Dave Wells.

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1 Dave Wells This course book preview is provided as an opportunity to see the quality of the course material and to help you determine if the course matches your needs. The preview is provided in a PDF form that cannot be printed. It is my goal to provide a course book that is contentrich and that is useful as a reference document after the class has ended. This preview shows selected pages that are representative of the entire course book. The pages shown are not consecutive. The page numbers as they appear in the actual course material are shown at the bottom of each page. All table-of-contents pages are included to illustrate all of the topics covered by the course.

2 Dave Wells A Systems-Thinking Approach to Business Analytics David L. Wells i

3 A Systems-Thinking Approach to Business Analytics Copyright 2008 by David L. Wells All rights reserved. No part of this document may be reproduced in any form or by any means or medium without permission from the author and copyright holder. ii David L. Wells

4 A Systems-Thinking Approach to Business Analytics Exercises TABLE OF CONTENTS Module 1 Introduction to Systems Thinking and BI Module 2 Systems Thinking Concepts Module 3 Systems Thinking Models Module 4 Systems Thinking and Business Analytics Module 5 Systems Thinking and the BI Program Appendix A Glossary of Terms A-1 Appendix B Bibliography and References... B-1 David L. Wells iii

5 A Systems-Thinking Approach to Business Analytics Introduction to Systems Thinking and BI Dave Wells Module 1 Introduction to Systems Thinking and BI Topic Page Business Intelligence 1-2 Business Analytics 1-8 Systems 1-14 Systems Thinking 1-24 David L. Wells 1-1

6 Introduction to Systems Thinking and BI A Systems-Thinking Approach to Business Analytics Business Intelligence BI Redefined Business Intelligence is Intelligence: A property that encompasses many related abilities, such as the capacities to reason, plan, solve problems, think abstractly, comprehend, and learn typically regarded as distinct from creativity, personality, character, knowledge, or wisdom. the ability of an organization or business to reason, plan, predict, solve problems, think abstractly, comprehend, innovate, and learn Business: The social science of managing people to organize and maintain collective productivity toward accomplishing particular creative and productive goals, usually to generate profit. in ways that increase organizational knowledge, inform decision processes, enable effective actions, and help to establish and achieve business goals. 1-6 David L. Wells

7 A Systems-Thinking Approach to Business Analytics Introduction to Systems Thinking and BI Business Intelligence BI Redefined A New BI Definition: Business Intelligence is the ability of an organization or business to reason, plan, predict, solve problems, think abstractly, comprehend, innovate, and learn in ways that increase organizational knowledge, inform decision processes, enable effective actions, and help to establish and achieve business goals. Technology and BI: Processes, tools, technologies, concepts, methodologies, information, knowledge, architecture, operational systems, analytic applications, databases, and data all have a role in business intelligence. But they are not BI! David L. Wells 1-7

8 Introduction to Systems Thinking and BI A Systems-Thinking Approach to Business Analytics Business Analytics Using Analytics Define the Scope Identify Constituent Systems Understand Constituent Systems Define the Metrics Define the Measures Design the Analytic Applications Design the Measurement Systems Develop Measurement Systems Develop Analytic Applications Collect the Measures Calculate the Metrics Deliver the Metrics Understand the Meanings Plan and Decide Take Action 1-12 David L. Wells

9 A Systems-Thinking Approach to Business Analytics Introduction to Systems Thinking and BI Business Analytics Using Analytics Analytics and Technology: Analytic usage certainly depends on technology to produce usable metrics, tables, graphs, scorecards, dashboards, etc. This is the area where development and usage overlap. Collecting measures, calculating metrics, and delivering those metrics are both development activities and a continuous and repeated process throughout the life of analytic systems. Note that usable is not the same as useful one of the reasons that systems thinking is an important addition to the analytics developer toolkit. Analytics and People: Simple delivery of useful metrics does not create intelligence in the business. Business intelligence occurs when people examine the metrics to determine what they mean, to expand knowledge of business behaviors, to plan, to make informed decisions, and to take effective actions. The defining capacities of BI reason, plan, predict, solve problems, think abstractly, comprehend, innovate, and learn depend largely on human engagement with the analytics. Analytics and Feedback: Business intelligence isn t complete without a feedback loop. Continuous measurement and regular analysis are the mechanisms by which we know and improve the reasoning, planning, forecasts, solutions, and understanding that are essential to creating value through BI. Peter Senge describes this process as the learning organization in one of the definitive systems-thinking works The Fifth Discipline: The Art and Practice of the Learning Organization. Measurement-based feedback is also a core concept of Six-Sigma, ISO- 9x, TQM, and other continuous improvement practices. David L. Wells 1-13

10 Introduction to Systems Thinking and BI A Systems-Thinking Approach to Business Analytics Systems Thinking Systems Thinking Defined Systems Thinking: using systems theories to create desired outcomes, or change a unique approach to problem solving that views problems as a part of the overall system a framework based on the belief that the parts of a system will act differently when the systems relationships are removed understanding of a system by examining the linkages and interactions between the elements that comprise the entirety of the system. Systems thinking offers you a powerful new perspective, a specialized language, and a set of tools that you can use to address the most stubborn problems Pegasus Communications, Inc David L. Wells

11 A Systems-Thinking Approach to Business Analytics Introduction to Systems Thinking and BI Systems Thinking Systems Thinking Defined Applied Systems Theory: Systems Thinking is the application of systems theory the study of Systems Dynamics - to effect change. The systems-thinking approach provides perspective and tools for problem solving, systems modeling, and practical understanding of complex systems. Problem solving in the systems-thinking approach views problems as part of the overall system. Traditional problem-solving approaches tend to focus on one or a few parts of a system, believing that changes to those parts offers a solution. The systemsthinking approach focuses on interactions and influences as the core elements of solving problems. Systems Modeling is performed by modeling the parts of a system and the interactions among those parts. Several archetypes base models that represent common kinds of systemic behaviors are central to systems modeling. Understanding of systems is achieved through identification, modeling, and analysis of relationships and interactions among the parts of a system a distinctly different and more in-depth analysis than is possible with structural models of a system. David L. Wells 1-25

12 A Systems-Thinking Approach to Business Analytics Systems Thinking Concepts Dave Wells Module 2 Systems Thinking Concepts Topic Page Systems Thinking Basics 2-2 Feedback Loops 2-10 System Archetypes 2-16 David L. Wells 2-1

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14 Systems Thinking Concepts A Systems-Thinking Approach to Business Analytics Systems Thinking Basics Things Influence Other Things thing X thing Y employee morale employee productivity 2-2 David L. Wells

15 A Systems-Thinking Approach to Business Analytics Systems Thinking Concepts Systems Thinking Basics Things Influence Other Things The Most Basic Concept of systems theory is that a system is a collection of interacting things. I use the word thing to avoid the context-based connotations that might occur with terms such as entity, object, or component. Things in a System are of many types. They may include (but are not limited to) entities that are familiar to data modelers, objects that are familiar to object-oriented systems analysts, and components as understood by software developers. Things in a Business System encompass artifacts such as resources, capacities, limits, gaps, goals, desires, actions, results, plans, processes, rules, standards, and much more. Influence is a behavioral characteristic of interaction. Interaction between two things in a system is directional one thing has influence on another thing. System Behavior is important to understand why things happen in a system, and to predict what may happen in the future. Analysis of influences is the key to understanding system behavior. David L. Wells 2-3

16 Systems Thinking Concepts A Systems-Thinking Approach to Business Analytics Feedback Loops Reinforcing Loops performance bonuses employee productivity 2-12 David L. Wells

17 A Systems-Thinking Approach to Business Analytics Systems Thinking Concepts Feedback Loops Reinforcing Loop Positive Polarity Loops are known as reinforcing loops. These loops act to amplify the behaviors of the things that interact within the loop. A reinforcing loop feeds on itself to produce growth or decline. In the Example increasing performance bonuses cause increases in productivity, which in turn cause more growth in bonuses. Similarly, decreasing bonuses cause declining productivity, which further diminishes performance bonuses. Note that the explanation above does not imply that performance bonuses are the beginning of the loop there is no beginning or end. The example can be as easily and accurately described as: increasing productivity causes increased performance bonuses, which in turn causes greater productivity. Similarly, declining productivity causes smaller bonuses, which further erodes productivity. David L. Wells 2-13

18 Systems Thinking Concepts A Systems-Thinking Approach to Business Analytics System Archetypes Models of Universal Behavior Systems Archetypes are generic causal loop models that represent recurrent patterns of behavior in systems. Balancing and reinforcing loops are the two most basic archetypes upon which more complex archetypes are constructed David L. Wells

19 A Systems-Thinking Approach to Business Analytics Systems Thinking Concepts System Archetypes Models of Universal Behavior Generic Structures in Systems that can be generalized across many different settings because the underlying relationships are fundamentally the same are known as archetypes. In addition to reinforcing loops and balancing loops, nine system archetypes are widely recognized as illustrated on the facing page. David L. Wells 2-17

20 Systems Thinking Concepts A Systems-Thinking Approach to Business Analytics System Archetypes Accidental Adversaries X contributes to Y - X s Success X contributes to X Y contributes to Y Y s Success - Y contributes to X 2-18 David L. Wells

21 A Systems-Thinking Approach to Business Analytics Systems Thinking Concepts System Archetypes Accidental Adversaries Localization with System-Wide Sub-Optimization is characteristic of Accidental Adversaries. The Characteristics of this archetype are Two distinct local reinforcing loops exist, represented by localities X and Y. X behaves locally to contribute to X s own success. Y behaves locally to contribute to Y s own success. X behaves cooperatively to contribute to Y s success. Y behaves cooperatively to contribute to X s success. The two cooperative links create a system global reinforcing loop. X s local actions to contribute to X s success have unintended consequences that inhibit Y s success. Y s local actions to contribute to X s success have unintended consequences that inhibit X s success. Overall system potential is limited by the effects of unintended consequences of local optimization without global system awareness. The value of the global reinforcing loop is diminished. Socio-Cultural Example: National security vs. workforce economics as they are related to US immigration policies. Consider an Example where you and I are managing separate but related software development projects. Cooperatively we have agreed to develop shared and reusable software components where practical. Yet each of us, when faced with schedule pressures or conflicting needs, chooses to build local custom components. What are the overall effects for the global system? How might they be resolved? David L. Wells 2-19

22 A Systems-Thinking Approach to Business Analytics Systems Thinking Models Dave Wells Module 3 Systems Thinking Models Topic Page Causal Loop Diagrams 3-2 Stock and Flow Diagrams 3-14 Behavior over Time Graphs 3-18 David L. Wells 3-1

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24 Systems Thinking Models A Systems-Thinking Approach to Business Analytics Causal Loop Diagrams Modeling Basics Nodes, Links, and Loops node link direction (of values) direction (of influence) workload capacity gap - - workforce capacity hiring loop polarity 3-2 David L. Wells

25 A Systems-Thinking Approach to Business Analytics Systems Thinking Models Causal Loop Diagrams Modeling Basics Nodes, Links, and Loops Visually Representing System Behavior is widely practiced in systems thinking with a Causal Loop Diagram (CLD). Causal loop diagramming is a form of Cause and Effect modeling. The diagrams represent a systems and behaviors as a collection of Nodes that illustrate the things in the system, Links that illustrate interactions and influences, Direction of Values a property of a link indicating whether influence causes values to move up and down in the same direction or in opposite directions, Direction of Influence a property of a link drawn as an arrowhead to show which node causes influence and which node demonstrates effects of influence, Loops that are formed by a set of nodes and links in a way that creates a circular feedback process, Loop Polarity a property of a loop which determines whether it is a reinforcing (positive polarity) loop or a balancing (negative polarity) loop. David L. Wells 3-3

26 Systems Thinking Models A Systems-Thinking Approach to Business Analytics Stock and Flow Diagrams Additional Insight into Causal Loop Diagrams workload hiring - capacity gap - workforce capacity hiring rate workforce capacity (FTE count) workload assignment rate labor budget outstanding orders 3-16 David L. Wells

27 A Systems-Thinking Approach to Business Analytics Systems Thinking Models Stock and Flow Diagrams Additional Insight into Causal Loop Diagrams From CLD to Stock and Flow: A systematic process of working from a CLD to create stock and flow diagrams uses a sequence of: Identify critical behaviors of the system those that are problematic, under study of analysis, or central to the goals and strategies of the organization. Identify the stocks that participate in critical behaviors of the system those things that are accumulated in the system upon which critical behaviors are dependent. Name each stock with a term that is quantitative but not comparative. (The example on the facing page adds (FTE count) to the name workforce capacity to make it quantitative. But it does not say more workforce capacity which is comparative language.) Examine every link to each stock to determine if it becomes a flow. If the influence is one that changes the accumulated quantity of the stock, then it is a flow. Add each flow to the diagram expressing the influence as units-over-time or rate of flow. (The example on the facing page translates hiring from the CLD to hiring rate in the stock and flow diagram, and workload to workload assignment rate. ) Examine each flow in context of the system-wide CLD to identify links that are converters influences that regulate or otherwise affect the rate of flow. Labor budget and outstanding orders are converters in the example on the facing page. Mark the boundaries start and end of the model. Multiple Stocks and Flows: It is possible even probable to produce many stockand-flow sequences from a single CLD. (This effect is similar to the probability of many state transition models from one data model.) When this occurs, valuable insight can be derived by identifying the overlaps where a flow in one sequence acts as a converter in another sequence. Consider this extension to the example on the facing page. Labor budget is a stock whose in-flow is labor cost allocation rate. The cost allocation rate is the true converter affecting hiring rate. Similarly, outstanding orders is a stock with the in-flow of order received rate. In both instances the converter link is a flow-to-flow connection. The stock itself is never used as a converter. The result of this analysis is greater insight that may add understanding and detail to the CLD. labor cost allocation rate hiring rate order received rate labor budget (dollars) workforce capacity (FTE count) outstanding orders (days to complete) labor cost expenditure rate workload assignment rate order fill rate David L. Wells 3-17

28 Systems Thinking Models A Systems-Thinking Approach to Business Analytics Behavior over Time Graphs Technique and Purpose BOTG Basics variable of interest pattern of behavior time scale Graphing One Variable workload (1000 staff hours per week) week number in calendar year Graphing Variables for Comparison Actual Forecast workload (1000 staff hours per week) week number in calendar year 3-18 David L. Wells

29 A Systems-Thinking Approach to Business Analytics Systems Thinking Models Behavior over Time Graphs Technique and Purpose A Simple Tool: A Behavior over Time Graph (BOTG) is a simple and widely used tool to understand patterns of behavior over a period of time. It removes attention from isolated events which leads to deeper understanding of systemic behaviors. A Familiar Tool: Virtually everyone is familiar with BOTG and understands how to read them. But knowing how to read a graph does not imply knowing how to create one. A few simple guidelines: Always represent time on the X (horizontal) axis. Label the X axis in units of time with defined beginning and ending points. Name the scale in a way that is clear and non-ambiguous. Use a time scale that has meaning to the purpose of analysis, and that is divided into equal units or spans of time. Always represent the variable of study on the Y (vertical) axis. Label the Y axis with the name of the variable of study. Use a quantitative scale for the variable that has meaning to the purpose of analysis. Set minimum and maximum values of the Y axis scale to describe the realities of the variable of study. Plot multiple variables on the same graph only when it is useful to examine the correlation between them. When plotting multiple variables label the Y axis with the subject of study, and include a legend that clearly identifies each variable on the graph. David L. Wells 3-19

30 A Systems-Thinking Approach to Business Analytics Systems Thinking and Business Analytics Dave Wells Module 4 Systems Thinking and Business Analytics Topic Page A Business Analytics Framework 4-2 Purposeful Analytics 4-10 Insightful Analytics 4-16 Actionable Analytics 4-24 David L. Wells 4-1

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32 Systems Thinking and Business Analytics A Systems-Thinking Approach to Business Analytics A Business Analytics Framework Dimensions of Analytics Management Measurement process alignment goal alignment Business functional alignment 4-2 David L. Wells

33 A Systems-Thinking Approach to Business Analytics Systems Thinking and Business Analytics A Business Analytics Framework Dimensions of Analytics From Dynamics to Structure: All of the systems thinking tools CLDs, stock-and-flow maps, and BOTG s explore the dynamics of systems and are valuable to understand business systems. The last piece of the puzzle is a framework within which to apply them. The business analytics framework fills that need by positioning systems thinking in context of business structure. The Business Dimension describes the common functions that are performed within most businesses. Business Intelligence is, first and foremost, about business. Virtually every business has processes and organizations whose purpose is to carry out the functions of the business. The business dimension provides the structure for functionally aligned business analytics. The Measurement Dimension describes the structural components of business measurement systems. Measurement structure is the foundation for metrics that are aligned with and supportive of business strategies. The Management Dimension describes the common issues, concerns, and objectives of business management that create a need for information and analytics. This dimension adds the structure to align analytics with the purposes, goals, and objectives of business management. David L. Wells 4-3

34 Systems Thinking and Business Analytics A Systems-Thinking Approach to Business Analytics Purposeful Analytics Business Context why? Policy Risk Compliance Audit Management Strategy Finance R&D Marketing Sales Customers Business Operations Human Resources Measurement Measures Metrics References Trends Indicators Indexes what? how? 4-10 David L. Wells

35 A Systems-Thinking Approach to Business Analytics Systems Thinking and Business Analytics Purposeful Analytics Business Context Business Scope of analytics is derived from the business dimension of the framework. Scope describes what you want to build and/or analyze. The business dimension helps to establish the domain of analytics (strategy, finance, etc.) and to define the boundaries of analysis. Business Objectives that drive analytics are found in the management dimension of the framework. Each of policy, risk, audit, and compliance provide objective context for analytics. When coupled with the capabilities that BI provides to understand, predict, plan, solve problems, etc. they become a skeletal statement of analytic objectives. Business Measures the raw materials of analytics are found in the measurement dimension of the framework. This dimension provides the structure to define indexes and indicators for continuous business monitoring and management, trends to analyze and understand behavior over time, references that provide comparative context for analytics, and the metrics and measures that quantify the business variables of interest. At the Intersections of these three dimensions you ll find the business context what, why, and how that is needed to define, implement, and apply analytics with clear and substantial purpose. David L. Wells 4-11

36 Systems Thinking and Business Analytics A Systems-Thinking Approach to Business Analytics Insightful Analytics Archetypical Insights X contributes to Y X Y - X s Success X contributes to X Y contributes to Y Y s Success - Y contributes to X Pressure to Adjust Desire Action Current State Desired State Gap - - Desired State Current State X s Results Y s Results - Results of X Relative to Y X Y Action by X - Action by Y Action delay quick fix 1 quick fix 2 quick fix 3 quick fix 4 Desired State Gap - Current State - Unintended Consequences 4-18 David L. Wells

37 A Systems-Thinking Approach to Business Analytics Systems Thinking and Business Analytics Insightful Analytics Archetypical Insights The Archetypes described earlier in the course are an effective way to gain insight from analytics. It is valuable to understand the relationships between archetypes shown as CLD s and shown as BOTG s. Whether you re looking at a BOTG and asking why? or at a CLD and asking what should I expect? these abstract models provide a way to see inside the dynamics of systems. Accidental Adversaries graphs as two activities X and Y which both experience accelerating growth early in the time scale. As local optimization limits success potential of both activities, they each decline in the later stages of the time scale. Drifting Goals graphs as mildly oscillating patterns of both the current state and the desired state. Current state increases slightly over time, as desired state experiences a slight decrease. Eventually equilibrium is reached and both states flatten at a level that is less than the original desired state. Escalation graphs as two activities X and Y that each grow in a stair step pattern, with each as the driving force for the next growth step of the other. Fixes that Fail exhibits an oscillating pattern of increase followed by decrease. Each of the increases coincides with the introduction of a symptomatic solution. Each decrease that follows is the result of unintended consequences of the fix that become visible only after some delay. It is common that the time intervals between cycles decrease over time, and that the amplitude of each wave also shrinks. David L. Wells 4-19

38 Systems Thinking and Business Analytics A Systems-Thinking Approach to Business Analytics Actionable Analytics Measuring to Make a Difference labor cost allocation rate labor budget (dollars) labor cost expenditure rate hiring rate workforce capacity (FTE count) workload assignment rate order received rate outstanding orders (days to complete) order fill rate w o r kload (1000 staff hours per w eek) Compliance Audit Risk Policy 16 Strategy Finance Actual Forecast week number in calendar year R&D Marketing Sales Business Customers Operations Human Resources Measures Metrics Management Measurement References Trends Indicators Indexes 4-24 David L. Wells

39 A Systems-Thinking Approach to Business Analytics Systems Thinking and Business Analytics Actionable Analytics Measuring to Make a Difference Action is at the heart of creating value; understanding without action does nothing to make a real difference. Thus analytics will only have real impact if they are actionable analytics if they encompass all of knowledge what to measure, knowledge of where to measure, knowledge of what the measures mean, and knowledge of what to do about it. Information and Action Actionable Information is an often used but rarely defined term. The popular definition is information that makes action possible a circular but not very informative definition (a loop without feedback?). I first put forth the following definition in I believe that it holds true today and applies as much to business analytics as to other kinds of information: Information is actionable when it supports the entire process of action-taking including discovery and insight, determination and resolve, decision-making, innovation and creativity, and the implementation of decisions. Actionable information is aligned with the knowledge of the person taking action, and integrates with the processes where actions are to be implemented. (Beyond Information Delivery: Finding Real Value, Wells, TDWI FlashPoint, February 2004) David L. Wells 4-25

40 A Systems Thinking Approach to Business Analytics Systems Thinking and the BI Program Dave Wells Module 5 Systems Thinking and the BI Program Topic Page Project Scoping 5-2 Business Requirements 5-4 Change Management 5-6 Quality Management 5-8 Portfolio Management 5-10 Value Management 5-12 BI Capabilities 5-14 David L. Wells 5-1

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42 Systems Thinking and the BI Program A Systems Thinking Approach to Business Analytics Business Requirements Describing the Needs labor cost allocation rate labor budget (dollars) labor cost expenditure rate hiring rate order received rate workforce capacity (FTE count) outstanding orders (days to complete) w o r k l o a d ( s t a f f h o u r s p e r w e e k ) 16 workload assignment rate order fill rate week number in calendar year Strategy Finance Actual Forecast R&D Marketing Sales Customers Operations Compliance Audit Risk Policy Business 5 2 Management Human Resources Measurement Measures Metrics References Trends Indicators Indexes 5-4 David L. Wells

43 A Systems Thinking Approach to Business Analytics Systems Thinking and the BI Program Business Requirements Describing the Needs Business Requirements are the starting point to define all of the requirements of an analytic system the essential input to defining functional and technical requirements. Business requirements itemize the needs and goals that the business has for a system. User requirements are an important aspect of business requirements, addressing topics such as ease-of-use, speed, accessibility, and mobility. Functional Requirements describe all of the inputs and outputs of an information system, and identify the specific transformations that the system must perform to get from inputs to outputs. These requirements encompass the entire data-to-information pipeline for the system from received input data to delivered information; and they describe the flow of data and information through that pipeline. Functional requirements are derived from business requirements. Technical Requirements (also known as non-functional requirements) describe specific qualities that the system must have performance, security, availability, reliability, quality, scalability, maintainability, etc. Technical requirements specify how well the system must perform the functional requirements. They are the service-level requirements from which service level agreements are derived. Systems Thinking models provide context and perspective to focus questions, interviews, and other requirements gathering activities. They can also work as tools to evaluate completeness and consistency of requirements. Complete and accurate business requirements are prerequisite to good functional and technical requirements. David L. Wells 5-5

44 Systems Thinking and the BI Program A Systems Thinking Approach to Business Analytics BI Capabilities Enabling Real Intelligence labor cost allocation rate labor budget (dollars) labor cost expenditure rate hiring rate workforce capacity (FTE count) workload assignment rate order received rate outstanding orders (days to complete) order fill rate Business Intelligence is the ability of an organization or business to reason, plan, predict, solve problems, think abstractly, comprehend, innovate, and learn in ways that increase organizational knowledge, inform decision processes, enable effective actions, and help to establish and achieve business goals. w o r kload (1000 staff hours per w eek) Compliance Audit Risk Policy 16 Strategy Finance Actual Forecast week number in calendar year R&D Marketing Sales Business Customers Operations Human Resources Measures Metrics Management Measurement References Trends Indicators Indexes 5-14 David L. Wells

45 A Systems Thinking Approach to Business Analytics Systems Thinking and the BI Program BI Capabilities Enabling Real Intelligence A Closing Thought: Systems thinking and BI have long been separate and distinct disciplines and communities. The time has come for them to converge. In this course I have examined the reasons why I believe that BI must adopt systems thinking concepts as a means to deliver real intelligence. I also believe that systems thinking can grow and evolve by incorporating some of the concepts of BI new territory yet to be explored. David L. Wells 5-15

46 A Systems-Thinking Approach to Business Analytics Glossary of Terms Dave Wells Appendix A Glossary of Terms David L. Wells A-1

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48 Glossary of Terms A Systems-Thinking Approach to Business Analytics Glossary Page 4 of 7 Flow Gap Goal-Seeking Loop Growth and Underinvestment Index Indicator In-Flow Influence Information Systems A Flow is an action that influences a stock either by increasing or by decreasing the stock. Flows are of two kinds In-Flows that increase stocks and Out-Flows that decrease stocks. Flows are a component of stock and flow diagrams. A gap is a node in a balancing loop that represents the difference between current state and desired state. See Balancing Loop. Growth and Underinvestment is a variation of the Limits to Success system archetype in which the limiting state is created by failure to invest, often due to short-term pressures such as limited capital. As growth stalls due to lack of resources, incentive to add capacity declines which causes growth to slow even more. An index aggregates multiple indicators to evaluate performance against strategic goals of the business. They are often rationalized to an easy-to-grasp scale such as zero to one-hundred. An indicator is a metric used to evaluate performance against goals for tactical and operational processes of the business also known as a key performance indicator (KPI). A Flow is an action that influences a stock either by increasing or by decreasing the stock. Flows are of two kinds In-Flows that increase stocks and Out-Flows that decrease stocks. Flows are a component of stock and flow diagrams. Influence is a behavioral characteristic of interaction in system dynamics. Interaction between two things in a system is directional one thing has influence on another thing. Influence is a basic concept of cause and effect. Information Systems include computerized systems but extend to include business transactions, data about transactions, people who conduct transactions, procedures that govern them, transactionbased information in the form or reports, graphs, etc. Information systems also include the people who use information reports, tables, graphs, images, etc. that is captured, created, stored, and reported. Computerized systems are a part of information systems, but represent only the information technology portion. A-6 David L. Wells

49 A Systems-Thinking Approach to Business Analytics Glossary of Terms Glossary Page 5 of 7 Innovation Insight Learning Limits to Success Link Loop Loop Polarity Measure Metric Innovation is the ability to create, or the act of creating, something new and different a device or a process through study and experimentation. Innovation often occurs by combining or connecting existing things in different ways. Insight is a clear and deep perception of a complex situation or condition the ability to see inside the situation. Insightful analytics are those that create the ability to look inside deeply enough to understand the causes of a situation or condition. Learning is a cognitive process of acquiring skill or knowledge. Limits to Success is a system archetype in which a reinforcing loop drives growth of a current state, but influence of a limiting state creates a growth plateau beyond which growth will slow and will eventually flatten or even decline. A link is a notation in causal loop diagramming that connects two nodes. The link indicates that one node influences the other. A loop is a construct in a causal loop diagram. Loops are closed structures that represent a sequence of system interactions without a beginning or an end. A loop may contain any number of interactions greater than one. Feedback is a characteristic of loops in systems. Polarity refers to the positive or negative feedback characteristics of a loop. Positive Feedback occurs when the cumulative effect of all interactions in the loop is one of growth, amplification, or acceleration. Negative Feedback occurs when the cumulative effect of all of the interactions is stabilization or equilibrium. Determining Loop Polarity is relatively easy. Simply count the number of subtractive interactions in the loop. An odd number indicates negative polarity, and an even number indicates positive polarity. A measure is a single data value that is quantitative in nature, and is associated with the thing that is quantified and the point in time at which the measure is taken. A metric is a system of measures that is based upon standard units and that has sufficient context to provide information through sorting, grouping, filtering, summarization, etc. David L. Wells A-7