NRP Value Equation Concepts & Tutorial http://mikorizal.org

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

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.

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.

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

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

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.

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.

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.

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

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.

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.

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.

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.

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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.

...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.

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

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…..

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…..

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.

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.

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

...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...

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.

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