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Business Agreements

Zone of Possible Agreement

October 14, 2011 by admin in Business Agreements with 0 Comments
A zone of possible agreement or ZOPA is represented by an area which is created by the consent of two parties and validated through negotiation. It is this area that is found acceptable and indisputable by both as far as a business transaction is concerned. The negotiation may give unto a wide spectrum of outcomes that are eventually sorted out and finalized by the parties jointly. This area is also referred to as “common ground”. It is the most desirable place which the parties decide through mutual understanding and compromise to a large extent. Thus the ZOPA rests largely on the following premise:

  • It necessitates working towards a common goal by understanding each other’s motto and policies well while enhancing the professional bond between parties.
  • It serves to press the parties to make them incorporate each other’s strategies in their work methods and seek a respectable position in the enterprise.
  • It is conditional on the compromises on part of the parties that make them responsible and considerate and accomplish their jobs dutifully without raising unreasonable arguments.

The buzzword in ZOPA is negotiation which is a prerequisite for the success of any entrepreneurial venture where two or more parties are involved. The US law makes it clear that no agreement would be possible outside the periphery of this intellectual zone discreetly carved out from a face-to-face meeting of the parties. The document should clearly postulate the proponent’s as well as the prospect’s views regarding the matter and then clearly outline the area which overlaps the two spaces consisting of the parties’  propositions. It may happen that none of the parties agree with each other and make an outright rejection of the propositions. It is then when the parties need to be vocal about their demands and talk it out. In that situation, the document must hold the propositions and the contradictions placed by each party in a balanced way.

The process usually starts with setting the maximum amount acceptable by the prospect and then slowly bargaining on the quoted amount until it reaches a mutually agreeable level. This is the seller’s reservation price where the line is finally drawn. Similarly, the buyer too sets his reservation price which is the minimum acceptable price and then bargains on to reach the final “walk away” price. In this way the range of expectations revolve around the walk away price for a possible or for a definite deal.

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