Wednesday, October 17, 2007

Win-Win Negotiation

Negotiation is a science that requires preparation if you are to have any chance of succeeding. To realize your part of a win-win outcome in every negotiation, identifying your project cost and profit margin is essential. Knowing these two components of a project fee will help ensure the desired outcome.

Before a client ever receives your fee proposal, most have already established a specific fee amount they are willing to pay for your services. If your proposal should exceed that threshold, you’ll have to negotiate to get your fee.

What's the best way to prepare for such a negotiation? The most critical piece of information to identify in a negotiation would be the estimated project cost, exclusive of profit, to complete the project. This figure is otherwise known as the project "break-even" cost.

You can determine this cost in several ways, and you would do well to investigate and compare the results of each method. One of the best methods is to review projects of similar type and of comparable size and complexity. If you have kept accurate project cost accounting records, you will have an excellent resource to evaluate and help you build the fee you may need to negotiate. You will need to determine the actual, final percentage of profitability for these projects to ascertain whether the fees were adequate to complete the project(s) and still earn a "reasonable" profit. Two other useful methods to define the break-even cost of project delivery are the "top-down" fee budgeting approach (for public-sector projects) and the "bottom-up" approach (for private-sector projects).

Negotiation is not a process by which you try to destroy the other party. Rather, it is a process by which you reach a certain result. Good negotiation occurs when all parties are truthful, and they connect and interact successfully with each other. Good negotiation cannot happen if either party is trying to boost their ego in the process. People can win while helping the other person get what they want.

We were born to negotiate just as we were born to walk. You may not even realize that you are negotiating when you talk to business associates, friends, children, and anyone in your communication realm. Some people think negotiation is confrontational. Good negotiation is not confrontational, and you really can negotiate “win-win” results.

Preparation is the key to being a good negotiator. If you are not prepared, you may not be able to explain the results you want, you may not be able to evaluate all the issues and alternatives, and you may give up too soon. There are certain essential steps that prepare you for the negotiation:

1) Set clear expectations and clear goals;
2) Identify any undisputed points;
3) Anticipate the counter-offers you could make or receive;
4) Know every detail and every issue;
5) Anticipate what the other party wants;
6) Decide what is the highest/lowest you will give or take; and
7) Be ready to explain why this the highest/lowest you will give or take

When the negotiation starts, state that it is your objective to reach a win-win result. Keep your goal in mind and listen carefully to what is important to the other party. Take notes if necessary. Be calm, courteous, unemotional, and relaxed. Isolate the points of disagreement and try to find solutions for each of them.

Ask “what,” “how,” and “why” questions to better understand the other person’s values and what is important to them. Continue to isolate the points of disagreement and find solutions for them. Acknowledge the points of agreement that you have reached up to this point.

Repeat the process, moving each party closer to the other until you have full agreement. If you cannot reach a result that is mutually agreeable, agree to disagree at that moment, give yourselves time to think about it, and schedule another meeting. It may take time and work, but you can negotiate a win-win result.

Negotiating Desirable Outcomes You may not realize it, but you are involved in negotiation a good part of every day. Any negotiation--whether it involves settling on the price of a product or service, agreeing to the terms of a job offer, or simply deciding on a bedtime for your children--ends in one of five possible outcomes:

(1) lose/lose, in which neither party achieves his goals;

(2) lose/win or

(3) win/lose, in which one party achieves her goals and the other does not;

(4) no outcome, in which neither party wins or loses; and

(5) win/win, in which the goals of both parties are met. It’s easy to see that numbers 1 and 4 are less than ideal, as is number 2 if you are the one who loses! But what about the other two outcomes? Isn’t win/lose just as desirable as win/win, as long as you are the winner?

The Win/Lose Outcome

In some negotiations, you will be the winner and the other party will be the loser. At first, it may seem that this is the ideal situation for you. But think about it. If you have ever lost a negotiation, you know that the feeling is not pleasant. A significant problem with a win/lose outcome is that one person walks away with unmet needs--and this person is unlikely to be willing to engage in future negotiations with the other party. Ultimately, this sets up the potential for a lose/lose outcome.

A good example of this situation occurred when I was a salesman in the printing business. I had a client who purchased printing on a regular basis. This person had a reputation for being both a shark and a jerk. Not only would he beat down my price, but he would also be rude and verbally abusive through every step of the job. For him, this may have seemed like a win/lose situation, with me as the loser. After several jobs, however, it became apparent to me that the stress of working with this individual was costing me more time, energy and grief than the jobs were worth. Eventually, I began quoting his jobs at twice the normal markup and refusing to budge on the price, changing the balance in this lopsided relationship. Of course, after a while, the client refused to deal with me, creating a lose/lose outcome.

Setting Up for Success

Since few negotiations are one-time affairs, it is usually in your best interest to work toward a win/win outcome. When both parties walk away from a negotiation with a good feeling, they will probably be willing to negotiate with each other again. Using all your skills to ensure that you and the other party feel like winners is simply good business!

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