Negotiation in Project Management

March 16, 2008 | Author: PM Hut | Filed under: Change Management, Communications Management, Cost Management, Project Plan Development, Scheduling

Negotiation in Project Management
By Josh Nankivel

Planning and change management regarding scope, resources, scheduling, budgeting, etc. can benefit from good negotiating skills. I recently studied an article titled “Social Perception in Negotiation”, published in the journal “Organizational Behavior and Human Decision Processes”. The article looks into the different types of agreements that can be achieved, and makes some conclusions about the factors that make an agreement most valuable for both parties. I will discuss the article here, and share my thoughts on how great negotiating skills can be applied in project management.

Agreement Types

The study first defines the difference between compromise and integrative agreements. Basically, in an integrative agreement both parties find they are receiving more value than they are giving up. This is mainly a function of compatibilities between what each side wants and what they can give up. This is the famed “win-win” scenario.

I visualize the iterative agreement like a zipper, where individual items up for negotiation are simultaneously perceived to have high value for side A while having less for side B. Side B is thus willing to give that element in exchange for another where the value perception is switched. Each finger in the zipper represents a negotiated element, and the further the element reaches toward the other side, the more integrative and mutually beneficial. The combination of multiple compatible elements culminates in a strong and stable agreement with high mutual benefit. An integrative agreement provides a compelling answer to the “what’s in it for me” question, for both sides.

The compromise agreement pops into my mind as more of two flat surfaces butting up against each other. Both sides are trying to compete against each other on the same items and so they reach an agreement that is unstable and provides minimal value for either side. There are no or very small fingers because neither side is giving up less valuable elements to gain more valuable ones. The split could be at the 50-50 mark, or move depending on positioning inequities or other disproportionate advantages. The result is that both A and B end up holding onto provisions of low value that might be of higher value to the other side. It also means the agreement is tenuous and doesn’t “stick” well of its own accord. These types of agreements may result in frequent arbitration or litigation to resolve disputes, because the relationship and value exchange is not strong enough to support cooperative resolutions.

Judgments

The study identified two key factors critical to optimal negotiation. They are priority and compatibility judgments. Both of these judgments are based on assumptions and information about the other party. It’s all about how well you know the needs of the other side.

Priority judgments are made regarding particular items up for negotiation and how important they are to the other side. How important is element 1 as compared to element 2. Not to you, but to them.

Compatibility judgments are made regarding the various alternatives available for negotiated items and how compatible those alternatives are for both parties. I believe it ties into the priority judgment because there is consideration on whether or not they will go for this or that proposed provision, which plays into prioritization.

Conclusions

The study concludes that accurate perceptions of compatibility or priority lead to more mutually beneficial outcomes when the potential for join gain exists. It also finds that the earlier those perceptions become accurate, the more beneficial they become towards a positive outcome.

All of the conclusions point to sharing as much information as possible, as early as possible. This results in mutually beneficial negotiations with a higher probability for an integrative agreement.

For project managers, here are some ideas on how these conclusions could be applied:

  • Scope Definition: It is important to dig into the assumptions and root causes of user requirements as early as possible. If you do this, you may be able to negotiate a different approach that will make the project run more smoothly while also giving the stakeholders a better result.
  • Resource Acquisition: When an integrative agreement is reached initially, there is more mutual benefit to be gained and therefore the party providing resources is more willing to allocate them to your project. You can also look for talent that is undervalued in their functional role and find those places in the project that are a great fit, and make the case for why they will provide more value to the functional manager by leveraging their strengths on the project.

  • Scheduling: Understanding the relative importance of deliverables to stakeholders is critical to reaching an integrative final schedule. If you only look at the task dependencies and what is most convenient for you, be prepared to miss out on great information about an optimal schedule.

    If the stakeholders really care about the dates of specific deliverables, focus on those first where possible. Sometimes an output may lie stagnant for months when it could have provided value to the business, only because the project manager did not understand the significance. You may even be able to get a later project completion date because you are providing the value that really matters in an incremental fashion and playing to stakeholder needs.

  • Budgeting: One opportunity here would be where there are multiple cost centers and departments involved. By understanding and playing to stakeholder needs, you may be able to get a higher chunk of money by appealing to the group which has the most to gain. The important thing here is to tie the expense to the value they will enjoy.

    Another key is the importance of understanding the true problem being solved by your project and doing a great job at the scope definition. If you just implement the wiz-bang software they asked for without knowing much about the pain you are trying to soothe, you have no bargaining power when it comes to the budget. You can not articulate a proper value proposition or appeal to the true needs of the business. How can you ask for more money unless you can link it directly to the bottom line? How can you link it to the bottom line unless you have developed a quality understanding of the true purpose being served?

Josh Nankivel is the Vice Chair of Special Projects for the Students of Project Management SIG of PMI, and a project management student/enthusiast. His website is http://www.pmstudent.com.

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