1 Resource Allocation and Negotiation Problems

2 Resource allocation models

3 Variables are areas to which resources might be directed –e.g. products, projects, regions or departments A package is a combination of strategies –containing one strategy for each variable

4 Stages in building a resource allocation model 1.Identify variables, resources to be directed and objectives 2. Identify possible strategies available for each variable 3.For each variable assess costs and benefits of each strategy (continued...

5 Stages in building a resource allocation model (contd) 4. Assess within-criterion weights so that each benefit can be measured on a common scale 5. Assess across-criteria weights to compare ‘importance’ of different benefits 6. Propose a package that appears to achieve objectives (continued...

6 Stages in building a resource allocation model (contd) 7. Use a computer to identify costs and benefits of all packages and the efficient frontier 8. Use the computer to find if there are more efficient packages than the proposed package 9. Perform sensitivity analysis

7 English Furniture Company RegionNo. of outlets Comments North 930% of national sales here, but economically depressed West 3Stiff competition East 2Potential growth area South 14Planning restrictions on new outlets

8 Planning strategy for next 5 years Variables = 4 regions Resource to be assigned = money Objectives: 1. Sustain profitability in short term (PROFIT) 2. Increase market share (MKT SHARE) 3. Minimize risk (RISK)

9 Identifying strategies for each region

10 Costs and benefits of strategies in individual regions

11 Comparison of East & West’s scales for market share

12 Within-criterion weights: Profit

13 Within-criterion weights: Market share

14 Within-criterion weights: Risk

15 Value of strategies with benefits measured on common scale

16 Across-criteria weights

17 Identifying the efficient frontier

18 Investigating costs and benefits in the West region

19 Investigating costs and benefits in the East region

20 Investigating costs and benefits in the South region

21 Negotiation models

22 Characteristics of negotiation problems No. of parties: two or more than two? Monolithic or non-monolithic parties? No. of issues: one or more than one? Time constraints? Final agreement binding? Third party intervention possible?

23 We consider negotiations involving -two parties -several issues Objective: To find deals which are beneficial to both parties

24 Illustrative problem Management v. Union negotiations Union demand: * 15% pay rise * 3 extra days’ holiday per year * reinstatement of workers sacked after breach of regulations

25 Efficient frontier If a deal is on the efficient frontier any improvement for one party can only be achieved at the expense of the other party This is known as Pareto optimality

26 Values and weights for pay rise

27 Values and weights for holidays

28 Values and weights for reinstatement

29 Value of tentative deal to management and union

30 Identifying the efficient frontier

31 Reported advantages of applying decision analysis to negotiations Creative attitude in negotiations Negotiators could prepare in advance and anticipate position of other party Clearer understanding of problem and increased flexibility Improved communication within negotiation team