Computer-implemented systems and methods are provided for an upscaling approach based on dynamic simulation of a given model. A system and method can be configured such that the accuracy of the upscaled model is continuously monitored via indirect error measures. If the indirect error measures are bigger than a specified tolerance, the upscaled model is dynamically updated with approximate fine-scale information that is reconstructed by a multi-scale finite volume method. Upscaling of multi-phase flow can include flow information in the underlying fine-scale. Adaptive prolongation and restriction operators are applied for flow and transport equations in constructing an approximate fine-scale solution.