ENGR. MA. KATHLEEN L.

DURAN, CIE, AAE, CLSSGB July 4, 2019

Colegio de San Juan de Letran Calamba

City of Calamba, Laguna, Philippines 4027 www.letran-calamba.edu.ph +63(049) 545-5453loc2030

School of Engineering and Architecture

Production Systems
Negotiation

Negotiation
• Define as:
– “A formal discussion between people who are trying to reach an agreement”
– Merriam Webster Dictionary

IE Department © 2016 Letran – Calamba 2

1
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation
• Another definition:
– Process of discussion between two or more individuals or group when one
individual or group may want something from other individual or groups

IE Department © 2016 Letran – Calamba 3

• Negotiation is a common skill use by individual, businesses and

government all the time as they communicate with others and they
can be improve over time.

IE Department © 2016 Letran – Calamba 4

2
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Overview of Negotiation
• People negotiate to arrive at an agreement or to resolve conflict

• When negotiation is conducted between two or more people or

groups to arrive at an agreement or mutually understood outcome it
enables to realize benefits or goals that would not be achievable
independently.

IE Department © 2016 Letran – Calamba 5

• The interdependency of benefits or goals creates incentives for both

parties to reach negotiated agreement.

• The complexity of a negotiation depends on level of interdependency

among negotiating members.

• Conflicts is generally perceived to be negative since it indicates that

issues exist that need to be resolved.

IE Department © 2016 Letran – Calamba 6

3
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

• However, it is important to understand that there is value associated

with every negotiation irrespective of conflicts involved.

• Parties may gain or lose value depending on outcome of negotiation,

but all of the parties stand to lose if they do not negotiate to resolve
conflict.
• Therefore, it is in interest of all parties to negotiate
and agree on solution that is acceptable to all involved

IE Department © 2016 Letran – Calamba 7

Negotiation Aspects
• The Aspects of Negotiation are the seven main facets that help you
understand negotiation in principle.

• These are the fundamental features that must be understood in order

to relate and compare different forms of negotiation

• The Aspects of Negotiation are the foundation of associated

processes and can be applied to any type of negotiation.

IE Department © 2016 Letran – Calamba 8

4
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
1. JUSTIFICATION
• Provides primary reasons for negotiation

• Answering the questions:

 Why should one negotiate?

 What value is gained by negotiating, rather than taking the offer made by
the other party?

Negotiation may require significant investment of an organization’s resources,

so it is important to identify the value that negotiation provides preparing
for and conducting negotiation may involve costs.

IE Department © 2016 Letran – Calamba 9

Negotiation Aspects
1. JUSTIFICATION
Each party in negotiation should asses the value that can be gained from
successful negotiation.

IE Department © 2016 Letran – Calamba 10

5
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
1. JUSTIFICATION
For some negotiation, justification need not be formally
conducted

For example:

Negotiation between a parent and a child over a domestic issue

may not involve monetary gains and will require no formal
justification.

Conversely, climate talks between countries and the World

Trade Organization (WTO) are complex and costly and the
justification for negotiation should be conducted formally.

Assessing the justification for negotiation, enables to involve the organization

to determine whether it is viable or desirable to negotiate.

IE Department © 2016 Letran – Calamba 11

Negotiation Aspects
1. JUSTIFICATION
• The need for negotiation does not arise until there is an issue that needs
intervention in order to find a resolution while combing cost, time, and
people.

• Negotiating an issue depends on value associated with it.

• The justification of negotiation is precisely measured by the gravity of the

issue and the resultant value negotiation would provide to negotiating
parties.

IE Department © 2016 Letran – Calamba 12

6
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Why should one negotiate?

• Negotiation involves creating value and eventually enables involved
parties to reach a mutually acceptable agreement.

• Value is anything that stakeholders find useful or desirable. It can be

defined in financial or non – financial terms.

• When there is value in negotiation the involved parties feel they are
better off with an agreement than without.

• However, value perceived by each party involved in negotiation may

vary.

IE Department © 2016 Letran – Calamba 13

Why should one negotiate?

• For example:

When you walk into a dealership to buy a new car, you may simply
accept the sticker price or you may decide or spend time and
negotiate with seller to reduce price.

IE Department © 2016 Letran – Calamba 14

7
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Why should one negotiate?

• Person selling the car may perceive value in simply gaining sale and
may assess price difference as negligible both parties perceive value
and agreement is made.

IE Department © 2016 Letran – Calamba 15

Why should one negotiate?

• There are often several reasons both for and against moving forward
– Assessing anticipated value gained provide the justification to proceed with or
cease negotiation. In some situations, its is better not to negotiate

IE Department © 2016 Letran – Calamba 16

8
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Why should one negotiate?

Such situations include the following:

• When demands of other parties are unethical, illegal, or

contrary to the stated policies of your organization.
• In such situation, you may decide not to go ahead with the deal, or certain
parts of the deal might be considered non – negotiable.

IE Department © 2016 Letran – Calamba 17

Why should one negotiate?

Such situations include the following:

• When you have little to gain but risk losing everything,

• When you are hard pressed for time, there is a higher

probability of making mistakes when there is inadequate
time for preparation.

• When there is a luck of trust in your relationship with the

parties in negotiation.

IE Department © 2016 Letran – Calamba 18

9
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Primary reasons to proceed with negotiation are:

To arrive at a deal or a mutually understood

outcome

To resolve a conflict

IE Department © 2016 Letran – Calamba 19

Negotiation Aspects
Negotiating to arrive at a deal or a mutually understood outcome
- Negotiation can occur between two or more people or groups aiming to
agree on a deal or mutually understood outcome.

- Negotiation in this instance enables the involved parties to realize benefits or

goals that would otherwise not have been achievable by either party on their
own.

- Interdependency of goals requires parties to negotiate toward an agreement

IE Department © 2016 Letran – Calamba 20

10
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiating to arrive at a deal or a mutually understood outcome

For example:
An author and a publisher would negotiate to reach a
mutually agreeable set of terms contractual
agreement

The complexity of a negotiation depends on the level of

interdependency among negotiating members.
Complexity of negotiation is lower if one party in a
negotiation has more bargaining power and fixed
terms compare to the other

IE Department © 2016 Letran – Calamba 21

Negotiating to arrive at a deal or a mutually understood outcome

The party has the more bargaining power also referred to as the
independent party, will not compromise significantly but they may
provide a few concessions during negotiation process.

The other party, referred to as the dependent party, make compromises

for an agreement to be reached

What example would you think of?

 Public utilities for: Water, Telecommunication and Energy

Are usually governmentally supervised and monopolies and consumers

have no direct ability to negotiate price of their services.

IE Department © 2016 Letran – Calamba 22

11
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiating to arrive at a deal or a mutually understood outcome

What example would you think of?

 Public utilities for: Water, Telecommunication and

Energy

In some cases, the negotiating parties are interdependent

with neither having independent advantage,

Negotiation in these cases may be very complex and a

challenge for either party to achieve their respective
goals completely

IE Department © 2016 Letran – Calamba 23

Negotiation Aspects
Negotiating to resolve a conflict
- Conflict can be define as disagreement or an opposition of ideas and
interests among the parties

- Conflict can occur from numerous reasons such as:

Divergent needs of parties concerned

Misunderstanding among parties involved
Differences in opinions
Interest
Preferences among parties

IE Department © 2016 Letran – Calamba 24

12
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiating to resolve a conflict

• Conflict can also occur when arties involved trying to achieve same
outcomes or goals for their respective organizations.
Example:
- Negotiation between countries to resolve a boundary dispute
- Negotiation between companies regarding copyright infringement
issues

IE Department © 2016 Letran – Calamba 25

Negotiating to resolve a conflict

Types of conflict
1. Intrapersonal conflict – refers to conflict that occurs within an individual due
to clash of his/her ideas, thoughts, assumptions, beliefs, emotions or values.
Example: One’s inability to express emotions such as anger or admiration due
to fear of repercussions from how other parties will perceive the expression

2. Interpersonal conflict – refers to conflict between negotiating individuals due

to misunderstandings, lack of coordination, inaccurate perceptions, pre-
conceived notions, or biases. Example: An individual may misunderstand a
joke that leads him to assume things about other individual which might lead
to a conflict or a conflict might arise between two project managers during
allocation of limited resources.

IE Department © 2016 Letran – Calamba 26

13
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiating to resolve a conflict

Types of conflict
3. Intragroup conflict – occur at a group or team level whether is lack of
coordination, lack of information exchange or too many interpersonal conflicts
among members of the group. Conflict that occur among members on family,
class, union, project team or committee are examples of intragroup conflicts.
Intragroup conflicts, if not resolved in time will severely affect ability of the
team to negotiate effectively and achieve their collective goal

4. Intergroup conflict – occur at a group or teams that can do situations such as

presence of interpersonal conflicts, clash of objectives or ideas and poor
dissemination of information leading to lack of trust or faith. Example: conflict
between union and management, or between nations

IE Department © 2016 Letran – Calamba 27

Negotiation Aspects
2. Distributive - Integrative Negotiation
- Distributive, or win – lose negotiation, is a strategy directed toward
distribution of a fixed resource between two or more parties.

- In this type of negotiation, a gain for one party is a loss for the other

- Distributive negotiation is a common situation where the people involves do

not share an existing relationship and are not likely to collaborate in the near
future

IE Department © 2016 Letran – Calamba 28

14
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
2. Distributive - Integrative Negotiation
- Distributive Example:

- Rate for hotel rooms where buyer and seller do not know each other and
do not expect future business.

- Sale of a house where the only issue being discussed is the prices of the
house.

IE Department © 2016 Letran – Calamba 29

Negotiation Aspects
2. Distributive - Integrative Negotiation
- Integrative, or win – win negotiation, is a strategy directed toward
developing mutually beneficial agreements by discussing and addressing
various concerns such as needs, desires and expectations of negotiating
parties.

- Integrative negotiation aims at building a long – term relationship and

arriving at a solution that benefits each participating party.

IE Department © 2016 Letran – Calamba 30

15
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
2. Distributive - Integrative Negotiation
Most integrative negotiations has two elements:
1. Creating Value

- Value may be created through two parties negotiating with each other to
discover areas to collaborate so that each can gain from the relationship.

- Example: An employee and employer relationship creates value for both parties
since the employee gets a job that he/she wants and the employer gets a
qualified employee for a specific role within the company.

IE Department © 2016 Letran – Calamba 31

Negotiation Aspects
2. Distributive - Integrative Negotiation
Most integrative negotiations has two elements:
2. Claiming Value

- Because potential to create value through the negotiation is understood the

negotiating parties attempt to claim value created for maximum return some of
these negotiation may involve elements of distributive negotiation where the
negotiating parties may win or lose on specific issues.

- Example: in an employee – employer relationship as the employer decides to

hire an employee. The employee may want to maximize her expected salary and
benefits, the employer, on the other hand, may have an objective to keep the
salary within the specific limits. And thus, an offers a salary based on expected
value the company anticipates gaining from the new hire. The employer may
also consider offering variable pay or incentives so that high performing
employees receive more remuneration.
IE Department © 2016 Letran – Calamba 32

16
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Difference between Distributive - Integrative Negotiation

Type
Distributive Negotiation Integrative Negotiation
Criteria

Fixed value divided Create value and divide

Value
among parties among parties

Usually multiple issues

Issues Usually single issues
are involved

Short term relationship id Long term relationship is

Relationship
sought sought

Less information Significant information

exchanged, no need for may be exchanged;
Information Exchange
parties to now each other parties need to know each
well other well

IE Department © 2016 Letran – Calamba 33

Negotiation Aspects
3. Customization
– Negotiation can take place in many forms and situations.

– Simplest form of negotiation is a two – party negotiation over a single issue.

– However, a negotiation may involve more than two parties, multiple issues
and be held over multiple phases.

– It is necessary to customize concepts of negotiation according to the

situation.

IE Department © 2016 Letran – Calamba 34

17
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
4. Non-linear Process with Uncertain Outcomes
– Most negotiations are complex and follow an unpredictable, no – linear path

– The unpredictable nature of a negotiation is primarily due to the fact that

various events or changes may take place during the course of negotiation.

– New alternatives or opportunities, a change in negotiators, negotiation

process, nature of relationship, and in change in the involved parties’
situations can alter the path of a negotiation.

IE Department © 2016 Letran – Calamba 35

Negotiation Aspects
4. Non-linear Process with Uncertain Outcomes
– Uncertain events or set of events that can affect
objectives of a negotiation process are considered
risks.

– Risks that are likely to have a positive impact on

negotiation process are referred to as opportunities.

– Whereas risks that affect negotiation in a negative

manner are considered threats

IE Department © 2016 Letran – Calamba 36

18
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
4. Non-linear Process with Uncertain Outcomes
– Negotiators should follow standardized steps to ensure that these events are
identified, evaluated and addressed with an appropriate course of action.

– Each party should recognize the unpredictable an non – linear nature of

negotiations and remain flexible during the process

– Example: Government constitution, Legal reforms, criminal legal cases, rights

and freedom and land claims.

IE Department © 2016 Letran – Calamba 37

Negotiation Aspects
5. Human Relations Issues in Aspects Negotiation

• Negotiation, simple or complex, are ultimately

conducted by people.

• Thus, it is important to understand various factors

associated with human relations such as:
– Negotiation styles

– Perception and cognition and;

– Communication

IE Department © 2016 Letran – Calamba 38

19
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
5. Human Relations Issues in Aspects Negotiation

• Understanding these issues in regards to you as well as other party’s

helps in negotiation process

IE Department © 2016 Letran – Calamba 39

Negotiation Styles
• It is important for negotiators to understand their personal
negotiation style and also the negotiation style used by other party.

• Kenneth W. Thomas identified five (5) styles of approaches to

negotiation:

Accommodating

Avoiding

Collaborating

Competing

Compromising

IE Department © 2016 Letran – Calamba 40

20
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Styles Of Approaches To Negotiation

• Accommodating

– Accommodating the other party requires a lot of cooperation and

little courage. Basically, you agree to accommodate the other party
by acknowledging and accepting his point of view or suggestion.
This style might be viewed as letting the other party have his way.
While this style can lead to making peace and moving forward, it
can also lead to the accommodator feeling resentment toward the
other party

IE Department © 2016 Letran – Calamba 41

Styles Of Approaches To Negotiation

• Avoiding
Avoiding or withdrawing from a conflict requires no courage or
consideration for the other party. By avoiding the conflict, you
essentially pretend that it never happened or doesn’t exist. Some
examples of avoidance or withdrawal include pretending there is
nothing wrong, stonewalling or completely shutting down.

IE Department © 2016 Letran – Calamba 42

21
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Styles Of Approaches To Negotiation

• Collaborating
Collaboration plays a major role within conflict resolution and requires
great courage and much consideration. Collaborating with the other
party involves listening to their side, discussing areas of agreement
and goals, and ensuring that all parties understand each other.
Collaboration requires thinking creatively to resolve the problem
without concessions. Collaborators are usually admired and well-
respected.

IE Department © 2016 Letran – Calamba 43

Styles Of Approaches To Negotiation

• Competing
While standing your ground requires courage, it can also be
inconsiderate. By standing your ground, you are essentially competing
with the other party; you’ll do anything to ensure that you win the
battle. The fact is, a competitive approach offers short term rewards,
but in the long term effects can be detrimental to your business.

IE Department © 2016 Letran – Calamba 44

22
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Styles Of Approaches To Negotiation

• Compromising
Compromising is a big step toward conflict resolution. Both courage
and consideration are used when both parties look for common
ground. You agree to negotiate larger points and let go of the smaller
points; this style expedites the resolution process. Occasionally, the
person compromising might use passive-aggressive tactics to mislead
the other party, so beware.

IE Department © 2016 Letran – Calamba 45

Negotiation Styles
• Each style has its own positives and negatives and expert negotiators
usually adopt one of these styles during negotiation based on factors
such as context of negotiation and the interest of the other party

IE Department © 2016 Letran – Calamba 46

23
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Perception and cognition

• Perception and cognition are integral factors that influence how
negotiators construct and interpret a message received during
negotiation.

• Perception is process of assigning meaning to messages received by

listener.

• In negotiation it is largely related to how one party interprets other

party’s messages and behaviour in given environment.

• Shortcomings in perception which may be influences by individual's

own needs, desires, and past experiences are referred to as distortions
or errors in perception,

IE Department © 2016 Letran – Calamba 47

Perception and cognition

Major errors in perception are classified as follows:
– Stereotyping
• Is a very common distortion
• Occurs when an individual assigns attributes to another solely on the basis of the
other’s membership in a particular social or demographic category
– For example
• Age
• Gender
• Race
• Religion

– Halo effect
• Are similar to stereotypes
• Occur when an individual generalizes about a variety of attributes based on the
knowledge of one attribute of an individual
– For example
• Positive halo effect ( e.g. Smiling person is honest. )
• Negative halo effect ( e. g. Frowning person is dishonest. )

IE Department © 2016 Letran – Calamba 48

24
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Perception and cognition

Major errors in perception are classified as follows:
– Selective Perception
• Occurs when the perceiver singles out certain information that supports or reinforces
a prior belief, and filters out information that does not confirm that belief.
– For example
• Smiling
• Frowning

– Projection
• Occurs when people ascribe to others the characteristics or feelings that they possess
themselves.
– For example
• Frustration
• Delays

IE Department © 2016 Letran – Calamba 49

Perception and cognition

• Cognition refers to the ways a person processes information received

• Errors made in information processing are called cognitive biases,

can impede one’s negotiation outcomes.

• Following cognition biases can impact negotiation process:

 Irrational escalation of commitment

- Negotiators maintain commitment to a course of action even when that commitment

constitutes irrational behavior

 Winner’s curse

- The tendency to settle quickly on an item and then subsequently feel discomfort
about a win that comes too easily

IE Department © 2016 Letran – Calamba 50

25
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Perception and cognition

• Following cognition biases can impact negotiation process:
 Overconfidence
- The tendency of negotiators to believe that their ability to be correct or accurate is
greater than is actually true
 Information availability bias
• Operates when information that is presented in vivid or attention-getting ways
becomes easy to recall.
• Becomes central and critical in evaluating events and options

 Self serving bias or;

- People often explain another person’s behaviour by making attributions, either to the
person or to the situation
- There is a tendency to:
- Overestimate the role of personal or internal factors
- Underestimate the role of situational or external factors

 Overvaluation
- The process of devaluing the other party’s concessions simply because the other
party made them

IE Department © 2016 Letran – Calamba 51

Communication in Negotiation
• As negotiation is an interpersonal process communication plays
crucial roles.

• Various models are used to explain process of communication.

• One of the simplest ways to represent how communication works in

any interaction was developed by Shannon and Weaver (1948)

IE Department © 2016 Letran – Calamba 52

26
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Communication in Negotiation
• These model is based on the following elements:
– Sender and receiver

– Transmitter and receptor

– Message

– Encoding

– Channels

– Decoding

– Meanings

– Feedback

– Noise Shannon Weaver model of communication

or “mother of all models."

IE Department © 2016 Letran – Calamba 53

Negotiation Aspects
6. Organization for Negotiation
- Considers who will be negotiating what their authority level will be during the
negotiation.

- You can negotiate on your own or hire another individual or company on

your behalf.

- You can also have a team of negotiators rather than an individual negotiator.

- A primary decision when entering negotiation is choosing a negotiator or

the negotiating team.

IE Department © 2016 Letran – Calamba 54

27
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

• Hired negotiators are called “agents”.

• When hiring agents one should consider factors

such as:
– information asymmetry

– Conflict of interest

– Miscommunication

IE Department © 2016 Letran – Calamba 55

• Another important factor is authority level of negotiators.

• It is important to assess and determine the authority level of you

negotiator as well as the other party’s negotiator.

• You should be clear about any financial and agreement limits and
required approvals for your negotiator before assessing the other
party’s situation.

• Ideally, both negotiators will have similar level of authority, but

sometimes this is not the case.

• Assessing the level of authority for both negotiators helps to prepare

for such situation

IE Department © 2016 Letran – Calamba 56

28
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
7. Ethics

- Ethics are social standards that define what

is right or wrong in a particular situation

- The subjective nature of these standards

may lead to ethical questions and dilemmas
during the process of negotiation.

- Whether a negotiation practice is ethical or

not depends on the ethical standards
followed of the people or organizations
involve in negotiation process.

IE Department © 2016 Letran – Calamba 57

Negotiation Aspects
7. Ethics

- Some believe in rules while others are led by social norms of their
society.

- Each belief has its own supporters and detractors

- Unethical practices are generally used to gain upper hand in

negotiations or to “seal the deal”.

IE Department © 2016 Letran – Calamba 58

29
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
7. Ethics

- Even if they help in achieving the desired outcome, unethical

practices may lead to negative consequences such as:

- Guilt, loss of reputation and souring of relationships.

IE Department © 2016 Letran – Calamba 59

Negotiation Aspects
7. Ethics

- Some unethical practices may include:

- Misrepresenting facts, or

- Providing limited information while

communicating to other party

- Distorting or misrepresenting information

about opposite party among peers to gain
unfair advantage

- Inappropriate information gathering

through unfair means

IE Department © 2016 Letran – Calamba 60

30
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Negotiation Aspects
7. Ethics

- Some unethical practices may include:

- Bluffing or making threats or promises that

are insincere

Understanding of ethical issues in negotiation

is essential to bringing an ethical approach
to the negotiation process.

It also prepares you to identify and fend off

unethical tactics from other negotiators

IE Department © 2016 Letran – Calamba 61

Benefits of negotiation classified as:

1. Financial Benefits
– May be in a form of better price, reduce cost, or
any form of benefit that results in a better financial
position.

– The tools used to calculate financial benefits includes:

• Cost Benefit Analysis (CBA)

• Return on Investment (ROI)

• Net present value (NPV)

• Internal Rate of Return (IRR)

- Better negotiation can lead to less expensive options

provided by a supplier to a customer for a product or
service.
IE Department © 2016 Letran – Calamba 62

31
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Benefits of negotiation classified as:

1. Non – Financial Benefits
– Are not easily quantified but are also important for negotiation
– Some of the major non – financial benefits include the following:
• Reducing risk
• Building trust
• Building a better relationship
• Establishing a better communication, and;
• Expanding the scope of future business

IE Department © 2016 Letran – Calamba 63

Benefits of negotiation classified as:

1. Non – Financial Benefits
– Example:
• Setting a framework for more collaborative and creative negotiations
between two parties in the future by making and keeping agreements.
• Exercise for justification for negotiation
– ROLE PLAY: An individual is selling a mountain bike online he has had
the bike for eight years and paid $300 for it. Now the bike is used and
the minimum amount that the seller will accept is $100. the buyer knows
that the bike is worth $100 but wants to negotiate because he would like
to get it for less than $100 ($80), both sides should work toward
negotiating the price.

IE Department © 2016 Letran – Calamba 64

32
ENGR. MA. KATHLEEN L. DURAN, CIE, AAE, CLSSGB July 4, 2019

Risks in negotiation
• Risks in negotiations are defined as an uncertain event or set of
events that can affect objectives of a negotiation process. It may
contribute to the success or failure of a negotiation. Positive risk is
opportunity, then, negative risk is threat.

• Risks should be identified, evaluated, and addresses using two factors:

1. Probability of each risk’s occurrence

2. Possible impact of such an occurrence

IE Department © 2016 Letran – Calamba 65

ASSIGNMENT to be submitted on Monday (July 8, 2019)

Look for 6 journal articles at the library that discusses on Negotiation
(applied the aspects and techniques) in the context of Production
Planning (2), Manufacturing (2) and Purchasing (2). Prepare a one – page
critique per journal using the following format:

Title of the Journal Article: (includes name of the author(s), publisher,

page number)
Source of the journal: (indicate the library code)
Summary of the journal article:
Critique on the journal article:

Write it in Engineering Lettering with border and cover page.

Note: Only e-journals from ScienceDirect and from the library are
accepted. This activity is by pairs

IE Department © 2016 Letran – Calamba 66

33