Case Study: Valuing resources to be able to negotiate correctly

This case was one of my favorites of all time. People who know me know that I LOVE cost accounting. Like, adore it. I think it explains everything. I had no idea that cost accounting even existed until I went to business school, and that first day in my first cost accounting class was like the sun coming out from behind a cloud. And this case was all about cost accounting.

The client is a lawyer in solo practice. She needed to negotiate terms and finances with someone she was considering a business relationship with. Since she’s a lawyer, negotiation is right in her wheelhouse, but she was stuck because she didn’t know how to determine the value of the things she was negotiating. So she didn’t even know her BATNA* let alone which outcome to negotiate toward. She thought there wasn’t a way to determine the value of some of the aspects of the relationship.

Now, I think that it’s possible to assign a financial value to almost everything, and it’s DEFINITELY possible to assign a financial value to everything involved in a business relationship. (I wouldn’t want to have to do the calculations, necessarily, but I know that it’s possible.) So I came up with a way to determine the value of every aspect of this relationship, and listed it for the client line by line, so she just had to fill in the numbers. (Note that I have no idea what those numbers are and our consulting relationship didn’t require that I know them to tell her how to calculate them.)

Then, once she had actual numbers, I told her several different ways she could use those numbers to determine bottom line values based on different possible scenarios for the relationship. Cost pools! So much fun. And I explained how I would look at which possible option to privilege based on risk and the likelihood that certain of the numbers going into the calculations would change or stay stable. We also talked a little bit about economies of scale and how the utilization rate is key so you can’t assume a linear change, so tracking that was important going ahead.

The client got back to me and was VERY happy, because now she was a professional negotiator going into a negotiation knowing exactly what everything was worth so she could make excellent decisions. Who doesn’t love that?

(I also have to say that she was my dream client because she’s really good at what she does, and her problem was simply something she didn’t have experience with, but when I explained how to do it she totally got it and loved the way it all fits together.)

 

* Best Alternative To Negotiated Agreement. It’s what happens if you can’t make a deal in a negotiation. You have to know what your BATNA is before you start negotiating, so you know if you can walk away if you can’t make the deal you want. Read Getting To Yes by Fisher and Ury to see how this works.

 

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