ZOPA, BATNA, what? The acronyms of negotiation.
BATNA
The first step in any negotiation is to identify what happens if you do not do a deal i.e., your BATNA or best alternative to a negotiated agreement. This is the course of action you will pursue if the negotiation fails which in our context usually means continuing with the litigation to trial. Without knowing your BATNA you won’t know when to accept a final offer and when to walk away to continue with the case.
Your BATNA assessment means identifying the costs of taking the case forwards and the range of likely outcomes at trial. You try to select the most likely outcome and what this means to you in financial terms. This is your BATNA.
So you will need, in that context, to understand all the advantages, disadvantages, costs and likely outcomes associated with a trial. Properly understanding those means you can then work out what settlement terms might be attractive and which are not.
Analysing your BATNA can be done in a number of ways. There is a trend towards statistical analysis and decision trees (a simple example of this process is here) but be careful when using these. It is easy to confuse the impression of rationality and science with actual rationality and science. In litigation nothing is truly certain or predictable. But once you have worked out your BATNA you should have a feel for where your bottom line is (i.e., where you think things will end up at trial).
Once you have worked out your BATNA you need to work out your opponents’ BATNA. It is not necessarily the same as yours! They may have different assessments of risk and outcomes. They may have other priorities.
Let me provide an example. The no-frills airlines used to pay for the orange juice they used to sell to customers on flights. They worked hard to pay as little as possible. But then a BATNA analysis of the producer’s position showed that the supply of juice was a golden marketing opportunity for minor or foreign orange juice producers to tap into a new market. The producers knew this already and when the airlines tested them, the producers were eventually willing to supply the juice for free. The airlines got to this wonderful position by properly analysing the counter-parties’ alternatives: their BATNA. The airlines asked themselves what the producers would do if they did not supply the juice and discovered the producers would have to pay to advertise to tap into the new market and this would be more expensive than supplying the juice for free.
Now litigation is not exactly the same, but the example shows that if you only focus on your BATNA you miss out on a very valuable perspective. You have to try and work out your opponent’s bottom line if you want to push them towards it.
ZOPA
The ZOPA is your zone of possible agreement.
The ZOPA is the area in between the respective BATNA’s or bottom lines. So if a claimant has a claim for £1m and thinks if it goes to trial it will most likely make a net recovery of £450k (having regard to the chance of losing, costs etc) and the defendant’s analysis is that at trial it will most likely make a net loss of £600k (having regard to it assessment of losing, costs etc) then the ZOPA is between £450k (C’s bottom line) and £600k (D’s bottom line). The skill of the negotiator for each side is to capture the maximum value within that zone. The job of the mediator is to try to create the overlap and then help the parties reach the same spot within it.