As I have mentioned before, very frequently when negotiating on projects, both parties involved default to the discussion of their respective demands or try to state their positions in the clearest ways possible. Dig into your own memories and try to see if you have ever heard the following statements from your clients or managers:
- “This project must be delivered by October 30th of this year”
- “You are limited to ten resources on this project”
- “The budget is capped at £100,000. This number is not negotiable”
- “All of the scope items outlined in the Statement of Work must be delivered”
- “You are not allowed to outsource any parts of the project”
Project managers are also prone to uttering statements like:
- “We can’t hit this deadline even if we work sixteen hours a day”
- “If I don’t get the resources I asked for, we’re not going to deliver this project”
- “The budget is too small. If it is not revised, we will not deliver the entire scope by the deadline”
The problem with this approach is that we focus on the positions or demands of both parties rather than trying to understand their underlying interests and reasons. We assume that the key to a successful negotiation lies in understanding what the counterpart actually wants. While this is true, it is not the end of the process but rather a beginning. Focusing on what their customers want frequently distracts even the most experienced project managers from why they want it in the first place.
Therefore, questions like “why?” and “why not?” become the project manager’s best friends during any negotiation process. Keep in mind that, while a project manager is typically an experienced professional who can plan, scope, budget and control his project, he can’t read a client’s mind and know all of the constraints and details associated with the project as seen by the customer.
On the other hand, while the customer may know in detail what she wants and why she wants it, she is not a trained project manager who can appreciate all the potential difficulties related to the successful delivery of the project. As a result, an inherent awareness gap exists on every project, especially in the earlier stages. Unfortunately, the job of bridging that gap falls on the shoulders of the project manager.
A colleague of mine once told me of a very interesting experience on his project. He was discussing various aspects of a new project he was just assigned to with a fairly “difficult” vice president of risk management at a large international bank:
– VP: “This is one of the most important projects in our portfolio. Unfortunately, there isn’t much flexibility on the scope and the deadline because this is a regulatory government-mandated project”.
– PM: “OK, I understand. I have done some preliminary assessments of the scope of work involved and it looks like I will need a team of ten resources assigned to this project on a full-time basis”.
– VP: “That is not an option. You can only have seven technical people assigned to your team. Besides, I may need one or two of them from time to time …”
– PM: May I ask, why would I be provided with only seven people?”
– VP: “Because the guys in my department will be working on generating a lot of reports and conducting analysis at the quarter-end. That would be around the same time when your resource needs will reach their peak. You have to understand, I wouldn’t even consider giving you all seven of my team members if it was not for the importance of this project!”
– PM: “Oh, you mean I can’t have all ten resources from your department! That is not exactly what I had in mind. Remember Bill, John and Stacy, the external consultants who worked on the ‘BASEL 2’ project?
– VP: “Yes, I most certainly do. They have done a great job …”
– PM: “If you can provide me with an additional budget, I could involve them on our project. That would take the number of resources from seven to the required ten people. What do you think?”
– VP: “Yes, I believe I have some flexibility in my budget. Why don’t you contact them and see if they are available?”
What happened in this dialogue? Project manager believed that he needed ten people to ensure successful delivery of the project. The vice president, on the other hand, could only provide seven (if not less) of his people. These were the starting positions in the example provided.
Had the project manager neglected to probe further regarding the VP’s reluctance to increase the project team to ten members, the negotiations would have gone nowhere. However, because he investigated the underlying interests of the executive – to have his people available to work on their regular tasks during the peak season – he was able to discover that the VP hadn’t even considered the possibility of hiring a group of external consultants.
Invent Options for Mutual Gain
One of the prevailing superstitions in project management is the “fixed pie” assumption. In other words, both sides assume that the project results, speaking mathematically, are binary – either the team delivers the project on time or it doesn’t; either the project is on a budget or over, etc. Fortunately, negotiations are typically not like NBA Finals when team A meets team B in a seven-game series where the winner gets the Larry O’Brien Championship Trophy and the loser goes home empty-handed.
In my experience, situations on most projects are similar to the famous story when two kids were quarrelling over an orange with each one claiming ownership. Finally, their father entered the room and, operating under the fixed pie assumption, cut the orange in two equal halves distributing the fruit between the brother and the sister. Interestingly enough, the brother ate the orange and threw away the peel. The sister used the peel from her half as an ingredient in pastry while disposing of the fruit.
The situations between the customers and the project teams are almost always fairly similar to the fable described above: the underlying interests, constraints and risk tolerances ob both parties are never identical. The proverbial pie looks quite different to each party. Hence, a good project manager can increase the size of the pie by looking for things that are of low cost to him and his team and high value to the customers (and vice versa).
A student of mine at the British Columbia Institute of Technology once mentioned an interaction between an experienced construction project manager and a customer:
– Customer: “I would like to add another clause to our contract. If the work on the new mall not finished by the deadline in the contract, I want your company to pay a penalty of $5,000,000”
– PM: “Hmm, we have already signed the contract without the late penalty clause; I am not sure how our management would react to that …”
– Customer: “I am sorry, but I have been instructed by my boss not to proceed without this modification to the contract”
– PM: “And may I ask you why do you guys feel the need to add this clause?”
– Customer: “Our CEO is really anxious about hitting the deadline outlined in the contract. He had some bad experiences with construction subcontractors before and wants to ensure a timely completion …”
– PM: “I just had an idea! You are very concerned about us finishing the construction on time and we are fairly confident in our ability to do so. Would you be open to the idea of adding (in addition to the penalty clause) a bonus provision to the contract if we finish ahead of the schedule? How does £3,000,000 sound? This way if we are late, we pay the penalty of five million and if we finish ahead of schedule, you give us an additional three million”
What happened in this conversation? The hopeless situation has been defused by the project manager who honed in on the difference in underlying interests. The customer’s interests were deeply rooted in their extreme risk aversion; ensuring that the project is complete on time was paramount. The construction company, on the other hand, was more concerned about generating additional profit. Since they were fairly confident in their ability to finish this project on time, they willingly accepted the penalty clause.
The Need for Objective Criteria
While trying to understand the underlying interests and constraints of your counterparts is one of the cornerstones of successful negotiations, there is one area that has fairly little flexibility – the fairness of the objective criteria used when assessing various dimensions of the deal. All of the inputs into the negotiations process should be reasonable and fair; otherwise, you will not get very good outputs. The “garbage in, garbage out” principle, so famous among statisticians, applies very strongly to the negotiations game. I am sure all of us have witnessed biased standards used in project negotiations:
- Imposed duration and budget estimates
- Insufficient numbers of resources allocated to the project team
- High-risk ventures treated as low-risk ones
- Draconian penalty clauses in contracts, etc.
You may, and probably will, from time to time be subjected to pressure that can take many forms. It could be a threat (if you don’t do this, you will be fired), a fake appeal to trust (why don’t you believe me that this could be done in only six months?) or a veiled bribe (I will seriously consider promoting you to a senior program manager if you agree to this).
I like to call these types of requests “deliver me a Ferrari with custom features tomorrow for $500.” Succumbing to these unfair yardsticks is a very dangerous technique to use in negotiation. Just because the customer has heard that a “similar project was delivered in half the time and with a quarter of a budget” does not mean that the project manager should instantaneously agree to use this yardstick to assess his own projects.
Exhibit 1 lists some of the questions the project manager could ask when dealing with unreasonable stakeholders insisting on using irrational criteria.
I would like to start this section with a very interesting and, probably very amusing, dialogue between myself (PM) and the Director of a company that shall remain nameless, that magnifies some of the issues we have with honesty on our projects:
– Director: “Hey, I am going to assign you to this new regulatory project. Keep in mind, this is a high-profile endeavor; our main client is the Senior VP of our company”
– PM: “Yes, I have heard about this project. I have spoken to some of our technical people and they have estimated the project to take about nine months …”
Director: “Yup, that is another problem. I have personally promised that we would deliver the product in three months.”
– PM: “What?! Three months? But when he finds out the truth he will be mad!”
Director: “Don’t worry about that. I have a plan. We’ill proceed by breaking the news to him gradually!”
– PM (after a very long pause): “And you’re counting on him not noticing the difference between a three-month project and a nine-month project?”
On a more serious note, we encounter lies in the world of project management on almost a daily basis. Customers hide their actual budgets, while project managers, as one of my colleagues eloquently put it, “think of a random number, double it, then just in case double it again”. Lying in negotiations is a frequent phenomenon; we assume that it is easier to inflate the project budget estimate or requirements to obtain the resources.
Alternatively, we are sometimes pressured into decreasing our forecast in order to please our clients or superiors. We justify this behaviour by convincing ourselves that everyone lies during negotiations and that by being honest we put ourselves at a distinct disadvantage. This could be true in the short term; e.g. we can obtain a bit of a breathing room by inflating our forecast.
What we forget under the pressure is that, in the long term, our reputations as reliable professionals and our relationships with customers suffer. It takes months, sometimes years to establish yourself as a trustworthy counterpart and to build a trusting relationship with your stakeholders, but if, for whatever reason, you are caught in a lie, the trust and the bond disappear in a flash.
Therefore, it is very important for anyone involved in projects to consider the long-term impacts on your reputation of lying.
Don’t Dismiss Anything as Their Problem
When managing projects in general and negotiating in particular, we are all acutely aware of our own interests, constraints and risks. We know the chances of finishing the project on time and on budget and how many people we need to accomplish a critical task. Unfortunately, in many cases, we are not very interested in understanding the customer’s issues and problems.
A “my plate is full as it is and I don’t have time to care about the customer’s interests” attitude is prevalent among many project management professionals I have known. As one of my colleagues put it, “I am in charge of nine knowledge areas spread over five project phases with all the inputs, outputs, tools and techniques. And you really expect me to analyze a customer’s hidden worries and concerns?”
I was once told about a very interesting conversation that took place between the project manager (PM) and a Senior Vice President of Sales (SVP) who were both working on a first-person shooter video game.
SVP: “Listen a decision was made to move up a deadline for the ‘Operation Alpha’ project. We need it finished by the beginning of June”
PM: “Well, this could be a bit difficult since we were projecting an October completion for the Christmas season”
SVP: “Listen, the decision to move the deadline comes directly from the top. We don’t have any flexibility on that”
PM: “OK, let me try to understand the situation. What caused, if I may ask, the shift in the release date?”
SVP: “Well, that’s the point, we are not shifting the official release date; it is still in October. But there is an exhibition on the West Coast that we need to be prepared for. The CEO wants to showcase this product at this trade fair.
PM: “I understand. Why don’t we do the following: we can’t finish the entire product by June, but we can provide you with one working level of the game? We were just putting the finishing touches on the “Jungle Battle” section. It is one of the action-filled parts of the game. What do you think?”
SVP: “You know what? This may actually work!”
Let’s analyse what happened in this example. The vice president dropped very unpleasant news on the project manager. What options did a project manager have in this situation?
• Reject the VP’s request outright
• Ask for more money
• Ask for more people
• Threaten that the quality of the product would suffer
• Make a false promise and work his team to death …
What the project manager did, however, is tried to understand the real problems the vice president had. The key issue, as it turned out, was that the CEO wanted to demonstrate a functioning product at the exhibition; however, the question of whether it should be a full game or just a part of it has never been discussed. Only the project manager with his technical expertise could propose that alternative.
What If They Are Irrational?
As one of my students at BCIT once exclaimed after the section on project negotiations was complete, “Yeah, this is all great and whatnot, but some of my customers are really crazy! I have difficulty talking to them, let alone negotiating! How would this theory apply in those situations?”
“Crazy” or difficult customers are a curse of every project manager. The interactions between the project managers and the clients, especially during the initiation and planning stages should be frequent and fairly vigorous events. Defining scope, understanding their problems, fidgeting with the budget, schedule and constrained resources; all of these activities are fairly challenging even with co-operating and friendly stakeholders. If, however, the customers and your own management are being unreasonable and are not willing to weigh different options by sitting down with the project manager, the experience can become a nightmare.
So, what are the reasons behind such unreasonable behaviour? One of the key motives behind such an attitude is the fact that most of the stakeholders are probably uninformed about the possibilities the negotiations open for them. Unfortunately, the only alternative for the project manager is to educate the customer about the negotiation process, typically by leading by example. The section below, “Targeting Different Corners” of this article will provide the reader with several hands-on approaches that should help in addressing this problem.
Also, your counterparts may not have sufficient authority to address the issues you are trying to raise in a discussion with them. While the project manager is sitting with the customer trying a number of various approaches, the stakeholder is rejecting one proposal after another because he has not been provided with enough decision-making power, but is unwilling to admit to that.
I have personally witnessed the following situation on numerous occasions: the president mentioned a project idea to one of his vice presidents, the VP chatted briefly with the director of department X and the director summoned the project manager to his office to discuss the project. The project manager starts asking a lot of questions trying to probe for potential opportunities or “degrees of freedom” on the project, but he is told, in no uncertain terms that the project parameters are not subject to negotiation. This happens because the director does not have enough information or authority to make relevant decisions, but he is, for whatever reasons, reluctant to direct the project manager to communicate with the CEO of the company face-to-face.
Negotiations In The Real World: Where Do You Start?
Targeting Different Corners
The concept of a project management pentagon (see Exhibit 3) has already been covered extensively in article “Top Ten Things You (Probably) Didn’t Know About Estimation”; however, since this theory is used extensively in project-related negotiations, I would like to revisit it once more.
The idea behind the pentagon is that every project has five potentially flexible dimensions: scope, quality, time, effort and budget. In this model scope and quality are positively correlated with time, effort and budget. In other words, the more features and/or more quality the customer wishes to see in the final product, the more money and people should be working on the project for a longer time.
What are the options available to the project manager during the negotiations? The project management pentagon can be used as a “cheat sheet “when discussing various options available. Here is what I do with it: I walk to the whiteboard and draw the pentagon with scope, time, budget, effort and quality at the top of each corner, and then I suggest that we “attack” each one of the five corners to see if we can work out an agreeable and fair approach to the project in question.
Let us look at another example that involved the author of this article. The project was a government-mandated regulatory project at a large international bank. Like most of the regulatory projects, it had very few degrees of freedom available: rigidly defined scope, no flexibility on quality, and a strict deadline. To make matters even worse, the IT department of the bank told us in no uncertain terms that our team is limited to five people and even if the Risk Management department was willing to shell out some money (which they most definitely weren’t) for outsourcing, we were not allowed to do that because of the confidentiality laws.
There was however one little nuance to the story. The essence of the project was to provide the government agency with a series of electronic reports with approximately 500 fields in total. We were provided with a list of the required fields but there was a problem – the names of the fields did not always correspond to the names in our database. To make matters even worse, some of the fields required complicated calculations and manipulations.
As a result, the following conversation took place between the project manager (PM) and the senior vice president of risk management (SVP):
PM: “This project could be a bit of a challenge for us. The deadline, scope and quality are fixed and not subject to negotiations with the government. We are not able to get additional internal resources and can’t outsource.”
SVP: “So, what other options do we have? Looks like we have exhausted all of the corners of your project management pentagon …”
PM: “There is one possibility still. You know how the fields in the government document do not correspond directly to the field names in our database?”
SVP: “Yes, I have been informed about that by my people.”
PM: “Here is how we can save some time. Our IT guys are not financial experts; they know all of the fields in the database but they can’t easily map them to the ones mentioned in the government’s documents. No doubt, they can use phones and e-mail to uncover all of the details, but that would take a lot of time. Would you be able to assign a couple of your senior financial experts to help us out with the mapping process? I think we can easily shave a couple of months off the project duration.”
SVP: “Yes, I can see how this could be a problem for the developers. I think, I can assign a couple of my senior managers to help you out.”
Present Multiple Offers
A good project manager can take negotiation methodology one step further and really impress your management and clients. Let’s assume that you have been given a project that should take approximately nine months to deliver according to your team’s objective estimates. Your boss, of course, expects you to deliver the project in seven months. After engaging your management and other project stakeholders in a fact-finding discussion, you can prepare a list of possible scenarios that may look something like that (see Exhibit 5):
Why is it a good idea to put several offers on the table? Firstly, it demonstrates professionalism; the stakeholders would definitely appreciate that the project manager listened to their concerns and constraints and prepared not one, but several potentially acceptable options for them. Secondly, it opens three (in this particular example) instead of one, possible doors to successful project completion.
Negotiation is not only an active selling of your position but also focusing on the other side’s interests, needs, priorities, constraints and perspectives.
When negotiating on your projects use investigative techniques and questions in order to understand the position of your counterpart as much as possible. Once you understand their situation, try to invent the options for mutual gain, so that both parties can benefit from the agreement.
Insist on using objective criteria for topics of discussion by relying on objective standards, historical data and previous experience.
Never lie during project negotiations as a little tactical “gain” will almost always lead to a strategic loss of trust and damage the relationship with the other party. Also, do not dismiss your counterpart’s issues as “their problem” since sometimes you may be in a possession of a very cheap solution for their very expensive problem.
Understand that people tend to be irrational in negotiations for a reason; typically it is lack of proper negotiations-related training or lack of decision-making authority. A good project manager educates his customer between projects, when waters are calm, rather than during active negotiations.
Finally, use the project management pentagon to your full advantage. Ask questions targeting each one of the five corners and new doors will start to open. In addition, remember that It is always better to present the customers with several potentially acceptable offers rather than just one.
About Guest Contributor
Jamal Moustafaev, MBA, PMP – president and founder of Thinktank Consulting, is an internationally acclaimed expert in the areas of project/portfolio management, scope definition, requirements analysis, process improvement and corporate training. He has done work for private-sector companies and government organizations in Canada and the US.
Mr. Moustafaev is an author of the book titled “Delivering Exceptional Project Results: A Practical Guide to Project Selection, Scoping, Estimation and Management”. The article you are about to read is actually Chapter 5 of the book.
In addition to teaching a highly acclaimed “Project Management Essentials” course at British Columbia Institute of Technology, Jamal also offers the following corporate seminars through his company:
> “Practical Portfolio Management – Selecting & Managing The Right Projects”
> “Successful Hands-On Management of IT and Software Projects”
> “Successful Hands-On Management of Modern-Day Projects”
> “From Waterfall to Agile – Practical Requirements Engineering”
Mr. Moustafaev holds a PMP certification, an MBA in Finance (Derivative Securities) and a BBA (Finance and Management Science) from Simon Fraser University.
For further information, please contact:
Jamal Moustafaev BBA, MBA, PMP
President and CEO
Thinktank Consulting Inc.
Phone – 1-778-995-4396
E-mail – [email protected]
Website – www.thinktankconsulting.ca