The key concepts of negotiation include understanding a party's BATNA (Best Alternative To a Negotiated Agreement), WATNA (Worst Alternative To a Negotiated Agreement), reservation price, and ZOPA (Zone of Potential Agreement). BATNA refers to the best option if no agreement is reached, while WATNA is the worst outcome. Reservation price is the least favorable deal a party will accept. ZOPA is the range where an agreement could potentially be reached, factoring in both parties' reservation prices and alternatives. Establishing these concepts provides an important framework for negotiating effectively and knowing one's limits and leverage in the negotiation process.

1. Key Concepts of
Negotiation
From Roy & Harvard

2.  Any successful N must have fundamental
framework based on knowing the
following:
 The Alternative to N
 The minimum threshold for a negotiated deal
 How flexible a party is willing to be / what trade
off it is willing to make
 4 concepts are especially important for
establishing this framework:
 BATNA (Best alternative to a Negotiated agreement)
 WATNA (Worst alternative to a Negotiated agreement)
 Reservation Price
 ZOPA (Zone of possible agreement)

3. BATNA

4. BATNA
 Having good options available before you start
negotiating is best practice.
 Because You'll feel empowered and confident to
 either reach a mutually satisfactory
agreement, or
 walk away to your better alternative.

5. Best Alternative To a Negotiated Agreement (BATNA) CONT……
 Concept developed by Roger Fisher & William Ury.
 Knowing your BATNA means – what you will do or
what will happen if fail.
 Know BATNA before entering into negotiation.
 Why?
 Otherwise u won’t know whether a deal makes sense or
when to talk away.
 Being unclear about BATNA, one would may reject the
good offer
 Entering into negotiation without the knowledge of
BATNA means putting myself in a bad situation.

6. Best Alternative To a Negotiated Agreement (BATNA)
 For Example:
Fred has brought a damage suit against former
employer. The employer has offered to settle out of
the court for $80,000. But Fred wants more. “I know
that I am in the right & can get what I want if I don’t
settle, but go to the court”. But how good was is that
alternative? Fred hasn’t really done a thorough job of
estimating the probability of winning in court, nor the
size of potential award. At the end He lost the case.

7. BATNA contd….
 A BATNA doesn’t come prepackaged.
 A BATNA is the result of a two-step planning and
preparation process.
 First, determine all your available alternatives. Then you
choose the most attractive and actionable alternative.
 Next, realistically assess the other negotiator’s
alternatives.
 Both steps are equally important. Figure out whose best
alternative is stronger and more actionable.

8. BATNA contd….
How To Determine Your BATNA
 First, dissect both your position and your negotiation
interest.
 Then, look at the sum of these parts relative to all the
alternative options available.
 Pick the best option.
 Finally, do the reverse from the perspective of the other
side.
 A well-prepared negotiator views the whole picture in this
way.

9. BATNA contd….
The process developed by Harvard Law School to develop
BATNA:
 List all alternatives to the current negotiation – what
could you do if negotiations fall through?
 Evaluate the value of each alternative – how much is
each alternative worth to me?
 Select the alternative that would provide the highest
value to you (this is your best alternative to a negotiated
agreement).
 After determining your BATNA, calculate the lowest-
valued deal that you’re willing to accept.

10. BATNA contd….
How To Determine Your BATNA contd…
 Some of the most crucial factors that should be considered include:
 Cost:
 Ask how much it will cost to do this deal relative to the cost of your best alternative.
 Cost estimation may include both short-term and long-term considerations.
 Figure out which of your options is the most affordable.
 Feasibility:
 Which option is the most feasible? Which one can you realistically put into action in
time?
 Impact:
 Which of your options will have the most immediate positive influence?
 Consequences:
 Determine the outcome of each option that could be a possible solution.
 Stakeholders:
 Do you need to win over any stakeholders before being able to move to your BATNA?

11. STRONG & WEAK BATNA
 One’s best alternative to a negotiated agreement
(BATNA) determines the point at which one can say ‘no’
to an unfavorable proposal.
 i.e. BATNA determines the point at which one can say
‘no’ to an unfavorable proposal.
 If the BATNA is strong one can negotiate for more
favorable terms.
 A weak BATNA puts you in a weak bargaining position.
 Whenever a negotiator has a weak BATNA it is difficult to
walk away from a proposal – no matter how worthless it
might be

12. Improving your Position
 Three potential approaches to strengthen your
position:
1. Improve your BATNA
2. Identify the other sides’s BATNA.
3. Weaken the other party’s BATNA
 1. Improve your BATNA
 Think a minute to find out whether there is any option that may
strengthen your BATNA.
 If you find any options that may strengthen BATNA – don’t be shy for
implementing that.

13. Identify Other Side’s BATNA
 Knowledge of other side’s BATNA is another source of negotiation
strength.
 One needs to measure the relative strength of BATNA of other side’s &
his/her own. Because A good estimation of other side’s BATNA can be
a big help.
 But the question is how to obtain it?
 The opposing negotiator won’t tell you unless his BATNA is very
strong.
 He may even bluff about it.
 So one technique is to know is by “asking question during negotiation”.
 Other ways to learn in advance are:
 Contacting sources within the industry.
 Checking potentially relevant business publications.
 Reviewing annual reports (or public filing).
 Asking questions informally of the negotiator or others within the

14. Weaken the Other Party’s BATNA
 Anything that weaken other sides’s alternative to a
deal will improve your relative position.
 In some cases weakening the other sides’s BATNA
may be done directly.
 Read Case of Final Haven pg 20 “Harvard
Businesss Essential”
 WORK SHEET 1

15. WATNA

16. Reservation Price
 WATNA: Worst Alternative to a Negotiated Agreement
 BATNA and WATNA are, in many ways, just two sides of the same coin.
 If you walk away, what is the worst that could happen?
 What are the consequences likely to be?
 Example, Winter’s coming, and you need someone to put a new liner in
your chimney. You call that someone and get a quote for $2,500. You can
say, “Sure, let’s do it,” or you can let the negotiation begin.
 In this case, your BATNA, or best alternative to a negotiated agreement, would be to hire
another person who will do the job for a lower price –
 but what is your WATNA? What is the worst case scenario if you don’t reach an
agreement with this first person? In any negotiation, it is important to make sure that you
establish your best alternative, but also your worst so you can weigh your options with
greater accuracy, and, hopefully, better results.
 maybe the WATNA is having to hire another person at the same price. That’s not ideal,
but it’s not so bad either. Or, it could be that you must hire another person who will
charge a higher price or even that there are no others available, you have to wait months
and your house burns down because of the disintegrated chimney liner.

17. Reservation Price
 In Principles of Negotiation, Matthew P. Guasco and Peter R. Robinson
write, “Sometimes, the deal on the table is acceptable because it is less bad
than your WATNA, i.e. you are minimizing loss or making the best of a bad
situation.”
 It boils down to cutting your losses.
 No, it’s not ideal, but sometimes, that’s the best option. When exactly is
“sometimes,” though? When do you consider your WATNA?
 We usually see it come into play in situations that involve a lot of
uncertainty. Say you are in discussions with someone about hiring.
 If you don’t have a job now, your position is not that strong. Your
worst case scenario might be that you don’t get this position and
continue on without employment, and must declare bankruptcy.

18. Reservation Price
 When we talk about BATNA, it is usually involved when you are
trying to strengthen your position, and it is something you want to
develop.
 To strengthen your hand in this situation, you might go out and get
a few more job offers so you can compare those to this particular
position.
 It puts you in a better place in negotiations. You are trying to figure
out how you can get other decent options, how you can turn this
into a situation where you might get the best alternative if you don’t
get/take this job.

19. RESERVATION PRICE

20. Reservation Price
 Reservation price (RP) is the least favorable point at
which one will accept a deal.
 RP is also referred to as the “Walk Away”
 Your RP will derived from your BATNA – but these
two are not the same thing.
 BATNA is – if the deal is only about money; then RP
would be approximately equal to your BATNA.
 Example

21. Reservation Price
 You are currently paying $20 per square foot for suburban office
space. The location is satisfactory and you believe that the price
is fair, but you would not mind paying more to be closer to your
downtown customers.
 While preparing to negotiate with commercial landlord for an
office lease in a downtown high-rise, you decided that you would
not pay more than $30 per square foot. That’s your Reservation
Price.
 If the landlord insists on more, you can walk away and attempt to
lease space in a different building, or you can stay where you are
at $20 and that is your (BATNA).
 At the end of the negotiation session, the landlord declares that
he will not accept less than $35 – and he wont budge. You
terminate the nego, and walk away from the deal.

22. Reservation Price
 You are currently paying $20 per square foot
for suburban office space. The location is
satisfactory and you believe that the price is
fair, but you would not mind paying more to be
closer to your downtown customers.
 While preparing to negotiate with commercial
landlord for an office lease in a downtown high-
rise, you decided that you would not pay more
than $30 per square foot. That’s your
Reservation Price.
 If the landlord insists on more, you can walk
away and attempt to lease space in a different
building, or you can stay where you are at $20
In this example the RP is
different than BATNA. BATNA is
$20…but for the new location
where you want to go to take an
additional advantage you have
set your RP @ $30.

23. Reservation Price
 How to settle RP?
 Work Sheet 2
 Work Sheet 3

24. ZOPA

25. ZOPA
 ZOPA – Zone of Possible Agreement.
 It is the area range in which a deal that satisfy both
parties can take place.
 In other words, it is the set of agreements that
potentially satisfy both parties.
 Each party’s RP decides one end of ZOPA.
 One Zopa, both of their choices overlaps.

26. ZOPA
 Ex: A buyer has set a RP of $275,000 for the
purchase of a commercial warehouse.”That’s as high
as I’m willing to go”, she tells herself. Naturally she
would prefer paying less. The seller set his RP at
250,000. The two parties might haggle a bit in
reaching agreement, but an agreement in this range
would satisfy each.
Seller’s
RP
Buyer’s
RP
ZOPA

27. ZOPA
 Ex: Buyer: “What would you say to an offer of
$255,000? I could agree to that”?
 Seller: “ Thanks, but I believe that the building is
worth more and I can get more if I leave the
building on the market for another month or so.”
 Buyer: “May be, but may be not. I’d be willing to
pay $260,000 now if we could reach an
agreement.”
 Seller: “$265000 and it’s yours”
 Buyer: “Then 265,00 it is”.

28. ZOPA
 Ex: Buyer: “What would you say to an offer of $255,000? I could
agree to that”?
 Seller: “ Thanks, but I believe that the building is worth more and I
can get more if I leave the building on the market for another month
or so.”
 Buyer: “May be, but may be not. I’d be willing to pay $260,000
now if we could reach an agreement.”
 Seller: “$265000 and it’s yours”
 Buyer: “Then 265,00 it is”.
Seller’s
RP
(250)
Buyer’s
RP
(275)
ZOPA
(265)
Buyer and Seller both had RP, and they were bargaining
with ZOPA.
Now Converse….
Seller’s
RP
(275)
Buyer’s
RP
(250)
ZOPA
No overlapping..no agreement possible

29. The following diagram illustrates each party’s best
alternative to a negotiated agreement (seller and buyer):
Source: CFI

30. Where:
 ZOPA stands for “Zone Of Potential Agreement.” It is the overlap between the seller’s
and buyer’s settlement range.
 Seller’s settlement range is a biddable range acceptable to the seller.
 Buyer’s settlement range is a biddable range acceptable to the buyer.
 Buyer’s/Seller’s worst case is the reservation point of the respective parties.
If:
 Buyer offers a price that is lower than the seller’s worst case, then the seller is better
off going with an alternative.
 Seller offers a price that is higher than the buyer’s worst case, then the buyer is
better off going with an alternative.

31. Example
 Colin needs a car and is negotiating with Tom to
purchase his car. Tom offers to sell his car to Colin for
$10,000. Colin scours through Craigslist and finds a
similar car to which he assigns a dollar value of $7,500.
Colin’s BATNA is $7,500 – if Tom does not offer a price
lower than $7,500, Colin will consider his best
alternative to a negotiated agreement. Colin is willing to
pay up to $7,500 for the car but would ideally want to
pay $5,000 only.

32. Example contd…

33. Example contd…
 In the diagram above, if Tom demands a price higher than $7,500,
Colin will take his business elsewhere. In the example, we are not
provided with Tom’s BATNA. If we assume that Tom can sell his
car to someone else for $8,000, then $8,000 is Tom’s BATNA. In
such a scenario, an agreement will not be made, as Tom is only
willing to sell for a minimum of $8,000, while Colin is only willing
to purchase at a maximum of $7,500.
 If Tom’s best alternative to the deal is selling the car to a dealership,
which would offer him $6,000, then both parties can come to an
agreement because Tom’s reservation point would be $6,000. In the
situation described, the diagram would look as follows:

34. Example contd…