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Resource Allocation

and

Negotiation Problems

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Resource allocation models

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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

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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...

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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...

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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

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English Furniture Company

Region No. of outlets

Comments

North 9 30% of national sales here, but economically depressed

West 3 Stiff competition

East 2 Potential growth area

South 14 Planning restrictions on new outlets

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• 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)

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Identifying strategies for each region

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Costs and benefits of strategies in individual regions

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Comparison of East & West’s scales for market share

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Within-criterion weights: Profit

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Within-criterion weights: Market share

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Within-criterion weights: Risk

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Value of strategies with benefits measured on common scale

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Across-criteria weights

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Identifying the efficient frontier

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Investigating costs and benefits in the West region

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Investigating costs and benefits in the East region

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Investigating costs and benefits in the South region

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Negotiation models

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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?

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• We consider negotiations involving

-two parties

-several issues

Objective: To find deals which are beneficial

to both parties

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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

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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

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Values and weights for pay rise

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Values and weights for holidays

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Values and weights for reinstatement

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Value of tentative deal to management and union

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Identifying the efficient frontier

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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