"Four Key Negotiation Concepts" and "The 9 Steps to a Deal"

1.       Best Alternative To a Negotiated Agreement  (BATNA)

2.       Reservation Price

3.       ZOPA

4.       Value Creation Through Trades

1.        (BATNA) - When the Other Party Is More Powerful

No negotiation method can completely overcome substantial differences in power. However, there are ways to protect the weaker party against a poor agreement, and to help the weaker party make the most of their assets.

Often negotiators will establish a "bottom line" in an attempt to protect themselves against a poor agreement. The bottom line is what the party anticipates as the worst acceptable outcome. Negotiators decide in advance of actual negotiations to reject any proposal below that line. Because the bottom line figure is decided upon in advance of discussions, the figure may be arbitrary or unrealistic. Having already committed oneself to a rigid bottom line also inhibits inventiveness in generating options.

Instead the weaker party should concentrate on assessing their Best Alternative To a Negotiated Agreement (BATNA). The authors note that "the reason you negotiate is to produce something better than the results you can obtain without negotiating." The weaker party should reject agreements that would leave them worse off than their BATNA. Without a clear idea of their BATNA a party is simply negotiating blindly. The BATNA is also key to making the most of existing assets. Power in a negotiation comes from the ability to walk away from negotiations.

Thus the party with the best BATNA is the more powerful party in the negotiation. Generally, the weaker party can take unilateral steps to improve their alternatives to negotiation. They must identify potential opportunities and take steps to further develop those opportunities. The weaker party will have a better understanding of the negotiation context if they also try to estimate the other side's BATNA; "developing your BATNA thus not only enables you to determine what a minimally acceptable agreement is, it will probably raise that minimum.”

2.       Reservation Price

This may be defined as the least favourable position, at which point one would accept a deal.

3.       ZOPA

It is the range or area in which an agreement is satisfactory to both parties involved in the negotiation process. Often referred to as the "Contracting Zone". ZOPA or the Contracting Zone is essentially the range between each parties real base or bottom lines, and is the overlap area in the low and high range that each party is willing to pay or find acceptable in a negotiation.

9 Steps to a deal:

1.       Know what would be good outcomes

2.       Identify value creation opportunities

3.       Identify BATNA and RP’s

4.       Shore up your BATNA

5.       Anticipate the authority issue

6.       Learn all you can about the other side

7.       Prepare for flexibility

8.       Gather external standards and criteria for fairness

9.       Alter the process in your favour

Being in the process project environment, all contracts are drawn up on an EPCM basis. This means there is hardly no negotiating in terms of project value. However, on smaller projects with values of  <R50 million, these projects are done on a Turn-Key basis, in this case it is vital to know a reservation price at which MDM has to critically evaluate.

References:

1.       “Getting to Yes”, by Roger Fischer and William Ury and Bruce Patton. ISBN: 9781844131464