Introduction
An integrative negotiation strategy is a negotiation method where both parties settle on level ground. This method focuses on creating a mutual agreement between the disputing parties to see all of them benefit from the deal. Integrative bargaining is vital as it produces effective results where everyone’s views are addressed. The case of Connecticut Valley Schools is an example of a situation that requires trustee involvement to determine the most efficient projects to implement in the school. This paper provides an integrative negotiation strategy to arrive at the school’s final decision on project implementation.
Integrative Negotiation Strategy
To begin with, each project must be evaluated to determine Net Profitability Index (NPV). The NPV is essential in determining the project’s future value to be implemented (Schill, 2020). A positive NPV implies a higher profit value of the project, while a negative NPV means the project will not be profitable in the future. It is important to note that each project’s discount rate in this case study is 12%.
The first project, in this case, is the swimming pool with an initial cost of $640,000, while renting the pool is $60,000 per year. The Payment per year costs $10, 000 and the rent received will be $30,000. The savings on swimming pool project therefore is 60,000-10,000+30,000 = 80000. The swimming pool is expected to be valuable for 15 years; therefore, the NPV of this project is $41,086. Next is the bus project having an initial investment of 270,000, and the cost of the buses is 180,000. The bus project has additional expenses of 80,000, implying that the yearly savings on the bus project will be $180,000-$80,000 =$100,000. The NPV of the bus project, therefore, is $141,140. The other project is the new roof hockey rink project with an initial investment of $60,000. This project has no cash inflows and therefore has a negative NPV value.
The wood chip heating system requires an initial amount of $800,000 with a lifespan of 15 years. The average savings on this project is 140000+160000 / 2 =300000 / 2 =150000. The NPV of this project is $221,630, which is a positive value and looks more profitable when implemented. The next project is the renovation of the fine arts building, which has an initial investment of $300,000. The renovation of the building does not have a cash inflow, and therefore the project will have a negative NPV value. Next is the renovation of the women’s locker room which has an initial $40,000. This project, too, will generate no additional cash inflows and hence negative NPV value. The final project is upgrading computer labs, which will cost an amount of $120,000. This project has an additional investment of less than $160,000 and hence negative NPV value.
Conclusion
In conclusion, the only projects with positive NPV values are the swimming pool, bus, and wood chip heating system projects from the above discussion. The other remaining projects can not generate the cash inflows for the school and, therefore, cannot be prioritized. The wood chip heating system project has the highest NPV value of the three selected projects; consequently, it looks more profitable to implement. This negotiation strategy is based on the long-term goals of the school operations. The school should work to pay for the heating system project first with 5% interest which would make $420,000 a year. The swimming pool project should be implemented through a 3-year installment plan at an interest rate of 7% to generate $114,133 yearly. The remaining projects would total $235,000, making the total expenditure $403,133 and leaving a balance of $96,000 for savings in case of any emergencies.
Reference
Schill, M. J. (2020). The profitability index. SSRN Electronic Journal, 1, 23-56. Web.