The Iron Triangle of Negotiation

Ever felt ill-prepared, out-manoeuvred, and even ripped-off when negotiating? Perhaps you’ve even gone for everything but finished with nothing? Sometimes that’s just annoying, but occasionally it could mean your career. How could this happen? Forgot the Iron Triangle???

WHAT IS NEGOTIATION?

The Latin derivation means the act of dealing with another person. The Oxford Dictionary defines negotiation as a discussion aimed at reaching an agreement, while the Collins Dictionary mentions formal discussions between people who have different aims or intentions. ‘Getting To Yes’ describes negotiation as back and forth communication designed to reach agreement when you and the other side have some interests shared and others opposed.

WHICH APPROACH IS BEST?

If we assume a negotiation is a one-off we may be tempted to go for a win:lose approach and maximise our own outcomes, but if we ever have to deal with this person or organisation again it might be wiser to adopt a more win:win approach.

Simply arguing about price is a classic win:lose approach, as each dollar I take from you leaves you with one dollar less, and vice versa. It tends to bring out more combative behaviours while both parties try to maximise their own financial outcomes.

In such situations, if forced to offer more money or receive less than originally proposed, consider what else you might want in return? Now you have something else to bargain over, and the more of these non-cash alternatives variables the better as they all help keep the mood collaborative rather than combative. They typically fall into three categories, as below.

THE IRON TRIANGLE OF NEGOTIATION

The ‘Iron Triangle comprises three inter-related elements: Time, Cost, and Functionality/Quality.

It takes time and money to generate something that is high quality and rich in functionality in a low-risk fashion, so we need to be somewhat realistic in our expectations, and initial offer.??

Any two dimensions can be had in plentiful quantities, but the third dimension will then need to be reduced, as per the adage:

We can have any two, but not all three!

As the song goes, however, “don’t be sad”, ‘cause two out of three ain’t bad”. We simply need to know which of the three are relatively more important, and optimise those!

Here are some examples of typical interactions during initial Project Design and Negotiation:

-????????? If a (tight) deadline has already been announced, then focus on scope, function, quality, and risk to ensure the deadline can be met, and sufficient budget allocated;

-????????? If the budget is fixed, then functionality and related timelines need to be realistic; and

-????????? If the Client is fixated on a specific functionality or ‘solution’, work schedules and estimates of time and cost need to be realistic, and agreed up-front.?

During the project, any suggested changes to one element will invariably change one or both of the other two as the overall total is finite. Here are some other examples:

-????????? If the project is running over time, it usually costs more money to complete the planned work, and scaling back functionality or compromising quality may also be required;

-????????? If running over budget, the function or scope can be reduced or quality lowered; and?

-????????? If the Client wants to add functionality or scope, it will take more time and money!

HOW CAN WE BETTER MANAGE EACH ELEMENT?

Time is often spoken of in the form of a deadline, and is measured by the amount of time elapsed between start and finish, for example, two weeks from now. Time is also spoken of in terms of the total time spent doing the work, for example 20 days of work performed in that fortnight. Some of the work can be completed in parallel with other work but some can only be done sequentially, so scheduling needs to take account of any such distinction.

Costs? Estimating is based on the total amount of time expended in completing the work, and saving money in some areas early on could mean spending more later or in other areas! Classic examples of false cost savings include:

-????????? Buying off-the-shelf designs then having to make modifications later;

-????????? Building quickly and cheaply then having to do unplanned repairs or add function;

-????????? Building for ease and lower cost of ongoing maintenance may neglect functionality.

Function and Quality? If we try to include every stakeholder group’s functional requirements, we could end up with a monster that takes forever and costs a fortune. Some prioritising will be required so more ‘business critical’ functions are addressed sooner, and others delayed until Phase Two. If stakeholders still desire perfect availability or eternal lifespan, they are ‘Gold Plating’, and this will involve exponentially higher costs.

If stakeholders are not sufficiently clear initially regarding their requirements, some degree of piloting or prototyping may be required to clarify their true needs, and our estimates. A short? time spent working in ‘Time and Materials’ mode may be appropriate before moving to a “Fixed Cost’ methodology. In IT this is now known as ‘agile computing’.

APPLICATIONS

Day-to-day dealings:

You: “Hey, can you do this for me asap?”

Me: “Well, I can do that for you, but not straight away. I can take a quick look now and make a few comments, but a formal response will take two to three days. Will that do?”

Since internal cost is not applicable, we are trading timeframe against quality and depth.? ?

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Personal rather than work settings:

Booking a hotel room for holiday versus business may well mean looking for different locations, capacities, facilities and amenities, payment options, check-out times, loyalty club membership, etc. These will all have a bearing on the overall cost, so which elements are essential and which can be done without? How much does the perceived ‘value’ differ between the two settings? ??

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HOW WELL DO YOUR NEGOTIATORS OPTIMISE THE IRON TRIANGLE?

·?????? How comfortable are all stakeholders they will get what they’re expecting?

·?????? How realistic are your plans and targets?

·?????? How adept are your planners and supervisors at balancing the three elements?

·?????? And how good is your track record in negotiations and project delivery? ??