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10. NRP Value Equation Concepts and Tutorial

mikorizal
February 01, 2015

10. NRP Value Equation Concepts and Tutorial

NRP = Network Resource Planning: operational software for open value networks and other next-economy organizations. This tutorial explains the NRP value equation functions for distributing income to contributors.

mikorizal

February 01, 2015
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  1. NRP
    Value Equation
    Concepts & Tutorial
    http://mikorizal.org

    View Slide

  2. Setup
    Organization
    Plan Work
    Purchase
    Inputs
    Contribute
    Funds
    Distribute
    Income
    Coordinate
    Work
    Create
    Recipes
    Setup
    Resource
    Types
    The value equation is where the NRP comes full circle. Some value has been created and delivered,
    and some value has been received in return. Now this can be distributed to the people whose
    contributions made the original value creation possible.
    Note: In the networks who are part of developing NRP, the income distributed is for now money. But
    the model and system will support any sort of value as income to distribute.
    The value equation fits into the NRP here...
    Exchange
    Resources
    Create
    Resources

    View Slide

  3. We think Value Equations are a transformative idea...
    ● The contributors to a Value Network decide amongst themselves,
    democratically, how income should be distributed. No boss.
    ● The distribution is transparent in every detail, published for all to see.
    Open-book accounting.
    The name and the idea arose out of SENSORICA. Here's some of the history
    of both. http://valuenetwork.referata.
    com/wiki/The_Value_Equation#Background
    The software implementation does not yet fulfill all of the ideas in that
    document, but it will handle all of SENSORICA's plans for their first actual
    income distributions, as well as those of a few other networks who plan to use
    the same software.

    View Slide

  4. Value Equation Concepts
    The value equation gives open value networks (OVNs) the ability to distribute
    income back to the contributors to the network, using a set of equations and
    rules that the network collectively decides on.
    Each network or project can decide its own value equation(s).
    Three ways to distribute income:
    1. By Agent: to a named Agent (could be person, but usually an
    organization).
    2. By Network or Project: to contributors to a project or organization.
    3. By Value Flow: to the contributors to an order or a shipment.

    View Slide

  5. Claim
    Claim
    Claim
    Claim
    Value Equation
    Income
    Bucket
    Bucket
    Bucket
    Claim
    Contribution
    Contribution
    Contribution
    Contribution
    Contribution
    Make
    product
    Get paid
    Sell it
    Overhead
    or
    provide
    service
    or barter
    or get
    something
    in return

    View Slide

  6. Claims are calculated from contributions based on rules defined in the value equation. Claims
    are the input to the distribution, which uses other value equation rules to calculate the distribution
    amount for each claim.
    Claims are what a contributor can expect to receive for the contribution. Claims get everything
    into the same unit of value (all of the claims in the same distribution must use the same unit,
    whether that be money, points, credits, or something you just made up). And the value equation
    gets you from the claim to the amount for this particular distribution..
    Claims
    Contribution Claim Distribution
    Value Equation

    View Slide

  7. Value Equation
    Bucket
    Rule
    Bucket Rule
    Rule
    Rule
    Rule
    Rule
    Value Equation Structure Three levels and their data:
    Value equation:
    ● Defined for a Network or Project
    ● How the bucket percentages are handled
    Bucket:
    ● Sequence of the buckets in calculation
    ● Percent, either of the total or of the remaining
    ● One person or organization who receives the
    bucket...
    ● or, the method for gathering the contributions to be
    rewarded: Order, Shipment, or the whole Network or
    Project by (optional) date range
    Rule:
    ● Event Type of the contribution (work, deliverable,
    payment for a purchase or expense)
    ● Further filtering by Type of Work or Process Type or
    fixed date range (optional)
    ● Claim type: Equity-like (can receive income forever),
    Debt-like (will be paid off when complete), and One
    time (one distribution only)
    ● Claim equation: The equation used to calculate a
    claim from a contribution.

    View Slide

  8. Examples of Buckets and Rules
    ● Different buckets for different agents: for example, this project gets 20%.
    ● Different buckets for different contribution selection methods: for example, 50% by order and 50% by date range
    (for support work).
    ● Different rules for different types of work: 3D Design vs Assembly, Translation vs Editing or Captioning,
    Harvesting vs Sorting or Packaging.
    ● Different rules for different Process Types: Initiation, Outreach, Conduct Course, Prototype, Test, or
    Manufacture.
    ● Different rules for different date ranges: older rather than newer contributions.
    Value Equation Creation
    Thinking about creating a value equation
    The buckets divide up the total distribution by percentage. For each bucket, either one agent gets the whole bucket,
    or a set of contributions from many agents will be used to divide up the bucket amount. If the latter, then rules are
    defined to filter and select the set of contributions. Rules are also defined to calculate the amount owed for each
    contribution, based on the type of contribution.

    View Slide

  9. Value Equation Creation
    Here is an example of a value
    equation definition.
    The first bucket gives 10% of the
    amount to be distributed to the
    parent network off the top.
    The second bucket gives 70% of the
    rest to work contributions and
    expenses paid by members that
    contributed directly to the shipment
    or delivery item for which payment
    was received. This will calculate an
    amount to distribute based on all the
    contributions in the value flow
    leading to the final item delivered.
    The third bucket gives the remaining
    income to general work
    contributions to the project not
    related to the particular shipment.

    View Slide

  10. Here is another example of a value equation
    for a network with a simple value flow. This
    one rewards deliverables rather than
    work, in specific percentages.
    The first bucket gives a straight percentage
    to the network.
    The second bucket gives a straight
    percentage of the sale to the farmer.
    The third bucket gives a straight percentage
    of the sale to the harvester.
    The fourth bucket gives a straight
    percentage of the sale to the drying facility
    owner.
    Note: all value equations can be flagged as
    test or live. Only live value equations can be
    used to actually distribute income. Test
    value equations give the opportunity for all
    members to experiment with how it works
    and show the results of their experiment.
    Value Equation Creation

    View Slide

  11. Value Equation Creation - Definitions & Guidelines (1 of 2)
    Value Equation Percentage Behavior:
    ● Remaining Percentage takes the percent of the remaining distribution amount after each bucket is processed. The last
    bucket should be 100%. This option distributes only as much as is defined by the claims affected by the bucket. There
    may be a leftover amount, which will become part of the next bucket in the sequence.
    ● Straight Percentage divides up the total into the defined percentages. The bucket percentages should add up to 100%.
    This option distributes the entire amount included in the bucket percentage of the total. Recipients may receive more
    than their claim amount. There will be no leftover.
    Value Equation Agent or Filter:
    ● Choose an agent for direct distribution or…
    ● Choose a filter method.
    Bucket Filter Method:
    ● Order allows selection of one or more orders when the value equation is used. They can be customer orders or work
    orders. Work orders can provide a way to group contributions for distribution as well as to organize work.
    ● Shipment allows selection of one or more shipments or deliveries of products or services. Both Shipment and Order
    find all contributions in the value flow tree that created the product or service.
    ● Network or Project is the only method that doesn’t use the value flow method to find the contributions to be rewarded.
    So it is the method to use if the data does not form value flows of input-process-output chains. It allows selection of a
    date range (optionally) at the time of distribution.

    View Slide

  12. Value Equation Creation - Definitions & Guidelines (2 of 2)
    Rule Event Type:
    ● Rules are created by Event Type of the contribution (work, deliverable, payment for a purchase or expense, cash
    contribution). This gives the opportunity for different claim calculation equations based on event type, and for recording
    contributions as work or as deliverables.
    Rule Resource Type or Process Type Filter:
    ● Resource Type allows further filtering by either type of work (usually) or type of deliverable.
    ● Process Type allows further filtering by the type of activity when this is not defined by the type of work. This will work
    best for networks who log contributions by deliverable rather than time contributions.
    Rule Claim Type:
    ● Forever (equity-like) gives income distribution as long as the contributions are part of the filter.
    ● Until Paid Off (debt-like) decrements the claim with each distribution until it is zero, and then won’t be paid any more.
    ● One Distribution pays one time and then is complete.
    Rule Claim Equation:
    ● The equation used to calculate a claim from a contribution. Common uses are to define amount per time of work (this
    will override the definition on the resource type of work), or to add interest or risk factor.

    View Slide

  13. Value Equation Sandbox
    The Value Equation Sandbox gives
    people a place to experiment with how
    a value equation will work. It also
    might give insight into what the state of
    the contribution events that have been
    logged - what is missing, what is not
    connected, etc.
    Choose the value equation and amount
    to distribute, and enter the filters
    required for each bucket.

    View Slide

  14. Sandbox Results
    The Value Equation Sandbox
    will calculate the expected
    distribution by person or
    organization based on the
    value equation definition and
    the parameters entered.
    It will also provide a detailed
    look at what contribution
    events went into the
    distribution and why the
    amounts calculated to
    distribute are what they are.
    Use these to debug the value
    equation and to correct the
    data as needed.

    View Slide

  15. View Slide

  16. Value Flows
    This is an example of a value flow for
    one product (resource) that was
    shipped. Value flows are among the
    more difficult aspects of value
    equations to understand.
    A value flow basically traces all inputs
    to the one product by travelling
    backwards through the input-process-
    output branches to its beginnings.
    Inputs can be, for example:
    ● Time worked
    ● Components consumed
    ● Resources to be changed
    ● Equipment or tools used
    ● Designs or ideas cited
    Value flow calculations are used for
    distributions using a value equation -
    but also can be useful for
    understanding costs of products or
    services.

    View Slide

  17. ...are not necessarily intuitive (depending on your intuition).
    Value Flow Calculations...
    An example:
    ● If I contribute $40 worth of work… to a process that created 4 deliverables… then I added $10 of value to each
    deliverable.
    ● If 2 of them were sold on an order, I added $20 of value to the order.
    ● When do I get my other $20? When the other 2 are sold. Maybe. Might depend on the other buckets in the Value
    Equation.
    Another example:
    ● If I buy 100 meters of optical fiber for $200, the value per unit is $2.
    ● If a process uses 15 meters, and produces 4 deliverables, that’s $7.50 of optical fiber per unit.
    ● If one of those 4 deliverables was consumed in creating a purchased product, that’s $1.875 per purchased
    product.
    ● Might be awhile till I get my $200 back, but I am a patient person. And the value equation says I will get 20% extra
    for my patience. So that’s $2.25 from this distribution.

    View Slide

  18. Contributions can be recorded using work or using deliverables. Usually a network or project will decide to do it all one
    way or the other for its products and services. Then maybe use work time for activities that aren’t about creating
    deliverables, and will be spread over many deliverables, what some people call “overhead”. All of these can be
    separated in the value equation using buckets and rules.
    Citations are used to credit something that was not actively used or used up in a process, like designs or ideas.
    (Citation rewards are a unique feature of OVNs, but why doesn’t everybody do them?) Citations are different in that the
    person citing gets to decide what they are worth. For example you might have worked for 6 months on something that
    was a little helpful to me. Or you might have spent 10 seconds giving me an idea that made all the difference in my
    work. Two ways to handle them:
    1. By percent: give a citation a percentage of the value of all the other inputs to a process, meaning, this design (or
    idea, or whatever) helped x%.
    2. By quantity of the unit of value of the value equation, for example, $20, or 20 points, or 20 peanuts.
    Equipment or tools or space have different units of inventory and units of use. For example the unit of inventory for
    microscopes might be Each and the unit of use might be Hours. In these cases, the unit of use is used in the value
    flow, for example I used this microscope for 3 hours at $5/hour.
    Some Value Flow Calculations Thoughts and Guidelines

    View Slide

  19. Distribute Income
    Once the value equation has
    been agreed upon and tested,
    you can distribute income
    based on the contributions
    made (time, deliverables, cash,
    purchases).
    If you have recorded receipt(s)
    from a sale, you can use that to
    distribute. Otherwise, you can
    choose an amount to distribute
    from an account.
    The calculation will result in
    distribution events to the people
    and/or organizations who have
    contributed…..

    View Slide

  20. Distribution Results
    Here are results from a distribution.
    The distribution process has taken
    funds (money or whatever) from
    the account that contained the
    income received, and put that into
    accounts for the contributors,
    based on the value equation.
    When a person receives a
    distribution, they are notified by
    email.
    Funds are distributed from and to
    virtual accounts…..

    View Slide

  21. Virtual Accounts
    Virtual accounts allow a bank account to be split up
    into accounts for each person or organization who
    owns part of that bank account. They allow a person
    to accumulate distributions until they want to receive
    them in a payout. They also give the network a way
    to “earmark” incoming funds for a particular purpose.
    In the NRP, virtual accounts are created as
    Resources. They should be of a Resource Type
    such as “Virtual Account”, “XYZ Bank Account”, or
    similar grouping.
    Each virtual account must have an owner, that is be associated with an agent (person or organization)
    in a role designated as “owner”. (More information can be found in the NRP setup tutorials.)
    If someone receiving a distribution does not have a virtual account, one will be created automatically for
    them.

    View Slide

  22. Payout from Virtual Account
    When a person has accumulated money in their virtual account, they can request a payout. This allows
    accumulation of distributions until it is worth withdrawing the funds.
    Note: We are aware, of course, of Faircoin and Bitcoin and Paypal and various other methods of doing
    the income distribution electronically and just putting the money directly into people’s wallets or
    accounts. The networks we are currently working with do not want to do that yet. But we expect that to
    arise in the future.

    View Slide

  23. Individual Accounting
    Reporting can be provided both at the individual and the network level. The following is an example.

    View Slide

  24. ...but but but why is this stuff so complicated?
    What a good question!
    If we lived in a system where everybody just got what they needed without
    money (“to each according to their needs”), we would not even want to do all of
    this value accounting.
    But we don’t. We’re in this transition. So people and projects need money and
    other resources. And they have expectations of fairness, as in, “to each
    according to their contributions”. So value networks want to figure out their own
    rules about how to distribute income to contributors. It’s better than the boss
    deciding.
    And we want to help them do what they want to do, however they want to do it.
    Until we graduate to the next economy...

    View Slide

  25. But you can make your own rules simple...
    ● All work gets $X per hour.
    ● All translation work gets $X per word.
    ● All harvesting gets X% of the sold price.
    ● Everybody gets $X per week.
    ● The network provides all of the necessities of life, take
    what you need.
    ● See slide 7 for an example of a simple value equation.

    View Slide

  26. So anyway...
    We are trying to design value equation software that can
    handle a wide range of ideas about how to distribute
    income according to contributions: all the ways that the
    value networks we know about want to try.
    It’s an ongoing set of experiments. The good ideas will
    survive (we hope).
    If we did not handle your ideas, please let us know.
    http://mikorizal.org/contact.html

    View Slide