Best Alternative To a Negotiated Agreement
What is BATNA?
BATNA is an acronym that stands for Best Alternative To a Negotiated Agreement. It is defined as the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made. In other words, a party’s BATNA is what a party’s alternative is if negotiations are unsuccessful. The term BATNA was originally used by Roger Fisher and William Ury in their 1981 book entitled “Getting to Yes: Negotiating Without Giving In.”
Importance of BATNA
BATNA is often used in negotiation tactics and should always be considered before a negotiation takes place. It is never wise to enter into a serious negotiation without knowing your BATNA. The value of knowing your best alternative to a negotiated agreement is that:
- It provides an alternative if negotiations fall through.
- It provides negotiating power.
- It determines your reservation point (the worst price you are willing to accept).
Illustration of BATNA
The following diagram illustrates each party’s best alternative to a negotiated agreement (seller and buyer):
Where:
- ZOPA stands for “Zone Of Potential Agreement.” It is the overlap between the seller’s and buyer’s settlement range.
- Seller’s settlement range is a biddable range acceptable to the seller.
- Buyer’s settlement range is a biddable range acceptable to the buyer.
- Buyer’s/Seller’s worst case is the reservation point of the respective parties.
If:
- Buyer offers a price that is lower than the seller’s worst case, then the seller is better off going with an alternative.
- Seller offers a price that is higher than the buyer’s worst case, then the buyer is better off going with an alternative.
Example of BATNA
Colin needs a car and is negotiating with Tom to purchase his car. Tom offers to sell his car to Colin for $10,000. Colin scours through Craigslist and finds a similar car to which he assigns a dollar value of $7,500. Colin’s BATNA is $7,500 – if Tom does not offer a price lower than $7,500, Colin will consider his best alternative to a negotiated agreement. Colin is willing to pay up to $7,500 for the car but would ideally want to pay $5,000 only. The relevant information is illustrated below:
In the diagram above, if Tom demands a price higher than $7,500, Colin will take his business elsewhere. In the example, we are not provided with Tom’s BATNA. If we assume that Tom can sell his car to someone else for $8,000, then $8,000 is Tom’s BATNA. In such a scenario, an agreement will not be made, as Tom is only willing to sell for a minimum of $8,000, while Colin is only willing to purchase at a maximum of $7,500.
If Tom’s best alternative to the deal is selling the car to a dealership, which would offer him $6,000, then both parties can come to an agreement because Tom’s reservation point would be $6,000. In the situation described, the diagram would look as follows:
In this case, there is a zone of potential agreement – $6,000 to $7,500. Somewhere within this range, the two parties should be able to come to an agreement.
Identifying Your BATNA
As illustrated in the example above, having a best alternative to a negotiated agreement before entering into negotiations is important. Had Colin not had a BATNA, Tom would have had more bargaining power. Knowing Colin’s BATNA is at $7,500, the highest price that Tom would be able to sell his car to Colin for is $7,500.
Here is a process developed by Harvard Law School to develop the best alternative to a negotiated agreement:
- List all alternatives to the current negotiation – what could you do if negotiations fall through?
- Evaluate the value of each alternative – how much is each alternative worth to me?
- Select the alternative that would provide the highest value to you (this is your best alternative to a negotiated agreement).
- After determining your BATNA, calculate the lowest-valued deal that you’re willing to accept.
Related Readings
Thank you for reading CFI’s guide on BATNA. To keep learning and advancing your career, the following resources will be helpful:
FAQs
BATNA is an acronym that stands for Best Alternative To a Negotiated Agreement. It is defined as the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made. In other words, a party's BATNA is what a party's alternative is if negotiations are unsuccessful.
What is a BATNA example? ›
An example of a BATNA being employed would be if a person could not come to a purchase deal at a particular car dealership and then went to another one in search of an acceptable deal. In this case, the person's BATNA was simply to buy the car from a different dealership.
What is the BATNA strategy? ›
BATNA is an acronym for Best Alternative to a Negotiated Agreement. This is a technique that helps us determine and secure the best alternatives in a negotiation, with the aim of being prepared to face any scenario and reach the most profitable agreement possible.
What is BATNA and ZOPA? ›
Negotiating a contract can be challenging, especially if you don't know your best alternative to a negotiated agreement (BATNA) and your zone of possible agreement (ZOPA). These two concepts can help you prepare for a successful negotiation and avoid settling for less than you deserve.
What is a BATNA for a job offer? ›
A BATNA, or best alternative to a negotiated agreement, can be a helpful part of any negotiation process for everyone involved. Determining your BATNA helps you understand what options are available to you if your negotiation doesn't work out and you cannot reach an agreement.
What is a BATNA in everyday life? ›
The tactic: Best Alternative to Negotiated Agreement
It helps avoid a total win-lose situation and shows the person you're negotiating with that you have a strong alternative, which can increase your leverage in a situation. You might use BATNA when comparing job offers with unfavorable conditions.
What are the BATNA rules? ›
If: Buyer offers a price that is lower than the seller's worst case, then the seller is better off going with an alternative. Seller offers a price that is higher than the buyer's worst case, then the buyer is better off going with an alternative.
What is an example of a ZOPA? ›
For example, if Fred wants to buy a used car for $5,000 or less, and Mary wants to sell one for $4,500, those two have a ZOPA. But if Mary will not go below $7,000 and Fred will not go above $5,000, they do not have a zone of possible agreement.
Is your BATNA your bottom line? ›
A BATNA is not the negotiation's “bottom line” – a BATNA is something you may wish to do if an acceptable “bottom line” cannot be achieved during the negotiations.
How to identify your BATNA? ›
The first step to determining a BATNA is to list all the possible courses of action that will be available if the negotiations fail. Next, evaluate the value of each alternative. Third, determine which ones are most attractive.
Don't Reveal Your BATNA Too Early.
Even if you're certain your BATNA is rock solid, hold off on revealing it. It could prove to be a useful bargaining chip during the final stages of a negotiation after you've exhausted all other strategies.
Can we negotiate without having a BATNA? ›
Be willing to look past the traditional, and instead, be open to new ideas from the other party to come up with a mutually beneficial solution. Negotiating without a BATNA can leave you in a less advantageous position than you would like.
What is the BATNA for recruiters? ›
In recruitment negotiations, the BATNA (Best Alternative to a Negotiated Agreement) concept is utilized to establish leverage and determine the threshold for accepting or rejecting offers. Recruiters assess candidates' BATNAs by considering their alternatives, such as competing job offers or current employment status.
How do you identify your BATNA? ›
Fisher and Ury outline a simple process for determining your BATNA: develop a list of actions you might conceivably take if no agreement is reached; improve some of the more promising ideas and convert them into practical options; and. select, tentatively, the one option that seems best.
How do you calculate BATNA in negotiation? ›
To calculate your BATNA, you need to identify and compare all your possible alternatives to the current negotiation. You can use a simple formula: BATNA = Value of the best alternative - Cost of switching to the best alternative.
How to find BATNA and watna? ›
The other option for determining a BATNA and a WATNA is a results/costs analysis. This formula will take the initial result that would happen from an alternative a party could take, subtract the costs of pursuing that option, and then see the result of this outcome as the final outcome of that alternative.
What is an example of a Zopa? ›
Understanding a Zone of Possible Agreement (ZOPA)
For example, in order for Tom to sell his car to John for a minimum $5,000, John must be willing to pay at least $5,000. If John is willing to offer $5,500 for the car, then there is an overlap between his and Tom's bottom lines.
