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50 Practical Negotiation Tactics

50 Practical Negotiation Tactics

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Published by: Baengeo on Jan 24, 2011
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Use objective criteria to judge the quality of each side’s proposals—you will prob-

ably improve your chances of coming away satisfied. If you think that the other

party knows more than you do, you are likely to resent them for it and hold out,

rather than give them the “advantage.” This can hold up an agreement and cost

you in the end. Prepare for the negotiations by having an outside authority mea-

sure or weigh in on each side’s position, based on objective criteria (think property

appraisals in real estate).

Example 1

When Larry’s cousin offered to help Larry finish the renovation on his bathroom,

Larry was thrilled. After all, Will is a licensed plumber, and he and Larry have

always gotten along. Things turned sour, though, when Will presented Larry with

his bill. Larry had expected to pay him for his time, but was shocked at the amount

of the bill. It was twice as high as the estimates Larry received from other plumbers

before they started the project. This uncomfortable negotiation followed:

Larry: Will, about your bill. I was kind of surprised at how high it was.

Will: Larry, I gave you my “family” rate. Believe me, I would have charged any-

one else much more.

Larry: But Will, I did get some estimates from plumbers, and they were much

lower than this.

Larry: Just make sure you’re comparing apples to apples. When you first told me

about your project, I anticipated much less work. When we got into it, it

became clear that all of those pipes had to be pulled and new ones put in.

Larry: Well, these plumbers certainly acted like they understood the work when

they gave me their estimates!

Will: Tell you what. Let’s get the guys back in who gave you estimates, and

show them the actual work that got done. If they tell us that they either

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50 Practical Negotiation Tactics

disagree on the need for that work or that they would have done it for less,

I’ll revise my bill to meet the lowest estimate you get.

Larry: That sounds fair.

Conclusion

When the other plumbers looked at the work, they had to agree that their early

estimates were low. Had they actually prepared bids on the work, they said, they

would have had to revise the figures. The estimates would have been higher than

what cousin Will charged.

Settling on the right objective criteria upon which to base a negotiation

requires that both parties think through their options. Comparing the estimates to

Will’s actual costs would have been counterproductive, because (as Will pointed

out) it wasn’t an apples-to-apples comparison.

Example 2

After Stuart was appointed to the college’s Board of Trustees, he used his financial

expertise to analyze the investments of the college’s endowment fund. He was dis-

appointed in the performance of the fund, and decided to bring the matter up at

a Board meeting. The college’s budget officer was understandably offended; while

she wasn’t an expert, she had been investing the college’s endowment funds for

many years, and no one had ever questioned her performance. The chairman of

the Board suggested that Stuart and the budget officer meet to discuss the invest-

ment policies and practices as they relate to the endowment funds.

Budget Officer: I don’t know what your problem is. I have been very diligent

about making sure that the fund makes the most money it can

without putting us at risk. I find your suggestion to the Board

that I haven’t been doing my job right to be very insulting!

Stuart:

I’m sorry. I certainly didn’t mean to offend you. From a look at

the portfolio, my first reaction was that some of the investments

Preparation

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were stale. I don’t question that they were sound at one time,

but some of these stocks have really lost their value. I find that a

more aggressive investment strategy produces a better return.

Budget Officer: Yes, but such a strategy also increases risk and costs more money

to administer, considering commissions and all. As you know,

the college is a private institution, and its resources are limited.

We just can’t make up losses to the endowment fund without

considerable impact on our annual budget.

Stuart:

Yes, there might be increased risk and some expenses for com-

missions, but I think they more than offset the gains. I have a

suggestion. Why don’t we ask two investment advisors who have

some alumni ties to the college to do a mock investment of the

endowment fund for a month or two? We won’t tell them about

each other and they won’t actually do any real trades, but we

can ask them to plan and cost out each move. At the end of two

months, if both of them demonstrate a similar strategy and pro-

duce better results after expenses, then you and I can talk about

changing our investment strategy. Okay?

Budget Officer: Okay, but I want to be involved in the discussions with them

about what we’re asking. I don’t want you directing how they’re

going to go.

Stuart:

No problem. Now, how can we identify the right parties?

Conclusion

The two-month experiment did produce the results Stuart had anticipated, and

the budget officer was comfortable that the risk and expense of such a strategy was

small and worth the effort. In this situation, Stuart realized that the budget offi-

cer needed very-specific “criteria” (such as the actual experience of investing the

school’s endowment fund) rather than relying on an investor’s experience, because

she did not have the background in investments necessary to trust such advice.

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50 Practical Negotiation Tactics

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