Negotiation can occur in a variety of circumstances, including negotiations for more than 2 parties. In the working place, we often have to face the interests of many parties so that our tasks can be accomplished. Here an example from my analysis about how to deal with the negotiation in a project that involved 3 parties. The example is based on my experience but I make some illustrations based on the other experience (friend’s).
I was work as a finance project control at a technology company, especially in Building Project Division. My responsibility is to monitor the project progress and keep the project on budget. I should make sure the project performance under the forecast timeline. My work always relates to other parties in the company, especially the project management and the board of directors. In 2017, I in charge of the technology building project, blower fan building installation at one of the state-owned corporations (BUMN). The project term was only for 45 days refer to the contract.
The project manager makes a forecast based on the contract and submits it to me. Then I start to make a budget plan and forecasting for the revenue and cost. When the project was running, the project manager met the problem with the progress timeline. He stated that the vendor has a problem with the material stock (blower), it would be a delay in delivery. We were running out of time due to the term of the project will be finished in a week.
I had concerns about my forecast revenue. The progress should be 70%, but the project manager had just submitted the billing progress to the client only 30%. The project itself would not complete in one week, so I worry there would be a penalty and our company should pay any cost for it. I start to make a discussion with the project manager about the problem. I ask him to make any progress claim and avoid the penalty.
Things to be negotiated and objectives
The project should be on the timeline because it will affect the financial company report and project performance itself. When there is a problem in the field, it would change the budgeting cost because the additional cost arises. I approach the project manager to push the client to accept the work progress by more than 30%. Let him knew challenging to make a budget revision because the project term will end soon. On the other hand, the project manager needs to make a term extension to complete the budget.
I will help him to the extent of the project term, keep the budget open and report to CFO about this problem. Then make sure it will not affect our financial performance in case the project manager could make the client accept the progress 70%. We have some concern, to make this project have an excellent financial and performance. We start to analyze what cause of the problem.
The negotiation approach and process
I discuss this with my CFO about this problem. She wants me to accrue a revenue of 70% for this project and did not to make any high decreasing profit. I approach the project manager and ask why this term of the project is short and material delay happens. The project manager said that the problem came from the contract itself. The term of the project is too short for this type of project. The project owner has not finalized the contract project and material specification. I ask the project manager to prove that the problem is not come from us and make any adjustments to the contract.
The project manager starts to push the vendor at first because the material is the vendor’s responsibility. The vendor said that they did not want to take any risk by a process the material or make it available in stock before the specification of the material is clear. The material specification just came out, so the vendor makes a material order at the time. The other problem is a delay in shipping because of the material purchase from Singapore and manufacture in Germany, which takes a long time to process.
The project manager approaches the project owner and explains the problem to make negotiation of the contract project extension. The owner can not make any change to the project term contract because all projects should be finished before the year-end. The project manager called me and make a negotiation with the finance division to approve the progress of only 30%. He needs to open an additional budget if there is any consequence of this problem. I tell the project manager that I still want to keep the project progress at 70% because the problem is not coming from our company.
Realized it will be hard to overcome this problem because it is related to many interests. It will bad for the company business if we can not maintain the relationship with the client and vendor. I try to approach the project manager to make any consideration to resolve this problem. Fortunately, he has another solution for this material delay. He asks the vendor to propose a substitute material with the same level specification with no difference in the material cost. He will recommend it to the project owner.
- The material listed in the contract is a blower motor with a capacity of 2650 CFM with a quantity of 2 units
- Replacement material is a blower motor with a capacity of 6000 CFM with a quantity of 1 unit
Here are the summary of this negotiation option :
The project manager negotiates with me to approve 50% progress because it will hard to make a project owner accept 70%. There will no project term extension or penalty. I agree with this 50% progress with consideration once the substitute material arrived the progress project will complete faster. So I can catch up on the percentage of delayed progress. The vendor will order the substitute material blower motor with a capacity of 6000 CFM with a quantity of 1 unit to replace the current requirement of a blower motor with a capacity of 2650 CFM with a quantity of 2 units. The project owner accepts this substitution with notes. The vendor needs to write a justification letter to state the material is equivalent and equipped with technical data and technical justification.