Rationale for Value Realization Model¶

This document explains the intent, structure, and design choices behind the Value Realization Model.

It is not part of any agreement unless expressly incorporated. It does not create obligations, modify agreements, or grant rights. It is explanatory and governance-oriented.

1. Why this model exists¶

Alescent requires a reusable model for defining, measuring, validating, and reporting value. The model must support customer-facing engagements while also providing a stable foundation for internal and partner-facing economic treatment.

The Value Realization Model is intended to sit above individual legal instruments. It may be incorporated into customer agreements, statements of work, schedules, exhibits, engagement letters, or value statements, but it should not be trapped inside any one agreement form.

2. Why Gross Realized Value and Net Realized Value are both used¶

Gross Realized Value is important because it communicates the full value created, enabled, led, assisted, or accelerated through the engagement. It is often the best expression of the customer’s internal value story.

Net Realized Value is the better basis for Alescent participation because it recognizes agreed direct, material investments and other deductions before calculating Alescent’s share.

The model therefore preserves both concepts:

Gross Realized Value for value articulation and customer reporting.
Net Realized Value as the default basis for value participation.

3. Why Net Realized Value is the default participation basis¶

Alescent should not participate in gross value without considering direct material investment required to produce that value. At the same time, not every cost, meeting, oversight activity, or administrative effort should reduce realized value.

Net Realized Value provides a more disciplined participation base by subtracting only agreed and qualifying deductions.

4. Why Direct Material Investment is tightly defined¶

The model uses a strict definition of Direct Material Investment to prevent the concept from becoming a catch-all for ordinary engagement effort, administration, management, status reporting, or generalized analysis.

The test is intentionally narrow:

the investment must be direct; and
the investment must exceed the materiality threshold.

Analytical work qualifies only when it is directly necessary to produce, implement, verify, or realize a specific value-producing change. This avoids treating broad analysis as an unlimited reduction to value or a recoverable investment category.

5. Why materiality is weighted by Participation Rate¶

The model recognizes that both the customer and Alescent are expected to contribute direct investment to the value-producing change.

The materiality threshold is shared according to the Participation Rate. This reflects the economic premise that Alescent participates in value and should also carry a proportionate share of expected direct material investment.

For example, if:

Forecasted Present Value is $1,000,000;
the Materiality Rate is 10%; and
the Participation Rate is 20%;

then the overall materiality threshold is $100,000. The customer allowance is $80,000 and the Alescent allowance is $20,000.

Alescent Recoverable Direct Material Investment is not the same as participation in realized value. It is a recovery or treatment mechanism for direct material investment above Alescent’s allowance.

Keeping it separate reduces double-counting risk and avoids confusing value participation with cost recovery.

The applicable Value Realization Schedule should specify whether this amount is recovered separately, offset, credited, excluded, or otherwise treated.

7. Why “Performance Fee” is avoided¶

The model avoids the term Performance Fee for new instruments because it carries conventional contractual baggage. It may be confused with:

service-level bonuses;
penalty/credit regimes;
contingent professional fees;
conventional managed-services incentives; or
procurement-classified success fees.

Alescent’s concept is different. The preferred term is Value Realization Share, which better expresses shared participation in realized value.

8. Why “Managed Outcome Retainer” is used¶

The model uses Managed Outcome Retainer because it describes a period-by-period retained amount associated with managing, advancing, or assuring outcomes.

The retainer may be negotiated to zero at any scope level. Keeping it in the formula as a zero-value parameter preserves consistency while allowing commercial flexibility.

9. Why schedules parameterize the model¶

The model is designed to be general. Specific parameters belong in a Value Realization Schedule, which may apply at different levels of scope, including:

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.

10. Why the Value Realization Statement is invoice-adjacent¶

The Value Realization Statement is intended to record value, evidence, adjustments, Net Realized Value, Value Realization Share, and amounts payable or invoice-supporting calculations.

It may function as an invoice-supporting statement and may, if expressly agreed, be treated as an invoice. The model does not assume that by default because invoicing treatment may create tax, procurement, ERP, and payment-process implications.

11. Why the model includes no-double-counting discipline¶

The model includes an explicit no-double-counting rule because the formula includes multiple components: Managed Outcome Retainer, Portfolio Participation Amount, Realized Value Participation Amount, recoverable direct material investment, credits, and offsets.

Without this discipline, a portfolio-level amount and realized-value amount could accidentally stack in a way that does not reflect the intended commercial allocation.

12. Relationship to prior WorkSafeBC precedent¶

The WorkSafeBC Schedule D precedent is useful because it demonstrates prior use of valuation concepts including Actual Value Realized, Discount Rate, Discounted Value, Event Horizon, Expected Value, Realized Value, Risk Adjustment Factor, Termination Fee, Value Realization Element, Value Realization Initiative, Value Realization Portfolio, Value Realization Stages, and Valuation Approach.

This model generalizes and rationalizes those concepts while separating generic model terms from customer-specific parameters.