the inadequacies of the existing methods used for investment appraisal (Kennedy, 1996) and has become interested in the potential of SD to deal with this difficult problem environment. He is aware, however, of the criticism that SD models are indicative in nature (Ansoff and Slevin, 1968; Sharp and Prince, 1984) and would be unsuitable therefore in dealing with the 'hard' aspects of the analysis required. While it would be possible to import results from another modelling environment, (for example a spreadsheet), the author felt that this would dilute the value of the SD model in terms of documentation, capturing dynamic behaviour and as a learning and evaluation tool for managers. He therefore wished to ascertain the extent of the difficulties with using SD in a 'hard' scenario by practical experimentation. The first experiment involved the construction of SD model (HPS, 1994) of an investment appraisal model for a power generation plant. A model already existed in spreadsheet form so the opportunity was taken to construct a SD model replicating the logic of the spreadsheets, so that results could be compared. This experiment is described in a companion paper (Savicic and Kennedy, 1997). Following the successful replication of the results, a further experiment was conducted on a Higher Education Funding model with the same results. More general observations on the nature, advantages and disadvantages of spreadsheets and SD modelling environments were made.
Spreadsheets are selected for the vast majority of
business modelling purposes. Clarke and Tobias (1995) found over
90% utilisation. They also found an upsurge in the adoption of
corporate modelling compared to an earlier study (Grinyer &
Wooller, 1975) facilitated by widespread spreadsheet use. When
originally launched, the spreadsheet was a combination of an electronic
calculator and an accountant's analysis paper (Hurrel, 1990).
Spreadsheets can be flexible, cost-effective, portable,
versatile and easy to interface to other software and enjoy universality
and have quick development time (Clarke and Tobias, 1995). Spreadsheet
business models can also be used as exploratory platforms on which
corporate models are easily constructed and simulation experiments
conveniently performed. However, spreadsheets can become complex,
difficult to use and inflexible as the model grows. The ever increasing
size and high maintenance costs mean that they lack robustness.
A recent survey (Panko and Halverson, 1996), reveal that out of
40 models within 22 companies, 21% of the models developed under
experimental conditions and 80% of the expanded existing spreadsheets
contained errors of some type. The type of errors ranged from
simple omissions and logic to development and structural errors.
Freeman (1996) reports similar problems.
The spreadsheets in this study were both complex
models that were of strategic importance to an independent power
producer and to a UK higher education establishment respectively.
The author was prompted to propose these experiments by two recent
reports on corporate modelling in the UK, (O'Brien, 1995; Clarke
and Tobias, 1995), supporting the use of alternative modelling
environments to traditional productivity tools like spreadsheets
in business modelling and also by Rubin, Johnson and Yourdon (1994)
advocating the use of software process "Flight Simulation"
utilising SD tools. The Information Modelling and Management Group
at South bank University, of which the author is the co-ordinator,
introduced STELLA (a GUI driven system dynamics software tool)
to both organisations to experiment on the transferability of
the spreadsheet modelling logic into the STELLA environment.
As reported in a companion paper (Savicic and Kennedy, 1997), there were two motives for the client organisations to participate in the projects. Firstly, the spreadsheet models had suffered from problems connected with difficulties of maintaining overall control, documentation and logical errors. The structure of input data & assumptions, calculation, and reporting had also become difficult to sustain. Secondly, the managements wished to explore the possibilities of further enhancements to their business models by taking the claimed advantages of SD tools (Wolstenholme, 1990). The shared vision that may be engendered by the construction and use of SD models (Senge, 1993) can assist managers to 'navigate' their organisations to success. Ackoff (1981) supports the systematic analysis of corporate problems in the areas of management and planning and it would appear that SD tools can assist in the attainment of this goal. Under the supervision of M. Kennedy, the spreadsheet decoding and the Stella™ modelling, simulation and analysis were done by V. Savicic and D. Thomas.
The author was aware of the criticism from some authorities
that SD gives indicative results (Ansoff and Slevin, 1968; Sharp
and Prince, 1984). The numerical accuracy of the results from
the SD models constructed was of critical importance in these
applications. Forrester (1968, 1987) and Coyle (1986) have responded
to specific attacks of Ansoff and Slevin (1968), and Sharp and
Prince (1984) respectively in defence of SD that SD is concerned
with the structural relationships between levels and rates and
their dynamic behaviour. Meadows (1982) on the lessons of global
modelling, state that models of social systems should not be expected
to produce precise predictions.
Our experience in replicating MS Excel models into the STELLA environment, appears to cast doubt on this criticism where 'hard' data is used. In this small, self selecting, sample the numerical accuracy of results in the SD models depended on the correctness of data used. However, the two projects not only replicated numerical accuracy, but also gave some other advantages. The client managers were favourably impressed by the self- documenting capacity of the tool, the ability to 'audit' the transparent logic and the ability to communicate the model logic both to other colleagues and to new system users (Peterson, 1992). The major problem lay in the time taken to 'decode' the [undocumented or poorly documented] spreadsheets, the size of the resultant Stella™ files and the requirement to replicate model sectors [which should be avoided by the use of arrays in Stella IV] and the general lack of managerial familiarity with the approach.
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