Zone of Possible Agreement (ZOPA)

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Zone of possible agreement (ZOPA)

When negotiating, the parties must find the zone of possible agreement or the ZOPA. Finding this zone will not only help the parties identify a way to agree with one another, but it will also help frame the negotiation to ensure that it can be completed. When the parties can identify the ZOPA, they can work within that zone to create an agreement that both parties can get behind. However, it is also possible that a ZOPA is not a possibility given the outcomes that the parties are identifying, and it is important to learn early on that this is not a possibility. Ensuring that the parties can find a ZOPA will help the negotiation wrap up while realizing that there is not a ZOPA will help the parties end a negotiation quickly. This article will focus on defining and identifying a ZOPA to aid negotiators in this essential activity.

Defining ZOPA:

A zone of possible agreement, or a “ZOPA,” is the area of a negotiation in which the parties will likely agree. This zone is the overlapping place between the two parties’ predicted and expected outcomes. This section of a range of possible outcomes will be the common ground between the parties and will help the parties work toward the goal of reaching an agreement with cooperation and success. Several other terms should be defined in addition to ZOPA to help illustrate and expand on the idea of a possible agreement. These terms are:

BATNA: A BATNA, or best alternative to a negotiated agreement, is the best option that a party could take if the negotiation is not able to be reached. This is likely the plan that the party will carry out if there are not successful in negotiating with the other party. A BATNA should be considered when identifying a ZOPA because if the BATNA is better than what the ZOPA could produce, it may be best to avoid agreement rather than just agree.
WATNA: A WATNA, or worst alternative to a negotiated agreement, is the worst option that could happen if the parties are unable to agree. This will be what the parties are trying to avoid by working on the negotiation. If a negotiation falls apart, there is always a possibility that a WATNA may take place. Because of this, a WATNA should be considered when looking at the ZOPA to determine if adjusting a zone is necessary to avoid a WATNA.
Positive ZOPA: A positive ZOPA is a ZOPA that exists between the parties. It is when the parties’ ranges for agreement overlap that they can find some common ground between the two of them. In this situation, there is a range where the parties can agree and resolve the negotiation.
Negative ZOPA: A negative ZOPA is a ZOPA that does not exist, meaning that the ranges the parties are negotiating within do not overlap. This indicates that it is unlikely that the parties will be able to agree and there will likely be no agreement at the end of the day.

Understanding the ZOPA means that the parties will understand fairly quickly if there is a ZOPA to be found. Looking at the BATNA and WATNA can help inform revisions of a party’s range of agreement and adjust it depending on the possible outcomes outside of an agreement.

An Example of ZOPA:

To further illustrate the idea of a ZOPA, it can be helpful to examine an example of a negotiation and the ZOPA. For example, Bethany wants to buy a house. She has saved up for quite some time and knows that she would like to live in the suburbs with a yard for her dog, Domino. She searches long and hard until she finds Sebastian’s house. The house is perfect for Bethany, so she decides to put an offer in on the house. By some miracle, Bethany’s is the only offer on the house, so Sebastian decides to work with her. However, Sebastian feels that Bethany’s offer is a little lower than he would like, so he asks if she would be willing to negotiate. Bethany agrees, and the parties set off to find an agreement. Consider the following outcomes:

Example 1: Bethany would like to spend somewhere between $300,000 and $400,000 on the house. Sebastian would like to receive somewhere between $375,000 and $500,000. In this scenario, there is a positive ZOPA because their zones overlap from $375,000 and $400,000. Therefore, if they would like to find an agreement, it will be within that zone.
Example 2: Bethany would like to spend between $250,000 and $350,000 for her house, while Sebastian would like to receive at least $375,000. In this example, there is no place where these two zones overlap, so the parties cannot reach an agreement based solely on the ZOPA. This is a negative ZOPA because the parties do not overlap at any point.

Both of these examples are simplified versions of what a ZOPA looks like, as there will often be other interests that can add or decrease value for the parties, such as inspections and leaving furniture. Additionally, each party will have a BATNA and a WATNA, such as Bethany finding another house or Sebastian losing out on the sale of his home. These considerations will complicate the ZOPA in real-life situations, but it can be helpful to identify the ZOPA through a basic example.

How to Find a ZOPA:

Now that the ZOPA has been defined and explained, it is important to understand how to identify a ZOPA in negotiations. Finding a way to an agreement if it is the right course of action is a skill that can be practiced, and some tips can be used to help the parties find that overlap and possibly find an agreement when necessary. These tips include:

Limits: It is important to both understand one’s own limits as well as the other party’s limits. Doing so can help the parties identify a ZOPA and push the other party toward the limits of their agreement within the ZOPA. For example, if Bethany knows that Sebastian’s lowest acceptable offer is $375, she may place that at the top of her negotiation range and work toward that. Knowing the limits will help define the ZOPA and use it to an advantage.
Adaptable: A ZOPA is often adaptable given the situation that which the negotiation is taking place. One party may come into a negotiation without going low enough or high enough but may end up changing their zone to find that agreement. Alternatively, a party may shrink the ZOPA by reducing the terms that they find acceptable. Understanding that a ZOPA can change for any variety of situations will help the parties be adaptable with their offers and identify a possible outcome, even if it looks very different than what it started as.
Shaping: Knowing the position of the other negotiator and finding out as much about their hopeful outcomes can help a party shape the ZOPA. By starting low or high and adding value in other ways, a party may be able to shape the ZOPA from the outset. In some cases, this may be done through one party acting as if they have a better alternative than they do, which can pull the negotiations in their favor. Shaping can be effective in identifying the ZOPA that a party wants or needs.
Preparation: If the other tips have not fully illustrated that preparation is important, it can be highlighted here. Understanding one’s position and their opponent’s position can help a party be ready to identify the ZOPA early and easily and work within it. Finding the overlap before the negotiation can help the parties know their outcomes early. This includes identifying one’s BATNA and WATNA and a walk-away point and finding these for the other party as well. This can only be done through thorough consideration of the outcomes for both parties.
Surprises: Even with all the preparations and adaptability, it is still possible that a negotiator may be surprised by the negotiation when it starts. The negotiator for the other side may be abrasive and not willing to work toward an agreement, or they may be so willing to reach an agreement that they will surprise the other party with how much they are willing to give. Understanding that no two negotiations will be the same and even the best preparation may not end up with an agreement within the ZOPA that a party prepared for is key to finding the ZOPA. In some cases, the best ZOPA may be no ZOPA at all.

Identifying a ZOPA will help the parties find a way to agree that will make everyone happy to some degree. Negotiations will only be effective if the parties can find their ZOPA, so a key step in preparing for negotiation should be to prepare for a ZOPA. When the parties are working within the ZOPA, they will walk away with both what they want and what they need.

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