A Fact Model is a static model which structures business knowledge about core business concepts and business operations.  It is sometimes called a business entity model.

The fact model focuses on the core business concepts (called terms), and the logical connections between them (called facts).  The facts are typically verbs which describe how one term relates to another.  For example, the two terms Person and Car may have a fact connecting them called Owns (a Person owns a Car).  The same two terms may also have a different fact connecting them called Drives (a Person drives a Car). The facts, which connect the terms, should do so in a way which reflects the real world since the primary purpose of a fact model is to create a standard vocabulary by which all stakeholders can communicate unambiguously.

The business knowledge represented in a fact model should be at the most atomic level of business knowledge, meaning it should not be able to be further deconstructed and it cannot be derived from other knowledge.  By using the standard vocabulary defined by the fact model, these basic building blocks can be used to develop and communicate more advanced forms of business knowledge, such as business rules, in a clear and unambiguous way.

Fact models are incredibly useful regardless of whether it is a system solution that is being considered or a process solution.  However, if the solution is a system, the fact model can be used as an input into the development of the data model in later stages of the SDLC.