Friday, February 22, 2008

Global Challenge-Negotiating

When considering negotiations it is my feeling that most people from North America would consider themselves to be upright in their core values. This is good when we are negotiating amongst our own kind or with those who hold the same core values and ideals as we do. However this is not a perfect world and I believe we can set our sights toward the Middle East and the conflicts that are taking place in the world to realize that. Not everyone thinks the way you do.

In my mind negotiation as an exchange of different objectives with the goal of finding a common ground or a mutually acceptable compromise, is something that should be workable for both parties. Anything beyond that is not negotiation rather a flaunting of might. Negotiation requires mutual respect not mutual trust; trust is something that is gained through negotiation not integral to it. Trust only comes through interaction. In my view if we feel that we should trust our opponent from the beginning then we are being trite.

Many times, we may see a thread of puritan ideals, when trying to realize a perfect world in which everyone should be "good" and at the same time be proud it. Don't get me wrong, I am in the same group, I was only fortunate enough to survive twenty years living in a culture that was in no way similar to that which I was born into. I learned, with great hardship, that the rest of the world does not see "good" in the same light that I do, in fact some people's good may not be good by my ideals. This is simple reality in a global village.

Negotiating is influenced and affected by one's base cultural values, which are made up from our religious and social ideals. What if we grew up in a Communist country? Would we not have values and ideals different from those of a Capitalist country; therefore we would see reality much differently from the environment that we were nurtured in.

From my personal experience of living in China I had to learn to accept things that were sometimes unacceptable in light of my upbringing and cultural value-set and ideals. However, by looking beyond my own limitations I began to see opportunities and possibilities that never occurred to me before. This took years and many a frustrated night contemplating and trying to understand what was wrong. Finally, I would realize that the problem was me; the way I think. And I think the way I was taught to think but that is not the way the rest of the world thinks. We need to allow room for other ways of thinking in a world where my culture is the youngest one around.

In your mind, place yourself at a table with two Chinese negotiators. You should have your strategies set strong in your value set, you know what you have to offer and you know what you want. You put everything you have on the table and say "this is all I can offer". What will you do when the Chinese negotiating team all of the sudden brings something new to the table when they said that they had nothing new to offer previously? Would they be considered as dishonest? Would they be seen as lying? Now, stop and ask yourself how they may view the negotiators from your side when you refuse to bring anything new to the table. Will they view you as being dishonest? Would you be seen as lying? This is a mixing of cultures and what is acceptable in one culture may not be acceptable in the other. So how do we deal with these issues in a global economy and in order to maintain peace in a world that is nearing turmoil?

Essential steps for Negotiation

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.

Win-Win Negotiations

Win-Win Negotiations

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).Public-sector project fees are usually fixed, up front, as a percentage of the owner’s construction budget. On public-sector projects, therefore, the top-down method helps you to define whether the fee given is sufficient to provide the required scope of services and the defined deliverables.

Working down through this process will provide you with an estimate of the hours the given fee will accommodate. If your calculations indicate that the fee will not provide an adequate number of hours to provide the services required, before declining the project you could negotiate for a reduced scope of services to match the available hours within the given fee. To determine the scope the given fee will support, you need to determine your break-even cost. Because the top-down method uses "billing" rates (profit included), you will need to then switch to the bottom-up method to calculate your break-even cost.Even though the bottom-up method is applicable primarily to private-sector projects, it’s also a useful tool for defining the break-even cost of delivering a public-sector project for a given fee. This method uses "break-even" rates (exclusive of profit) to determine the actual project cost. With the bottom-up fee budgeting method, the profit is added as the last step in defining the total fee to be negotiated.

In other words, you get to establish the percentage of profit to be added to the break-even cost.Beginning a negotiation with knowledge of the project break-even cost and profit margin gives you the power to "control" the negotiation. The control I refer to is the power to make an informed decision at each stage of the negotiation. For instance, if the client’s offer is less than your calculated fee, you have several options. You can negotiate for a reduced scope. You can reduce the percentage of your profit. You could ask for time to discuss the offer with your key team members. Or you can, as a final resort, say, “Thanks, but no thanks” and terminate the negotiation. Whether both parties make an informed decision to accept the terms of the scope and fee amount negotiated or whether they "shut down" the negotiation, any one of these options would result in a win-win outcome.Some circumstances could lead you to accept a fee with a reduced profit, but I cannot understand why anyone would agree to a fee with a zero profit or one that is less than their project break-even cost. Negotiating a fee without the above preparation and knowledge, however, increases the chances are that such a possibility could occur.