Value Realization Model¶
1. Purpose and Scope¶
This Value Realization Model defines how value is identified, qualified, quantified, justified, verified, realized, validated, adjusted, reported, and, where applicable, shared.
The model is intended to be canonical within the Value Realization Framework and may be incorporated into customer-facing agreements, statements of work, schedules, exhibits, engagement letters, or value statements by reference.
This model is not itself an invoice, agreement, or statement of work unless expressly incorporated into a binding instrument.
2. Relationship to Legal Instruments and Schedules¶
This model establishes the general rules. A more specific Value Realization Schedule may establish the parameters that apply to a specific account, engagement, portfolio, program, project, initiative, Value Realization Element, or contributor class.
More specific schedules override less specific schedules only within the scope expressly stated.
The intended hierarchy is:
- The applicable agreement or statement of work.
- This Value Realization Model, if incorporated.
- Any applicable Value Realization Schedule.
- Any Value Realization Statement issued for a period or value realization event.
3. Core Value Hierarchy¶
3.1 Value Realization Portfolio¶
A Value Realization Portfolio is a defined collection of Value Realization Initiatives and/or Value Realization Elements managed to maximize measurable value within a domain, account, engagement, program, project, platform, practice, product, or other agreed scope.
3.2 Value Realization Initiative¶
A Value Realization Initiative is a managed action, project, program, portfolio, or other effort intended to create measurable value.
3.3 Value Realization Element¶
A Value Realization Element is a distinct value-producing component of a Value Realization Initiative. A single initiative may include one or more elements.
3.4 Value Realization Event¶
A Value Realization Event is the point in time or period in which value is observed, measured, validated, or realized.
3.5 Value Statement¶
A Value Statement describes the value expected, the source of that value, the valuation approach, the relevant assumptions, and the evidence required for validation.
4. Value Measures¶
4.1 Gross Realized Value¶
Gross Realized Value means the total measurable value observed or validated before deducting Direct Material Investment, agreed offsets, or other value deductions.
Gross Realized Value should be reported where practical because it helps the customer understand the full value created, enabled, led, assisted, or accelerated by the engagement.
4.2 Net Realized Value¶
Net Realized Value is the default basis for Alescent value participation unless the applicable Value Realization Schedule states otherwise.
Net Realized Value means Gross Realized Value less:
- Excess Customer Direct Material Investment;
- any agreed value deductions;
- any agreed credits or offsets; and
- any other deductions expressly stated in the applicable Value Realization Schedule.
5. Direct Material Investment¶
5.1 Direct Material Investment¶
Direct Material Investment means qualifying investment of capital, cash, or effort that both:
- directly contributes to the solution, change, implementation, realization, or validation of the applicable value-producing outcome; and
- exceeds the applicable materiality threshold.
Direct Material Investment excludes general administration, routine project management, status reporting, general meetings, account management, executive oversight, governance overhead, and generalized analysis not directly necessary to create, implement, verify, or realize a specific value-producing change.
5.2 Directness Standard¶
Investment is direct only if it is materially connected to defining, discovering, designing, developing, deploying, demonstrating, detecting, diagnosing, optimizing, implementing, or verifying the value-producing change.
Analytical work qualifies only when it is directly necessary to produce, implement, verify, or realize the value-producing change. General analysis, administrative reporting, and generalized business analysis do not qualify merely because they relate to an engagement.
5.3 Materiality Threshold¶
The materiality threshold is established in the applicable Value Realization Schedule and may be stated as a percentage of Forecasted Present Value, Adjusted Portfolio Value, or another agreed value basis.
5.4 Customer Direct Material Investment Allowance¶
The Customer Direct Material Investment Allowance is the portion of the materiality threshold allocated to the customer.
Unless otherwise stated in the applicable Value Realization Schedule:
Customer Direct Material Investment Allowance = (1 - Participation Rate) x Materiality Threshold
5.5 Alescent Direct Material Investment Allowance¶
The Alescent Direct Material Investment Allowance is the portion of the materiality threshold allocated to Alescent.
Unless otherwise stated in the applicable Value Realization Schedule:
Alescent Direct Material Investment Allowance = Participation Rate x Materiality Threshold
5.6 Excess Customer Direct Material Investment¶
Customer Direct Material Investment above the Customer Direct Material Investment Allowance decrements Net Realized Value unless the applicable Value Realization Schedule states otherwise.
5.7 Alescent Recoverable Direct Material Investment¶
Alescent Direct Material Investment above the Alescent Direct Material Investment Allowance is Alescent Recoverable Direct Material Investment.
Alescent Recoverable Direct Material Investment is separate from Value Realization Share and may be recovered, credited, offset, excluded, or otherwise handled as stated in the applicable Value Realization Schedule.
6. Forecasted Present Value¶
Forecasted Present Value means the present value of expected future value realization associated with a Value Realization Portfolio, Initiative, Element, or Event, calculated using the applicable Valuation Approach, Event Horizon, Discount Rate, and other parameters stated in the applicable Value Realization Schedule.
7. Valuation Approach¶
The Valuation Approach is the formula, method, model, algorithm, evidence standard, or agreed specification used to estimate, validate, and calculate value.
A Valuation Approach should identify:
- the value measure;
- the baseline;
- the counterfactual, if applicable;
- the measurement period;
- the Event Horizon;
- the Discount Rate;
- stage weighting, if applicable;
- risk adjustment, if applicable;
- exclusions;
- evidence required for validation; and
- the person or role responsible for validation.
8. Baseline and Counterfactual¶
A baseline defines the starting condition against which value is measured.
A counterfactual defines the reasonably expected condition that would have occurred without the applicable Value Realization Initiative or Element.
Where a counterfactual is used, it must be stated in the applicable Value Statement or Value Realization Schedule.
9. Event Horizon, Discount Rate, Stage Weighting, and Risk Adjustment¶
9.1 Event Horizon¶
The Event Horizon is the period over which future value may be counted for valuation purposes.
9.2 Discount Rate¶
The Discount Rate is the rate used to calculate present value or discounted value.
9.3 Stage Weighting¶
Stage Weighting may be used to estimate value based on the maturity or stage of a Value Realization Initiative or Element.
9.4 Risk Adjustment¶
Risk adjustment may be used to reduce Forecasted Present Value or Adjusted Portfolio Value based on uncertainty, volatility, evidence quality, implementation risk, or other agreed factors.
10. Value Realization Share¶
10.1 Value Realization Share¶
Value Realization Share means the amount Alescent is entitled to participate in or receive based on value realized, managed, forecasted, validated, or otherwise recognized under the applicable Value Realization Schedule.
The term Performance Fee should not be used for new instruments unless required by customer paper or legacy context.
10.2 Participation Rate¶
Participation Rate means the percentage or other rate applied to Net Realized Value or another agreed value basis to calculate all or part of Alescent’s Value Realization Share.
10.3 Managed Outcome Retainer¶
Managed Outcome Retainer means a period-by-period retainer associated with managing, advancing, or assuring a portfolio, engagement, account, initiative, Value Realization Element, or other defined scope.
The Managed Outcome Retainer may be set at zero. If set at zero, it remains part of the model as a zero-value parameter.
10.4 Portfolio Participation Amount¶
Portfolio Participation Amount means the amount calculated from managing a portfolio of qualified initiatives or recommendations.
Unless otherwise stated in the applicable Value Realization Schedule:
Portfolio Participation Amount = greater of:
Parameter B x Qualified Portfolio Under Management
and
Parameter C x Adjusted Portfolio Value
10.5 Realized Value Participation Amount¶
Realized Value Participation Amount means the amount calculated by applying the Participation Rate to Net Realized Value or another agreed value basis.
Unless otherwise stated in the applicable Value Realization Schedule:
Realized Value Participation Amount = Net Realized Value x Participation Rate
10.6 General Formula¶
Unless otherwise stated in the applicable Value Realization Schedule:
Value Realization Share =
Managed Outcome Retainer
+ Portfolio Participation Amount
+ Realized Value Participation Amount
+ Alescent Recoverable Direct Material Investment
- Applicable Credits / Offsets
The applicable Value Realization Schedule must state whether any Portfolio Participation Amount is additive to, creditable against, independent of, or a floor for the Realized Value Participation Amount.
11. Termination and Accrued Value¶
Termination does not eliminate value already realized, accrued, validated, or otherwise earned before the effective date of termination, unless the applicable agreement expressly states otherwise.
The applicable Value Realization Schedule should state how termination affects:
- Forecasted Present Value;
- Net Realized Value;
- Value Realization Share;
- Alescent Recoverable Direct Material Investment;
- unpaid Managed Outcome Retainer amounts;
- Portfolio Participation Amounts; and
- future Value Realization Statements.
12. Value Realization Statement¶
A Value Realization Statement is a periodic statement that records:
- Gross Realized Value;
- qualifying deductions;
- Net Realized Value;
- Alescent Recoverable Direct Material Investment;
- Participation Rate;
- Value Realization Share;
- validation status;
- supporting evidence; and
- amounts payable or invoice-supporting calculations for the applicable period.
A Value Realization Statement may support invoicing, may be attached to an invoice, or may be treated as an invoice only where the applicable agreement or Value Realization Schedule expressly provides.
13. No Double Counting¶
No Value Realization Share, recovery, credit, deduction, Portfolio Participation Amount, or Direct Material Investment treatment may be counted more than once unless the applicable Value Realization Schedule expressly states otherwise.
14. Open Issues for Canonical Review¶
The following items require further discussion before this model is promoted from draft:
- precise stage names and stage weighting;
- treatment of contributor-class-specific schedules;
- standard Event Horizon defaults;
- standard Discount Rate defaults;
- treatment of Alescent Recoverable Direct Material Investment as recovery, offset, or separate payable amount;
- acceptance mechanics for Value Realization Statements; and
- customer-facing vs internal-facing terminology variants.