Using System Dynamics for Strategic Performance Management in Construction

Abstract

Balanced scorecard (BSC) and strategy maps (SMs) are among the most popular strategic performance management methods that have been proposed in the literature to define, analyze, and monitor performance and strategies. Despite their popularity, BSC and SMs have been criticized for their inability to simulate dynamic interrelations between performance measures and strategies over time. In this paper, a dynamic SM was developed by using system dynamics (SD) modeling based on the BSC framework. This paper describes the dynamic SM, which was conceptualized, formulated, tested, and simulated in collaboration with a construction company, as well as the experiences gained during the model development process. Simulation tests demonstrated that dynamic SMs can be used to improve strategic decision making by assessing the impact of strategies on aggregated measures of performance under different scenarios considering changes in internal processes as well as external conditions. However, the findings also revealed that SD models can have some limitations due to problems of generalization, usability, and validity. The model development process and dynamic SM structure proposed in this study can be used by other companies and researchers to develop similar models and to discover potential limitations of SD modeling.