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Negotiation

17 December, 2015 - 16:40

Negotiation is a process for developing a mutually acceptable outcome when the desired outcome for parties in the negotiation is sufficiently different that both cannot achieve the desired outcome. A project manager will often negotiate with a client, with team members, with vendors, and with other project stakeholders. A larger and more complex project will have a large number of stakeholders, often with conflicting desired outcomes. Negotiation is an important skill in developing support for the project and preventing frustration among stakeholders, which could delay or cause project failure.

Vijay Verma 1 suggests that negotiations involve four principles:

  1. The first principle is to separate people from the problem. If the person is seen as the problem, then finding a mutually acceptable solution will be difficult. Framing the discussions in terms of desired outcomes enables the negotiations to focus on finding new outcomes.
  2. The second principle is to focus on common interests. By avoiding the focus on differences, both parties are more open to finding solutions that are acceptable.
  3. The third principle is to generate options that advance shared interests. Once the common interests are understood, solutions that do not match with either party’s interests can be discarded, and solutions that may serve both parties’ interests can be more deeply explored.
  4. Verma’s final principle is to develop results based on standard criteria. The standard criterion is the success of the project. This implies that the parties develop a common definition of project success.

For the project manager to successfully negotiate issues on the project, he or she should first seek to understand the position of the other party. If negotiating with a client, what is the concern or desired outcome of the client? What are the business drivers and personal drivers that are important to the client? Without this understanding, it is difficult to find a solution that will satisfy the client. The project manager should also seek to understand what outcomes are desirable to the project. Typically, more than one outcome is acceptable. Without knowing what outcomes are acceptable, it is difficult to find a solution that will produce that outcome.

One of the most common issues in formal negotiations is finding a mutually acceptable price for a service or product. Understanding the market value for a product or service will provide a range for developing a negotiations strategy. The price paid on the last project or similar projects provides information on the market value. Seeking expert opinions from sources who would know the market is another source of information. Based on this information, the project manager can then develop an expected range from the lowest price that would be expected within the current market to the highest price.

Additional factors will also affect the negotiated price. The project manager may be willing to pay a higher price to assure an expedited delivery or a lower price if delivery can be made at the convenience of the supplier or if payment is made before the product is delivered. Developing as many options as possible provides a broader range of choices and increases the possibility of developing a mutually beneficial outcome.

The goal of negotiations is not to achieve the lowest costs, although that is a major consideration, but to achieve the greatest value for the project. If the supplier believes that the negotiations process is fair and the price is fair, the project is more likely to receive higher value from the supplier. The relationship with the supplier can be greatly influenced by the negotiation process and a project manager that attempts to drive the price unreasonably low or below the market value will create an element of distrust in the relationship that may have negative consequences for the project. A positive negotiation experience may create a positive relationship that may be beneficial, especially if the project begins to fall behind schedule and the supplier is in a position to help keep the project on schedule.

Negotiation on a Construction Project

After difficult negotiations on a construction project in Indiana, the project management team met with a major project supplier and asked, “Now that the negotiations are complete, what can we do to help you make more profit?” Although this question surprised the supplier, the team had discussed how information would flow, and confusion in expectations and unexpected changes always cost the supplier more money. The team developed mechanisms for assuring good information and providing early information on possible changes and tracked the effect of these efforts during the life of the project.

These efforts and the increased trust did enable the supplier to increase profits on the project, and the supplier made special efforts to meet every project expectation. During the life of the project, the supplier brought several ideas on how to reduce total project costs and increase efficiency. The positive outcome was the product of good supplier management by the project team, but the relationship could not have been successful without good faith negotiations.