January 8, 2024

WHAT WE AGREE UPON - SETTLEMENT RANGES

It helps to periodically remind ourselves how settlement ranges are really determined.

For the purposes of this example please let me use the terms “Buyer” and “Seller.” However, the following example applies equally well to say, an IT manager negotiating with a manufacturing line manager, or one divisional manager negotiating with another divisional manager.

Let's define the settlement range as the difference between “the Buyer’s estimate of Seller’s minimum” and the “Seller’s estimate of the Buyer’s maximum.”

I know this sounds confusing. The important point is simply this: The settlement range is based on each person’s estimate of the situation, not the real situation itself. Estimates not only tend to be wrong, but can be altered as new information comes in.

One person has the ability to change the other person’s estimates. A Buyer can change the Seller’s estimate of the most the Buyer is willing to pay. A Seller can change the Buyer’s estimate of the least the Seller is willing to take.

This is why your negotiating strategy, every tactic and countermeasure you use in a negotiation, is so important. How you make a request, how much you ask for, how you concede, and where you draw the line are important. Each affects the other person’s estimates of what is possible and realistic, and changes the picture of settlement range that they have in their head. How you conduct your negotiation has an impact on the settlement range and ultimate outcome.

P.S. As an Alumnus of the Effective Negotiating program, you will receive a tip each month. We encourage you to set up a file and review the “Tips” frequently in preparation for your next negotiation. To stay current with Dr. Karrass’ “Tips,” please be sure to send us any change of your e-mail address.

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