In this blog I address the value and cost of negotiating in relation to the benefit of an agreement.
You can ask yourself:
Is the benefit of a potential agreement worth the cost of negotiating, i.e. your time, effort, and possible financial outlay?
In other words, the benefit of agreement minus the cost of negotiating should lead to a state that is better than what you are currently experiencing.
Expressed more succinctly:
benefit of agreement – cost of negotiating > current state
This math-like expression could lead you to take on the cost of negotiating in order to reach a better situation. But, if the cost is too high, then even though the result is better than the current state, the loss is greater than the gain.
Simple enough at first glance; however, there is more to understand about the cost of negotiating. In fact, in many cases there is not a cost at all. We will first look at situations when the cost is truly a cost, then secondly when the cost is not a cost.
1) The other party may be taking an adversarial approach to negotiation, leaving you with the task of continually caring for and repairing the negotiation process. You end up working harder and, in a sense, being the mediator for the two of you while you negotiate.
Why would you take on the extra responsibility and negotiate with someone who is difficult to deal with? Because you may be better off in the long run even though there is a higher cost to getting an agreement. Also, in this situation, it may serve you to ‘keep your friends close, and keep your enemies closer.’ All in all, the benefit of an agreement minus a potentially high cost of negotiating still leaves you better off than the current state.
With this in mind, it may be worth your while to negotiate with someone you dislike, find lacking in moral fibre, or who has harmed you.
2) On the other hand, other situations may produce a net gain from the negotiation process itself, independent of whether you reach an agreement:
a) You learn about how to communicate effectively and work on problems together, which builds capacity to address other situations that may arise.
b) In a leadership role you model how you would like others to approach challenging situations.
c) You may find indirect and unpredictable benefit to your reputation that may positively affect dealings with others in the future.
d) When an agreement is not possible in the present, you may sketch out the possibility of a valuable agreement in the future if other factors could be addressed, for example, stakeholder support may be necessary.
The possible benefit to the negotiation process adds a variable to the mathematical expression:
benefit of agreement + value of negotiating – cost of negotiating > current state
When the benefit of negotiating is greater than the cost of negotiating, there is a net gain through the process alone, and no cost to negotiating. Points a) to d) illustrate the variety of ways in which you may benefit from negotiating when you don’t achieve an agreement. I think that these potential gains from the negotiation process are generally not given as much weight as they should be.