System Dynamics was formed at the Massachusetts Institute of Technology in the late 1950s by Professor Jay W. Forrester. Forrester (1961) initially defined System Dynamics as: "The investigation of the information-feedback characteristics of (managed) systems and the use of models for the design of improved organisational form and guiding policy". System dynamics is a method for studying the world around us. The main concept of system dynamics is to understand how all the objects in a system interact with one another. A system can be anything from a car engine, to a bank account, to a health economy.
The objects and people in a system interact through "feedback loops", where a change in one variable affects other variables over time, which in turn affects the original variable, and so on. An example of this is money in a bank account. Money in the bank earns interest, which increases the size of the account. Now that the account is larger, it earns even more interest, which adds more money to the account. This goes on and on.
Another example of a simple feedback loop, which we have all experienced, is adjusting the water tap on a shower to reach a desired temperature. You turn the tap, feel the temperature and compare it to the desired temperature. You continue to adjust the water, with smaller and smaller adjustments, until you reach the desired temperature. What System Dynamics attempts to do is understand the basic structure of a system and therefore understand the behaviour it can produce.
Many of the systems and problems that are analysed can be built as models on a computer. System Dynamics takes advantage of the fact that a computer model can be of much greater complexity and carry out more simultaneous calculations than can the mental model of the human mind.