Negotiation for Project Managers

Posted on 12th August, by JimYoung in Blog. No Comments

jg,j,hj,Some common negotiation issues and occasions involving project managers are:

–       Project manager’s personal employment contract.

–       Project charter terms.

–       Stakeholders wants and needs.

–       Contract terms for project work that is outsourced.

–       Variations to the current scope of work.

–       Requests to reduce project duration or cost.

–       Requests to alter deliverable specifications.

–       Conflict within the project team.

And in a matrix organisation in particular, there may also be negotiation with functional managers about the availability and suitability of project team members.

It is inevitable during a project, from time-to-time, conflicts and disagreements will occur as the different needs, wants, aims and beliefs of stakeholders arise.  Without negotiation, such conflicts may lead to highly emotional arguments and resentment resulting in one or all of the parties feeling highly dissatisfied.  For example, there will always be scope issues.  When the client says, “but I thought that was included”, we have to look at it from their side as well as our own.  We investigate.  Maybe a salesperson told them it was included.  Maybe the contract or specification was vague or ambiguous.  How we handle client issues and requests is very important.  Avoid the urge to say ‘no’ and perhaps say something like:

“Yours is an important request, but it might fall outside the original scope of the project.  If so, it can mean some impact on the project timeline and budget.  I will review our contract and propose a solution for your consideration please.”

We haven’t said ‘yes’, though we likely will.  And the client now has the expectation that the request is doable, but may cost money and/or cause some delay to the project.

Another thing to keep in mind is that the later in the project that a change or addition is made, the more cost and thus profit it will likely mean.  In fact, some unscrupulous contractors may favour vague contracts for this reason.  For most scope issues we’ll prepare a change order, identify the budget and timeline hits, and present the client with what it is going to cost to meet the variation.  If they balk, there may be some room for negotiation.  Of course, we may need our sponsor’s approval for this – another negotiation.  We might need to talk with our sponsor about customer satisfaction, retention and referral, and mention the possibility of further changes that we can see in the offing, or new business.

By charging more than is necessary on change requests and allowing the client to get extra functionality they do not need, we may increase our short term gain but also risk losing the client in the long term.
 Being fair is usually necessary to maintain a long term relationship, creating a win-win environment, securing long term contracts and avoiding making a win, but only one.

However, the project sponsor is the person who is funding the project and the people that the project team work with most often are users.  These are the people who use the solution that the project is building.  These end-users are the ones who will generally make requests for changes.  However, no matter how important a change is to a user, they cannot approve scope changes.  The sponsor must give the approval.  If the change is appropriate, the sponsor will usually approve it, along with the appropriate budget and duration changes.  At which time the project charter and project plan should be updated.

The project manager and project team sometimes think that they are being client-focused by accepting scope change while still trying to deliver the project within the original commitments.  However, if the project is delivered late or over budget, it is usually not good enough to point out the additional work that was included because of ‘client focus’.

One of the neat things about enforcing the discipline of having the sponsor approve scope change requests is that, unless the change is well justified, the sponsor will find it easy to say ‘no’.  In any disagreement, we understandably aim to achieve the best possible outcome for our position (or perhaps the organisation we represent).  However, the principles of fairness, seeking mutual benefit and maintaining a relationship are usually keys to a successful outcome.  The aim of win-win negotiation is to find a solution that is acceptable to both parties, and leaves both parties feeling that they’ve won, in some way.

There are different styles of negotiation, depending on circumstances.  Where we do not expect to deal with the people involved ever again and we do not need their goodwill, then it may be appropriate to be competitive and tough, seeking to win a negotiation while the other side loses.  This approach is not usually much good for resolving disputes with people with whom we hope to have an ongoing relationship.  Similarly, using tricks and manipulation during a negotiation can undermine trust.  While a manipulative person may not get caught out if negotiation is infrequent, this is not the case when people work together routinely.  Here, co-operation, honesty and openness are the best policies.

Depending on the scale of the disagreement, some preparation is appropriate for successful negotiation.  We might consider these things:

  1. Goals.  What do we want from the negotiation?  What do we think the other person wants?
  2. Trades.  What do we and the other person have that we can trade?  What do we each have that the other wants?  What are we each comfortable giving away?
  3. Alternatives.  If we don’t reach agreement with the other person, what alternatives do we have?  Are these good or bad?  How much does it matter if we do not reach agreement?  Does failure to reach an agreement cut us out of future opportunities? And what alternatives might the other person have?
  4. Relationships.  What is the history of the relationship?  Could or should this history impact the negotiation?  Will there be any hidden issues that may influence the negotiation?  How will we handle these?
  5. Expected outcomes.  What outcome will people expect from this negotiation?  What has the outcome been in the past, and what precedents have been set?
  6. Consequences.  What are the consequences for us of winning or losing this negotiation?  What are the consequences for the other person?  A willingness to walk away is also important.  After all, if we are not prepared to walk away we will be resigning ourselves to negotiating a deal that is unfavourable from our own perspective.
  7.  Power.  Who has what power in the relationship?  Who controls resources?  Who stands to lose the most if agreement isn’t reached?  What power does the other person have to deliver what we hope for?  It is important that we are aware of their authority before we commence negotiating
  8. Possible solutions.   What possible compromise solutions might there be?

For a negotiation to be ‘win-win’, both parties should feel positive about the negotiation once it’s over.  This helps people keep good working relationships afterwards.  This governs the style of the negotiation – histrionics and displays of emotion are clearly inappropriate because they undermine the rational basis of the negotiation and because they bring a manipulative aspect to them.

The negotiation itself is a careful exploration of our position and the other person’s position, with the goal of finding a mutually acceptable compromise that gives both as much of what they want as possible.  People’s positions are rarely as fundamentally opposed as they may initially appear – the other person may have very different goals from the ones we expect.  In an ideal situation, we will find that the other person wants what we are prepared to trade, and that we are prepared to give what the other person wants.  Consider these final points:

  1. Ask questions.  If we ask permission to ask a question, we will lay a foundation for agreement and likely receive a complete answer. Plan for questions we can ask.
  2. Ask open-ended questions to gain information and build a relationship.  Open-ended questions typically begin with “who,” “what,” “when,” “where,” and “why.”
  3. Use closed-ended questions (questions that encourage short answers, such as “yes” or “no”) when we want to gain a concession or confirm a deal point.
  4. Be a good listener.  The more information we get, the better able we’ll be to uncover others’ needs.  It will then be easier for us to show how we are able to meet those needs.
  5. Paraphrase to ensure understanding.  Restate in our own words what the other person has said to make sure we understand correctly.  Be sure to use different words so that it doesn’t sound like we are mimicking.
  6. Get it in writing.  Take notes during negotiations.  Notes will help all parties recall what has already been discussed or decided.  Be sure to get all offers in writing.
  7. Note and save issues for later discussion.  Focus on one issue before we move on to the next.
  8. Be flexible in our negotiations.  Take the attitude of “I’m just working out the details.”  Be willing to give up things that don’t really matter to us in order to create a feeling of goodwill.
  9. Use silence for consideration.  In response to an offer, restate the offer, sit quietly, and silently count to 10.  Allow everyone time to consider.  This technique may also prompt people to justify their offer, which could continue the negotiation process, or it could lead to a better offer.
  10. When a final offer is extended, if it is not enough, thank the employer, and ask for time to consider the offer.  When an agreement is reached, express gratitude and appreciation.

Contract Negotiation ExerciseSee also notes on contract negotiations “The Framework” pages 307-309.   A contract negotiation exercise is attached.  Each ‘side’ is given the one-page general scenario and a page of confidential information.   Teams have 15 minutes to read and prepare and 30 minutes to negotiate win:win contract clauses for the eight issues involved.

The Endorsement Deal 

Danny is an up-and-coming star in the snowboarding world.  He has already won two major tournaments.  The Rip and Shred Snowboard Company, headed by Alfred Ice, is keen to sponsor Danny.  This would be a basic sports sponsorship contract, in that Danny would wear Rip and Shred clothes and use their boards in exchange for a very good salary.  He will also occasionally have to appear in promotions.  Eight issues are still to be agreed.

Danny:  He is 15 years old.  He first started snowboarding when he was eight years old and has been pro for the past year.  He recently quit school to snowboard full-time and keeps up with his education via a private tutor.  Danny snowboards everyday at the local ski and snowboard field and participates in about two or three competitions per month during the season.

Rip and Shred Snowboard Company:  Alfred Ice started the company five years ago, when he saw that snowboarding was going to be a national phenomenon.  He began by making boards, but over the past few years the company has grown to include boots, pants, jackets, helmets and gloves.  Rip and Shred also makes a small amount of “street wear” including t-shirts and caps.  Because they are still a small company, Danny would be Rip and Shred’s first celebrity endorser.  In the past, Rip and Shred sold its clothing in ski and snowboard shops, however Alfred hopes to open two or three stand-alone Rip and Shred shops in the next year, with plans to expand to 10 in five years.

Contract negotiations are complete when both parties have agreed to unambiguous written contract clauses for each of the following issues:

  1. How much will Danny get paid?
  2. Which clothes will Danny wear?
  3. How often will Danny be required to wear Rip and Shred’s gear?
  4. Can Danny wear competitors’ clothing or gear?
  5. What are Danny’s requirements in terms of public appearances for Rip and Shred?
  6. Will Rip and Shred be able to give sponsorships to other snowboarders?
  7. What behavioural requirements will apply while Danny is wearing Rip and Shred clothing?
  8. How long is the duration of the contract?

Confidential Information for Danny’s Team

Danny feels he is worth $200,000 per year plus free Rip and Shred gear.  However, his absolute bottom line is $100,000 per year, plus free gear.

This contract is a big opportunity for Danny, in that it will be his first endorsement.  However, Danny knows that he is a hot commodity.  Because Rip and Shred is a small company, he would like to keep his options open for bigger and better endorsements that come along in the next few years.  It’s best for Danny if this contract is only for a one-year.

He has tried Rip and Shred boots, but they just don’t fit him properly.  His favorite boots are made by Hard Core Sno, who are a big competitor of Rip and Shred.  Danny really wants the contract to contain a provision that it is okay for him to wear Hard Core Sno boots, as long as he wears Rip and Shred jacket and pants and uses a Rip and Shred board.

Danny doesn’t mind doing print ads for magazines and stores, but he’s not very excited about in-store appearances.  He is shy and feels like these events are a waste of his time.  With practice, school and a social life, he really doesn’t have time to fly all over the country and appear at store openings.

Danny doesn’t mind wearing Rip and Shred gear whenever he’s boarding (either in practice or in competitions) but he really doesn’t want to have to wear the street clothes – ever.  He thinks the t-shirts are ugly.  If Rip and Shred insists he wear their street clothes, he’s tempted to take his rising stardom elsewhere and find another sponsor.


Confidential Information for the Rip and Shred Team

Rip and Shred really doesn’t want to pay Danny more than $75,000 per year, plus free gear.  However, they are willing to go up to $150,000 per year, plus free gear, to get Danny on board, if the contract is for a minimum of two years.  If the contract is for less than two years, they will not pay any more than $80,000, plus free gear.

It is very, very important to Alfred that Danny wear an entire Rip and Shred outfit while he’s boarding – that includes boots, jacket, pants, helmet, gloves and board.  If Danny won’t agree to wear the entire Rip and Shred line while boarding, it’s possible that Alfred will want to look for other options for his endorsement deal.

Alfred also really wants Danny to wear a Rip and Shred “street” outfit whenever he’s at a ski resort or event.  Alfred is willing to compromise on the street wear, as a last resort, but does not want Danny to wear the street clothes of any competing snowboard gear company (ie, he can wear a “Nike” shirt but not a “Hard Core Sno” shirt).

Alfred wants Danny to be in all the upcoming print ads for Rip and Shred.  Additionally, he would like him to appear for at least one of the upcoming store openings.  He knows that Danny is busy and might not be able to appear at all openings, but he would like a commitment of one opening each year.

The Rip and Shred executives know that Danny is a teenager and that teenagers sometimes do stupid things.  They really want a clause in the contract that requires “good conduct” from Danny while he is wearing Rip and Shred clothing or at a snowboard event.  In the event that Danny breaks this clause, Rip and Shred would be able to drop him as a spokesperson with no penalty.


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