Best Alternative to a Negotiated Agreement (BATNA)

What Is a Best Alternative to a Negotiated Agreement (BATNA)?

A best alternative to a negotiated agreement (BATNA) is a course of action that a party engaged in negotiations has determined should be taken if talks fail and no agreement can be reached.

Negotiation researchers Roger Fisher and William Ury coined the term BATNA in their 1981 bestseller, "Getting to Yes: Negotiating Agreement Without Giving In."

A party's BATNA is the position it will fall back on if negotiation proves unsuccessful.

Understanding a Best Alternative to a Negotiated Agreement (BATNA)

Considering a BATNA can be useful to anyone in any situation that calls for negotiations, whether it's an employee seeking a raise or a company considering a merger. A party to negotiations cannot make an informed decision about whether to accept an agreement unless they first think through their alternatives. 

Importance of BATNA

Identifying your BATNA in advance gives you the option of walking away from a bad deal. For example, if you're negotiating a price for a new car and the dealer's final offer is unacceptable, what can you do? The obvious options are disappointing. You can take a deal you don't want or walk away empty-handed. Or, if you have identified your BAFTA, you can go to another dealer that you know has another make and model car that you like.

Your BAFTA gives you negotiating power, even if you don't reveal it during the negotiations. You know you don't have to take a bad deal.

ZOPA and BATNA

In a negotiation, the best alternative to a negotiated agreement, or BATNA, is the individual's determination of the action to be taken if no deal can be reached.

The zone of possible agreement, or ZONA, is the area of overlap among each party's BATNA.

To be really prepared for a negotiation, you don't just have to determine your own BATNA. You need to have a sense of the BATNA that each other party has settled upon. If there is any overlap among them, there is the possibility of an outcome that is satisfactory to all.

How to Identify Your BATNA

While a BATNA may not always be easy to identify, Harvard researchers have outlined several steps to help clarify the process:

1. List all alternatives if your current negotiation ends in an impasse.
2. Evaluate your alternatives based on the value of pursuing an alternative.
3. Select the alternative action(s) that would have the highest expected value for you.
4. After you have determined your BATNA in Step 3, calculate your reservation value or the lowest-valued deal you are willing to accept.

If the value of the deal proposed to you is lower than your reservation value, you should reject the offer and pursue your BATNA. However, if the final offer is higher than your reservation value, you should accept the offer.

A strong BATNA can also help a party understand that it has an appealing alternative to the deal and can walk away from a tempting offer.

Negotiation is more than determining a series of alternatives. Understanding the nuances of negotiation tactics can help improve professional relationships by resolving difficult disputes.

Understanding negotiation can also help you evaluate personal strengths and weaknesses in the face of conflict and learn to manage your bargaining tendencies.

Finally, studying the manipulative negotiation tactics employed by some skilled negotiators can help neutralize their effects.

BATNA Tips

In order to reach the best possible outcome, it is important to do as much preparation as possible before entering into negotiations. This means not only should you prepare a strong BATNA in advance, you should consider the BATNAs that may be available to the opposing party.

You must expect the other party to do the same–don't let the other side attempt to downplay your BATNA.

It is also possible to prepare multiple BATNAs, contrary to what the word "best" might imply. In fact, you should have as many as possible. The more BATNAs in your arsenal, the more cards you have to play at the negotiating table.

BATNA Traps

Even when you understand all the available options, it is possible to reach an unsatisfactory result. There are many possible pitfalls in a difficult negotiation, and it is important for negotiators to remain disciplined under pressure from the opposing party.

It is also important to understand the value of all the alternatives available. A negotiator who places too high a value on the other party's hand risks making big concessions for little benefit. A negotiator who undervalues the other party's hand can be too intractable to move.

Many negotiators become emotionally invested in a successful outcome, especially if they have already spent a lot of time at the bargaining table. This is the sunk cost fallacy. A skilled negotiator should always be ready to walk away.

Advantages and Disadvantages of BATNA

A strong BATNA can be a valuable card at the negotiating table, allowing parties to ground their positions on a factual basis rather than emotions. Strong BATNAs also ensure a backup plan, so that the organization will not be interrupted if the negotiations fail. It makes failure less likely; the stronger the BATNA, the more likely the opposing party is to seek a mutual agreement.

However, the BATNA process has its costs. Depending on how complicated the business at hand is, finding the best alternative can be a lengthy and expensive process in itself.

It is also not an infallible process, and negotiators run the risk of miscalculating their options or overlooking possibilities.

Example of a BATNA

For example, Company A makes a takeover offer of $20 million to Company B. But Company B's executives believe it is worth $30 million.

Company B quickly rejects the offer. However, Company B did not take into account the increasing competition in the industry and tighter regulations, which will restrict its growth in the coming year(s) and lower its valuation.

If Company B had taken time to incorporate these factors into the current valuation, and clearly moved through the four BATNA steps, including evaluating the alternative of staying the course in a difficult business environment, management might have been persuaded to accept.

Company B could have included these potential risks in their estimate of the reservation value–the worst possible outcome a negotiator is prepared to accept.

The Bottom Line

Deciding on your BATNA is a key part of the planning process for any negotiation. Any negotiation can fail to reach an agreement. If it does, what's your next step? Knowing your best alternative to a negotiated agreement reveals your option for an acceptable, if not an ideal, resolution.