Budget Negotiation Techniques
Personal or professional, handling finances is never an easy task. Luckily, as with any other challenge, dividing it into little pieces and tackling them one by one makes it just a bit easier. Here’s how.
To create something, you first need the raw materials. In the case of budgeting, the material is information. And if you’ve ever been put in the position to gather information, you might have used the 5Ws method: finding out who, what, when, where, and why. Without straying, this also applies to building a budget. An important thing to remember, however, is that there are two sides to every budget proposal: the one who advances it, and the one who approves it. Always ask both of them the 5Ws.
Simply put, the purpose of a budget is to offer stability, by laying down a plan that contains all financial elements, alongside various possible scenarios. By making estimations and generating forecasts, businesses set themselves up for less pressure when it comes to making decisions, and more wiggle room in the case of unexpected situations. Not only this, but a well-prepared budget is also a great tool in monitoring efficiency.
The importance of a budget is best exemplified by a phrase which is assigned to Benjamin Franklin – “If you fail to plan, you are planning to fail.” Basically, don’t even think about achieving success without a detailed agenda and an outline of necessary actions to get there. And if we talk company-wise, financial plans are in the very top priorities. Budgeting can make the difference between making it or breaking it.
Preparing a budget is no piece of cake, but it shouldn’t be a Herculean task either. Broadly speaking, what it all comes down to is breaking down expenses, estimating, researching, forecasting, adjusting, and then researching some more. A number of solid steps in preparing a budget can turn this activity from a strenuous process into an engaging exercise.
Once everything has been laid out, the main budget components that are worth negotiating will stand out. There are two aspects to keep in mind here: a. you’ll have two negotiation “opponents” – one is the management, the other is represented by suppliers; and b. in budgeting (just as in every other aspect of life), you have to choose your battles. Identify and prioritize which are the costs that have the most impact and are worth fighting over.
There are numerous negotiation tactics that one can employ during a negotiation situation. There are hard-bargaining ones and soft approaches, straightforward or manipulative ones, competitive or collaborative. You can even use silence as a negotiation tactic. You can learn from others, you can choose what works best for you, or you can develop your own methods from scratch.
Here are three of these methods, hand-picked for you.
1. Present – Justify – Follow up
This is probably the most obvious of tactics and how a budget negotiation should naturally go. There’s no hard-bargaining here, no manipulation, no beating around the bush. Whether you’re prepping for a meeting with the management or with a supplier, these three steps are the basic plan you need to follow.
First of all, you should have at hand a snapshot of the entire proposal. Knowing your budget plan means you can deliver it as easily as an elevator pitch. Secondly, every expense must be logistically accurate and legitimate. Think of the 5Ws. Your audience should understand what is needed (e.g. product, service), who needs it, when, where, and why. In addition, throwing in some comparisons with previous years expenses, or how a product or service has increased or depreciated in value over time, will help certify you as someone who knows what they’re talking about. Finally, you should always create a follow-up plan, before sending everyone on their way.
2. Focus on the benefits
Trying to get approval from management on expenses can sometimes get discouraging. While you’re seeing all the possible improvements in the workplace environment and atmosphere, all they’re seeing is numbers. If that’s the case, then build your entire discourse around those benefits and show them a perspective focussed on the advantages a certain service or product brings, instead of its price.
If you still cannot escape the number plot, take the lead and show those figures that show said improvements. For example, in the case of YArooms, instead of sharing pricing plans, illustrate the amount of time and money this type of room booking system saves by streamlining the process of room and meeting management.
When it comes to expenses, what you get at a certain cost is important. If you’re trying to get approval on a budget scheme that you know is going to raise a few eyebrows, maybe try and sweeten the deal by bundling several items together. Of course, it is advisable to put in all the efforts to highlight the benefits of each and every element, but you have to be prepared for an audience that doesn’t have the time or is unwilling to go over each of them. If you’re bound to give a bird’s-eye view of the financial proposal, make it irresistible.
In the same manner, when dealing with vendors, a good way to negotiate is to convince them to throw in extra elements, units, features. If you can’t alter the price, you might as well take a chance in modifying what exactly you’re buying for that amount. Don’t forget, they need the sale as much as you do (maybe more).
Last, but not least, when going into any negotiation, regardless of its type, always remember to take your BATNA with you. BATNA (Best Alternative To A Negotiated Agreement) is your backup plan – what are you willing to do or accept in case all negotiation fails and there’s no agreement.
At first sight, budgeting seems to be a big, scary monster. But there’s nothing that cannot be solved with a step-by-step solid plan, tackling each individual task. As Julius Caesar used to say: “divide et impera”.