What is your risk-taking style when negotiating?
“The biggest risk is not taking any risk... In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
There are two risk-taking styles on the continuum:
- Proactive - or high-risk behaviour. This style of negotiator normally is assertive in most of their actions based on their planning around the risks and rewards in the negotiation. They tend to be daring and decisive in their approach to reaching agreements.
- Reactive - or low-risk behaviour. This style of negotiator is looking for certainty in every detail. They have a real need to be accurate in all decisions - even small ones, such as where to meet for the negotiation.
It is important to know your basic style, as it has a great impact on your willingness to take risks during a negotiation. But, regardless of your personal style, you will move along the continuum and back again during a negotiation. Knowing where you are on the continuum at any given time in the negotiation will influence your preparedness to take risks.
Knowing your strengths in the risk-taking area allows you to compensate for any personal limitations. For example, if you know that you are a low risk-taker and struggle with every negotiation, tackle the problem head-on.
Use a planning sheet - it is your best friend. Follow it closely, and as long as the other side proposed an agreement that fits your various options, be prepared to say 'yes' and live with your decision.
Once you do reach an agreement in a negotiation, it is natural to feel that you could have hung out for a better agreement. Don't dwell on the issue of what you could have got. Make the one you have got work. The issues that you have decided upon in the bargaining phase become valuable when you do have to take risks in the final agreement. Each issue will have a value ranking for you and the other side. You will have to be alert to decide the relative value that the other side places on each of the main issues.
Let's consider a home owner, hoping to make a sale to you. Assume you have placed a high value on paying the lowest market price for the property. Being in no hurry to move in, you have also placed a low value on settlement date.
During the bargaining phase (where you skilfully use probing questions) you find out that the other side has placed a very high value on the settlement date, as they are moving interstate.
Here's the ace up your sleeve.
Their risk is moving interstate without a sale, in fact this is more important to them than price. The importance of the different values placed on the different issues allows you, as a negotiator, to effectively develop options to reach a mutually satisfying agreement.
This demonstrates clearly the need for you not to give early concessions in the negotiation on any issue. There are lots of seasoned negotiators out there who believe that an early concession (of no value to you) simply stimulates the other side to behave in a similar way. The problem is, you don't know what is of true value in the negotiation until you find out what the main issues are; this may not be totally evident until the agreement phase. You can bet the other side will be guarding their interests carefully. The best outcome for you would be to have a concession that is highly valued by the other side, but is of low value to you. That way you have a good chance of reaching an agreement without you having to take any major risks.
What if you go outside the issues on your planning sheet and take a risk on a point of questionable value?
You'll be creating a lot of stress for yourself. Don't do it. You won't be happy with the outcome. Stick to the plan. I can guarantee, from years of experience, that if you operate within the options you have established in your planning sheet, that :
- Any risks that you do take have been carefully considered.
- Any decision is one where you and the other side are happy to continue doing business, which builds strong relationships and trust.
It can all be a bit scary in the beginning, but once you have developed the courage to take risks in your negotiations, you will find that you will learn and grow through each experience. You might be interested to know that a recent Carnegie Foundation, USA, study report showed that one of the major indicators of sound mental health is a person's ability and willingness to take risks.
Calculated risk-taking allows you to reach agreements that both you and the other side can live with. More importantly, it lays the foundations for working toward future agreements. For more information on managing risk in negotiations download our eBook: Managing Risk in Negotiations.