How Simulation is Used for Negotiation

Published: 2021-06-17 09:35:30
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Negotiations occur at all levels ranging from interactions among friends to events of worldwide importance. Managers and administrative personnel are involved in negotiating on individual or organizational level. Rubin and Brown (1975) list five characteristics indicative of negotiation. The characteristics are listed below;

Every negotiation involves at least two parties.
A conflict exists over one or more issues. The importance of the various issues will differ among the parties. The conflicts are ones that must be faced, although some parties risk not being well be liked.
Negotiation is a voluntary relationship. The gain the parties stand to make is greater than in the situation of not negotiating. Their common interests have brought the parties together.
Each party is partially dependent on the other for the outcome.
Negotiating is a sequential activity.

A successful negotiation means everyone wins hence, it is very difficult to reach on an effective negotiation. Integrity, trust and openness can help lead to adequate results. Negotiators use various techniques to base their negotiations. Some use their past limited past experiences while some use competitive techniques to prove themselves. They often use exploitative methods to attain power. Experienced negotiators use number of strategies to reach to a feasible solution but some of them are proved to be better than others.Effective negotiation skills are very important in some fields such as business, military and diplomacy. To become an effective negotiator requires field knowledge typically gained from classrooms along with significant practical experience in the area. In this journal we are going to employ classroom knowledge and practical acquaintance that we learned in class.
In this course we learnt about how simulation is used for negotiation. It is a flexible method that we can use to analyze the behavior of a present or proposed business activity, new product, manufacturing line or plant expansion. We can perform simulations and analyze the results to gain an understanding of how a system operates, how effective it is to achieve the organizational goals and what would happen if we change certain aspects of the simulation process. It deals with uncertainty that is involved with new system or change in existing systems.
In a simulation, we perform experiments on a real-life scenario. Simulation can be done using physical or computer models. A computer model uses a mathematical model of the real system. In such a model we use variables to represent key numerical measures of the inputs and outputs of the system, and we use formulas, programming statements, or other means to express mathematical relationships between the inputs and outputs. When the simulation deals with uncertainty, the model will include uncertain variables — whose values are not under our control — as well as decision variables or parameters that we can control. The uncertain variables are represented by random number generators that return sample values from a representative distribution of possible values for each uncertain element in each experimental trial or replication of the model. A simulation run includes many hundreds or thousands of trials. We are using physical methods of simulation in this journal to obtain optimal results of negotiations.
Architectural Firm Profit
The first negotiation simulation we will talk about in this journal is Architectural firm case. The objective of this negotiation is to design a house with two other people from your company. Among the three people, you are the finishing experts, and other two are structural and land experts respectively. The negotiation involves building a house based on specific customer requirements and on a budgeted amount. During the negotiation, you must involve other members of the firm to come up with a feasible plan and serve your own interests at the same time. The challenge is to provide all the features required to the buyer within the client’s budget. Moreover, it is in our interest to include the features that will provide maximum profit. Hence, we should involve features that will raise us maximum profit, provide the required features and stay within client’s budget as well.
In this case, we have used a physical model to achieve simulation results. We made five groups of people and each group had three members with different social and cultural backgrounds. Each group came up with different set of features corresponding to customer requirements hence achieved different profits in a particular amount of time. As a result, we identified that groups that took larger amount of time to come up to a set of feature they are going to incorporated in their architectural design were able to achieve better profits. The profits ranged from $62000 to $ 72000 hence showing that an optimal decision can significantly raise our profits. If we evaluate the individual profits of the three experts, we can see that land experts were not able to significantly raise his/her profit mainly because the requirements are somewhat same of every customer in this regard. Whereas the finishing experts had a variable profit in every case. We can also see that different social and cultural background of three experts did not affect the decision made by them together.
We can evaluate that negotiation was successful in respect that time taken to take decision do affect the profit but using that time ineffectively will not make any difference such that group 5 made higher profit than group 4 although the took the same amount of time. As the simulation is done physically we were able to achieve only five possible set of outcomes and hence the one with maximum profit should be exercised. Although we can make a few changes in how the simulation works to achieve better results such that taking the test in different countries in different working environments. We can see if computer model of this case is possible as the number of trials increase, and we can get more accurate results. We can add more variables and get more results so that we have variety of options available to select from. However, the existing results are worthwhile because the general purpose of this negotiation has been attained.
New Recruit Case
The other negotiation exercise is done between a job recruiter and a job candidate. Suppose you are a job candidate and you have to negotiate over eight aspects of a job including salary, bonus, job assignment, vacation time, staring date, moving expense coverage, location and insurance coverage. There are five alternatives of each issue with points corresponding to them. The objective of this negotiation is to prepare the most attractive job attractive job agreement, that is, one with highest score on candidate point sheet.
As the exercise involves a number of job features with five alternative, we can end up with a large number of trials hence we are using computer model in Excel. We used the following rules for data entry in excel; To identify each group and negotiator we have provided several columns (B, D, and E), the case offers the opportunity to deliver an “urgent message” to the participants. This message communicates a BATNA of either 4500 or 2200 points. Please enter the BATNA (4500, 2200, or 0) for each participant in the appropriate column (Column C for the candidate and column F for the recruiter), enter the negotiated outcomes in columns G – N using the formatting illustrated in the theoretical examples depicted on worksheet 3 (Data Entry and Outcomes). The gross individual and joint gains are calculated in columns O – Q (these do not incorporate the BATNA of either party). The net gains (the gains above the BATNA) are reported in columns S – U.
As a result, we were able to achieve several outcome including a compromising, pareto efficient, winning and losing situation results. Total candidate points are maximum for candidate and minimum for recruiter in winning situation and vice versa in losing situation. There are eight other outcomes for different recruiters and candidates and their total candidate points range from -4800 to +13200. This excel model has made the negotiation flexible and easy. The candidate can hence come up to an optimal job agreement in minimum amount of time and can weigh up the cost and benefit of each job aspect quantitatively.
We can further improve the quality of our negotiation exercise by adding more aspects of a job such as working conditions, fringe benefits and other qualitative measures. It gives us a chance to convert the qualitative facets of a job in terms of quantity to obtain more objective and straightforward results that can make the negotiation more helpful. Moreover, we can add more candidates and recruiter to get more results. We can further analyze the results to implement features that are most important for all candidates and reward them with the most important one in their view when appraisals are done. Therefore, it can be evaluated that simulation provides us quantitative results that help us to think and make decision qualitatively.
Coffee Contract Negotiation
The third negotiation exercise is named Coffee Contract at Statler Hotel based in Cornell University campus having the advantage of operating inside a renowned school of hotel administration. You are planning to add hotel’s routine purchases to University’s dining menu and remain cost-effective at the same time. One item that cannot be purchased as part of Cornell’s dining bidding process is coffee and the Statler’s Hotel with is three dining establishments and in-rooms coffee machines uses more coffee than the whole campus combined, and a good coffee defines the overall quality of services in the organization hence reputation is at stake. We are currently using LaRoche that sells at a fair price but recently the supplier blamed the crop destruction to raise its prices which the hotel refused to pay and threatened legal action to enforce the contract. Although we extended the contract but the Anderson’s coffee is supposed to be liked more as it showed in the blind taste test but it is more expensive and considering the overall consumption of coffee can significantly raise costs, but the cost may falls if we increase the quantity we buy. Moreover, buying Anderson’s will have to be followed by substantial cost cutting and expenses scrutinization. However, it can certainly increase customer base and impress the managers. Although Anderson offers a superior product, LaRoche satisfies your needs and fairly cheap. The objective of this negotiation is to obtain an excellent deal in this situation as it is directly related to our job security.
This simulation is done between buyers and sellers of coffee and the results consists of eight different outcomes ranging from $ 5.69/lb to $7.94/lb, winning and losing situation respectively.
We should clearly reject the worst possible outcome and weigh up the costs and benefits associated with other conclusions. Time is a factor here such that larger time helped to incorporated other coffee related services within this price. The lowest price outcome failed to incorporate any additional feature whereas other outcomes involves attractive other settlements at slightly higher price.
This negotiation exercise is very effective, but it fails to give us one optimal outcome. One option might be more attractive than the other for people with different tastes and preferences. The hotel will find it very difficult to implement the results as the implementation might not be like by a few people. The negotiation would have been better if few settlement options were available and they would have been in terms of quantity or simply cots.
Eazer’s Garage Case
Eazer’s Garage also uses negotiation exercise to solve its issue with a customer. Here, Jim Eazer owns a gas station and Litchfields are his old and faithful customers, but a recent event led to conflict between them and the lawyers got involved too. The estimate given by Jim’s mechanic was lower than the actual time and cost that took to repair Litchfield’s automobile. The customer being unhappy filed a lawsuit and when the standard manual was used to recalculate the cost it was greater than what was charged by the mechanic. Francis Litchfield refused to pay the bill and drove the car away without informing. Jim was eager to file a criminal complaint, but the lawyers suggested otherwise. The objective of this negotiation is to keep Dr. Litchfield and her family as customers, but you cannot afford to establish a precedent of customers stealing their cars and not paying their bills. Even though you have not been as close to the Litchfields since Frances’ uncle died, you would still prefer to maintain the relationship—especially with Frances’ father, a contemporary. Your reputation in this small town is also important, but that cuts both ways in this negotiation.
Again, the negotiation took place between Jim and Francis and the roles were played by eight different people. As Francis failed to pay the cost according to Jim’s estimate and standard manual’s estimate hence these are losing situation and the settlements have to be lesser than that. Only one simulation outcome was above the refusal amount and others can be weighed up for cost and benefits. Other terms include various attractive options that have to be provided by Jim’s mechanics in order to lead to a successful negotiation.
The negotiation is successful as soon as it fulfills the overall objective discussed above. In this case, the negotiation might be in favor of Francis although he failed to perform his duties of a respectful customer. The terms identified by Jim in settlement do not have any specific monetary value that makes it difficult to reach on to the best possible outcome. Assigning them monetary value will make the options more valuable to the customer and negotiation can be more successful.
Conclusion
Negotiation exercises are widely used these days to get a better understanding of different scenario that involve important decision making. Rather than judging negotiating success through a narrow lens of just one or two possible outcomes, it’s important to broaden the evaluation to see just how many positive results were achieved. This is achieved through simulation techniques.
There are several ways to see if negotiations were successful. Firstly we see if all disputes were settled. People frequently surmise that if there were four issues on the arranging table, and every one of the four were settled, at that point they have made progress. That is not really precise. It’s imperative to recognize settling all issues and something that is harder to accomplish – a commonly advantageous settlement. Secondly, we see if all issues were settles to the mutual benefit of everyone involved in the negotiation. Another approach to consider accomplishment in transaction is to look at if all issues were settled to the common advantage of all, which isn’t as simple to accomplish. Does everybody like the manner in which things were settled? Provided that this is true, it was a win. Thirdly we see if the underlying core conflict was resolved. Long-running debate can rot and make an assortment of side effects. Regularly, the manifestations of a debate are settled without the fundamental center clash being settled. Except if the center clash is arranged, it will erupt once more. Moreover, we see if the parties learned to communicate better with each. One approach to assess achievement in arrangement is whether any learning has occurred. For instance, an arrangement can be viewed as fruitful if the two sides figured out how to convey more obviously or turn out to be better at settling clashes. Another measure is if the two sides can maintain a strategic distance from future intervention. Lastly, we identify if the number of unresolved issues was reduced. Even in the event that you don’t go to a concession to each theme up for transaction, if the quantity of issues left uncertain is diminished, it can be thought about advance. Fathoming five out of seven issues is a major pick up. Succesful negotiation tends to narrow the differences between the involves parties. Perhaps a full assertion between the gatherings was not accomplished through transaction but rather the two sides are no longer as far separated in their positions. Narrowing that hole considers genuine advance, particularly on key issues. As a result, the parties gain valued. Often, achievement is characterized as “getting something back”.
We can evaluate that our negotiation exercises were able to give us optimal results and meanwhile we also get our hands on how simulation is used to practically deal with certain situations that can come up in new and existing business environment. Being an active negotiator is a favourable aspect of a manager’s job in any organization as they have to deal with such cases frequently.

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