ChapterFourteenNegotiationRisksandManagementIdentificationof

thesourcesofrisksAcommondefinitionoftheriskisthepossibilitythataneventwilloccurandadverselyaffecttheachievementofanobjectiveoradeviationfromanexpectedoutcome.Sorisksinvolvesinteractionwithuncertainty.Thenegotiationriskisdefinedasthepossibilitythatnegotiatorsareunabletorealizetheirobjectivesfullyorpartlyduetotheuncertaintyoccurredintheprocessofnegotiationandintheimplementationphases.CommonriskidentificationmethodsObjectives-basedriskScenario-basedriskidentificationTaxonomy-basedriskidentificationCommon-riskcheckingRiskchartingII.ExternalrisksThisbookchoosesthosewhichhavehighcorrelationwithnegotiationsandputsthemintofourcategoriesaspoliticalrisks,marketrisks,socialandculturalrisksandenvironmentalrisks.1.Politicalriskpoliticalriskreferstothecomplicationsbusinessesandgovernmentsmayfaceasaresultofwhatarecommonlyreferredtoaspoliticaldecisions—or“anypoliticalchangethatalterstheexpectedoutcomeandvalueofagiveneconomicactionbychangingtheprobabilityofachievingbusinessobjectives”Therearebothmacro-andmicro-levelpoliticalrisksMacro-andmicro-levelpoliticalrisksMacro-levelpoliticalrisklooksatnon-projectspecificrisks.Macropoliticalrisksaffectallparticipantsinagivencountry.Micro-levelrisksfocusonsector,firm,orprojectspecificrisk.Anexaminationofthesetypesofpoliticalrisksmightlookathowthelocalpoliticalclimateinagivenregionmayaffectabusinessendeavor.2.MarketriskMarketriskisthepossibilityofaninvestorexperiencinglossesduetofactorsthataffecttheoverallperformanceofthefinancialmarketsinwhichheorsheisinvolved.Themostcommonlyusedtypesofmarketriskare:InterestrateriskEquityriskCurrencyrisk,Commodityrisk3.Socialand

culturalrisksSocialandculturalfactorsarethoseissuesthatrelatetophysicalandattitudinalchangesinpopulations.Onemostprominentfeatureofsocialandculturalfactorsisitsdiversity.Onceagaintheseprovideopportunitiesaswellasthreatsorrisksfornegotiators.ThisChaptercategorizestheriskstemmingfromdifferencesfromsocial-culturalfactorsasthefollowing:ValuesCulturalsymbolsProfessionalculture4.EnvironmentalriskTheenvironmentaluncertaintyissuesnotonlyincludethosenaturaldisastersstemfromclimatechanges,weatherandgeographicallocationsbutalsothewayofdoingbusinessenvironmentfriendly.Naturaldisasters:AnaturaldisasterisamajoradverseeventresultingfromnaturalprocessesoftheEarthEconomicenvironment:allbusinessareaffectedbytheeconomy--locally,nationallyandinternationally.III.InternalrisksInternalrisksrefertothoserisksspecificallyoccurringintheprocessofthenegotiationandhavedirectimpactsontheresultofthenegotiation.1.InformationasymmetryOnesinglemostimportantsourceofrisksfornegotiatorsisinformationasymmetry,whichdealswiththestudyofdecisionsintransactionswhereonepartyhasmoreorbetterinformationthantheother.Typicalexamplesofinformationasymmetryareadverseselectionandmoralhazard.AdverseselectionandMoralhazardAdverseselectionrefersgenerallytoasituationwheresellershaveinformationthatbuyersdonothave,orviceversa,aboutsomeaspectofproductqualityMoralhazardAdverseselectionisrelatedtotheconceptofmoralhazard.Inmoralhazardtheignorantpartylacksinformationaboutperformanceoftheagreed-upontransactionorlackstheabilitytoretaliateforabreachoftheagreement.2.FraudTheworstcaseofinformationasymmetrymayoccurwhenonepartyintentionallycheattheotherpartyinthenegotiation.Inlaw,fraudisdeliberatedeceptiontosecureunfairorunlawfulgain,ortodepriveavictimofalegalright.Thecostoffraudisveryhigh.Thetypicalorganizationlosesfivepercentofitsannualrevenuetofraud,withamedianlossof$160,000Case:OnesteelplantinUkraine3.Failureofnegotiatorstoimplementtheagreementsuchacaseoftenhappensthatonepartymaynotbetrustworthy,whichisthattheretypicallyareincentivesfornegotiatingpartythatenterintocoordinationagreementstonotbeabletoimplementtheagreement.Thereasonsforthatmaybebecauseofinsufficientfunding,orchangeoftheideasofthemanagementorsimplycheattheotherparty.Forwhatevermotivation,considerFigure14.1Figure14.1:HypotheticalProfitLevelsforTwoPartieswithand

withoutActionCoordinationPartyBPartyBDoesNotCoordinateCoordinates

PartyADoesnotCoordinate

PartyACoordinates

PartyA’sProfit=75PartyA’sProfit=150PartyB’sprofit=75PartyB’sProfit=25Totalprofit=150TotalProfit=175PartyA’sProfit=25PartyA’sprofit=100PartyB’sprofit=150PartyB’sprofit=100Totalprofit=175Totalprofit=2004.TheotherpartynotbetrustworthyMistrustcanbeasourceofriskandcausenegotiationstofail.Oneimportantreasongivingrisetomistrustisthatsomenegotiatorsareonlyobsessedwithusingtricksandcynicalploystothrowothersofftrackwhennegotiating,Outrightliesanddeceptionstofoolyou,powerplaystointimidateyou,andsurprisemovestoconfuseyouUnscrupulousnegotiatorshaveawidevarietyofmanipulativetacticsattheirdisposal--fromlyingandverballyabusingtheirnegotiationcounterparttousingvariousformsofpressuretomakeyoufeeluncomfortableNegotiators’personalitiesChapternineexplainsthatpeople’spersonalitiesarediversifiedandpeople’spersonalityprofileismulti-sidedAsaresultofculturalvariety,negotiators’personalitiesbecomeanunpredictablefactorforthenegotiationeg.DonaldTrump,the45thPresidentoftheUnitedStateshasbeendescribedbyAmericanmediaascapriciousandmanyofhispublicstatementswerecontroversialorfalse.CommunicationBarriersTheterm“communication”istheactofconveyingmeaningsfromoneentityorgrouptoanotherthroughtheuseofmutuallyunderstoodsignsandsemioticrules.“mutuallyunderstood”shouldbehighlightedbecauseincrossculturalnegotiations,inmanycasesitisveryhardtosharethemeaningofthesamewordeg.CharlesWaldheim,theformalSecretaryGeneraloftheUnitedNationsManagingrisksRiskmanagement

istheidentification,evaluation,andprioritizationof

risksandeconomicalapplicationofresourcestominimize,monitor,andcontroltheprobabilityorimpactofunfortunateevents

ortomaximizetherealizationofopportunities.Riskmanagement’sobjectiveistoassure

uncertainty

doesnotdeflecttheendeavorfromthebusinessgoalsStrategiestomanagerisksoruncertaintieswithnegativeconsequencestypicallyinclude:1.Riskavoidance:Thesimplestwaytoavoidrisksisnottoperformanactivitythatcouldcarryrisk.2.Riskreduction:Riskreductioninvolvesreducingtheseverityofthelossorthelikelihoodofthelossfromoccurring.3.Risksharing:Risksharingisbrieflydefinedas“sharingwithanotherpartytheburdenoflos