The problem of constructing the functional model for knowledge-based systems is discussed. The functional model is derived from a specification of the system transactions and from the conceptual model. The conceptual model is a representation of the system expertise using a uniform formalism. In this formalism data, information and knowledge are all represented in the same way. This formalism incorporates two classes of constraints which apply equally to data, information and to knowledge. The transactions are specified by identifying those items in the conceptual model which are directly associated with updates and queries. The functional model shows how the knowledge in the conceptual model should be employed to deliver the transactions. Using a broad definition of ‘best’, the problem of deriving the best functional model is shown to be NP-complete. A sub-optimal algorithm for deriving solutions to the functional model construction problem is given.