Noakhali science and technology University

An assignment on stock and Flow

Course name: Simulation and Modeling
Course code: MIS_5103

Submitted by
Jannatul Ferdous
ID: BFH 2322MBA132F

Submitted To
Trisha Saha
 Broad Discussion: Stocks and Flows in Dynamic Systems
Introduction
Business Dynamics delves into the foundational concepts of stocks and flows, essential tools
in the field of system dynamics. These constructs are critical for understanding, modeling, and
analyzing the behavior of complex systems over time. By examining the relationships between
stocks, flows, and the broader system structures, Sterman provides insights into how systems
evolve and respond to external interventions. This discussion explores the core ideas,
applications, and implications of stocks and flows in dynamic modeling, emphasizing their role
in capturing system behavior and designing sustainable policies.

Defining Stocks and Flows

Stocks: Stocks are the state variables in a system representing quantities at any given time.
Represent the accumulations or conditions within a system at any given time, such as water in
a reservoir, population in a city, or inventory in a warehouse. Stocks provide the state of the
system, which evolves as flows alter their levels.
Flows: Flows are the rates of change of stocks over time. Represent the rates of change
affecting stocks, such as water inflow/outflow, birth/death rates, or production/consumption
rates. They act as the driving forces behind the dynamic behavior of stocks.
Since stock and flow are both variables, it is important to carefully examine their differences in
order to comprehend how the economic variables have developed. In general, the majority of th
e economic variables under study fall into one of two categories: stock or flow. Whereas flow is
defined as a quantity that may be measured throughout time, stock is defined as any quantity th
at is measured at a specific moment in time. The flow and the stock depend on one another. Bec
ause it makes it easier to comprehend how economic variables evolve, the idea of stock and flo
w is crucial to economics.

These components are crucial because they define how a system behaves over time. Stocks
serve as memory within the system, while flows govern how quickly or slowly stocks change.

Diagramming Stocks and Flows

Diagrammatic representations help in visualizing and understanding systems. Stocks are
represented as rectangles, flows as arrows, and auxiliary variables as intermediate factors
affecting flow rates. This visual clarity aids in identifying feedback loops and
interdependencies within the system, which are often obscured in verbal or numerical
descriptions.
Visual Representation:
Stock: Represented as a rectangle.
Flow: Shown as an arrow with a valve symbol.
Clouds: Denote sources or sinks where material enters or exits the system boundary.
Example Diagram:
Imagine a factory system:
Stock = "Finished Goods Inventory."
Inflow = "Production Rate."
Outflow = "Shipment Rate."
The Contribution of Stocks to Dynamics

Stocks are critical to understanding the behavior of dynamic systems because they serve as
accumulators of flows and influence the system's stability, inertia, and behavior over time. Here
is a detailed explanation of their contribution:
• Stocks as Sources of Memory in Systems
Stocks retain the effects of past actions. This memory provides resilience, allowing systems to
absorb shocks and delays.
• Stocks Create Delays
Because stocks accumulate inflows and outflows over time, they inherently create delays
between cause and effect in a system.
• Stocks as Stabilizers
Stocks smooth variability and dampen oscillations caused by sudden changes in inflows or
outflows.
• Stocks as Drivers of Oscillation
While stocks stabilize systems, they can also contribute to oscillations in systems with delayed
feedback loops.

Example: In a manufacturing system.

Managers reduce production to clear it.Once inventory is depleted, production ramps up again,
creating cycles.

• Stocks Create Momentum and Inertia

Stocks resist abrupt changes in system behavior, contributing to system inertia. In financial
systems, accumulated debt (stock) prevents rapid changes in spending behavior.
• Stocks as Leverage Points
Small adjustments in flows that influence critical stocks can have a large, long-term impact on
system behavior.
Role of Stocks:
Stocks create inertia in the system by acting as buffers, leading to delays or persistence in
system behavior.
Example: Inventory in a supply chain acts as a buffer between production and sales

The Snapshot Test

The snapshot test is a practical method used in system dynamics to distinguish stocks from
flows within a system. It helps modelers clarify the structure of a system by identifying which
variables represent accumulations (stocks) and which represent rates of change (flows).

The snapshot test involves "pausing" the system at a single moment in time (a snapshot) and
assessing which elements remain present and unchanged versus those that cease to exist or
move.

Key Steps in the Snapshot Test

1. Freeze the System in Time: Imagine the system stopped at a specific instant.
2. If yes, it is a stock because it represents an accumulation.
If no, it is a flow, as flows exist only over time.
The Conservation of Metarial in stock and flows networks
The principle of conservation of material is a fundamental concept in stock-and-flow networks,
ensuring that the total quantity of material in a system is neither created nor destroyed, but only
transferred between stocks or exits/entries of the system. This principle is rooted in physical
laws, such as the conservation of mass or energy.
Material Flow Analysis analytical tool to quantify flows and stocks of materials, substances or
products in a well-defined system in time and space. MFA consists of a systematic
evaluation of material and inventory flows, based on the principle of mass balance,
considering the limits of space and time. The applications of this method are quite
diverse and include estimation of waste generation.

Stocks Change Only Through Their Rates

Stock prices change everyday by market forces. By this we mean that share prices change
because of supply and demand. If more people want to buy a stock (demand) than sell it
(supply), then the price moves up.
Stocks are affected only by inflows and outflows. Auxiliary variables or feedback loops
influence these flows, not the stocks directly.
Continuous Time and Instantaneous Flows
Simulation models often approximate real-world systems as continuous, even when the flows
are discrete. A flow at any time is defined to be its instantaneous value-the rate at which water
is flowing into your bathtub right now. Mathematically, the net flow to a stock is the
instantaneous rate of change of the stock-its derivative. No one can measure the instantaneous
value of any flow. The government does not and cannot report the GDP at a particular moment
but instead reports the average rate of production over some prior, finite interval of time.
Likewise, quarterly reports of a of the quarter. During the quarter sales likely varied
substantially. Sales reports at more frequent intervals such as monthly or even daily are better
approximations of the instantaneous sales rate but still represent averages taken over some
prior, finite interval. Similarly, the speedometer of a car does not measure its instantaneous
velocity.
On the other hand, the delays in reporting the state of the economy or the profits of a company
are often long relative to their rates of change and dramatically influence the stability of the
system. Though we might develop instruments for our physical and social systems that shrink
the delays in measuring and reporting rates of flow, we can never measure the instantaneous
value of the flows affecting any stock

Which Modeling Approach Should I Use?

Criteria for Decision:

Use Causal Loop Diagrams (CLDs) to map feedback loops and high-level causal relationships.
Use Stock-and-Flow Diagrams (SFDs) to detail system dynamics, focusing on accumulations
and rates.
Practical Example:
CLD: Map customer satisfaction, repeat business, and advertising feedback loops.
SFD: Track specific sales, revenue, and inventory dynamics.

Causal loop diagram show stocks and flows structure

Causal Loop Diagrams are visual representations of the causal relationships among variables
within a system. They serve as powerful communication tools, especially for those with limited
backgrounds in system dynamics. CLDs highlight feedback loops, showing how changes in
one variable can propagate through the system, creating reinforcing or balancing feedback
loops.
Stock and Flow Diagrams, on the other hand, introduce a higher level of rigor into system
dynamics analysis. They explicitly differentiate between stocks (accumulated quantities) and
flows (rates of change). These diagrams are designed for a more detailed and quantitative
system analysis, providing a comprehensive view of how variables change over time.
A CLD shows the causal relationships between the variables in the system, using positive or
negative signs to indicate reinforcing or balancing feedback loops. A CLD does not show
the stocks and flows explicitly, but rather focuses on the qualitative aspects of the system.

Integration with Stocks/Flows:

CLDs often provide a high-level view of system feedback but lack the precision to capture
stock-flow dynamics. Adding stock-flow details enhances accuracy.

Example:
A CLD for population might show a feedback loop between population size and birth rate. A
stock-flow model explicitly represents:

Stock = Population.
Flow = Births and Deaths.
stock and flow Vs causal loop diagram
Implications of Stocks and Flows

The concept of stocks and flows transcends technical modeling and extends into philosophical
and strategic domains. Understanding accumulation and delays fosters long-term thinking and
encourages proactive decision-making. It challenges the event-driven mindset prevalent in
many organizations, promoting a systemic perspective that considers the interconnectedness
and evolution of variables over time.

For example, addressing climate change requires understanding the accumulation of

greenhouse gases and the delayed effects of mitigation strategies. Similarly, tackling public
health crises involves modeling disease spread and healthcare capacity as interacting stocks
and flows.

Conclusion
Business Dynamics offers a profound exploration of stocks and flows as fundamental building
blocks of system dynamics. By understanding their roles in capturing the state and evolution
of systems, we gain powerful tools for analyzing and influencing complex systems. Whether
applied to business, public policy, or environmental issues, stocks and flows provide a
framework for identifying high-leverage interventions and fostering sustainable decision-
making. As Sterman illustrates, mastering these concepts is essential for navigating and
addressing the complexities of the modern world.