Conflict, Bargaining, and Negotiation in Project Management

Exploring Core Concepts of Thomas Schelling’s Classic within the Context of Project Management.

Conflict pressures, and stakeholder misalignment are everyday challenges in project environments. To manage them effectively, project managers must understand the dynamics of conflict, bargaining, and negotiation.

This review draws on key concepts from game theory and negotiation literature to support better decision-making in project settings. Here we review:

1. Thomas Schelling and Strategic Moves

2. Conflicts as Bargaining in Variable-sum Games

3. Deterrence

4. Rational Irrationality

5. Bargaining

6. Negotiations

7. Credibility of Strategic Moves in Project Environments

8. Question then Becomes

I first revisit the core concepts of strategic moves and their critical components: commitments, threats, promises, and credibility from the reviews we did of the Art of Strategy by Dixit and Nalebuff (Part 1 and Part 2) (1).

Then I explore how these principles apply to project environments, and delve into broader idea of conflict deterrence, and limiting rationality, first formalized by Thomas Schelling in his seminal book The Strategy of Conflict that dates back to 1960 (2).

The significance of Schelling’s work lies in how it lays the foundation for a strategic approach to conflict, bargaining, and negotiation. Despite the seemingly cold-blooded title of his book, Schelling clarifies that the theory is not about the efficient application of violence. It is not fundamentally a theory of aggression, resistance, or war. Rather, it is a theory of interdependent decisions and nonuse of violence and the conditioning of one’s behavior based on the behavior of others.

We then review another seminal work, Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher, William Ury, and Bruce Patton, to discuss core concepts such as the Best Alternative to a Negotiated Agreement (BATNA) and its critical role in negotiation strategy (3).

As Schelling points out, the strategy of conflict applies across many areas of daily life. Whether dealing with children, navigating right-of-way in traffic, or interacting with friends and partners, most of our social behavior involves elements of conflict, bargaining, and negotiation.

Thomas Schelling and Strategic Moves

Schelling was a pioneer in exploring the idea of not merely playing the game but changing the game through strategic moves.

As discussed in the first and second parts of the review of the Art of Strategy by Dixit and Nalebuff, strategic moves involve actively shaping the game itself to influence outcomes and the behavior of others. These moves can be categorized into three core types: commitments, threats, and promises.

Strategic moves consist of two critical components: the move itself and the course of action that establishes its credibility. The effectiveness of any strategic move hinges on both the action and the credibility behind it.

Commitments are unconditional actions that restrict one’s own choices to compel a response. They are powerful tools that can bind opponents to a specific course of action. However, undermining an opponent’s commitment—if done strategically—can open pathways for de-escalation and negotiation.

Hernán Cortés famously "burned his ships" during the 1519 conquest of the Aztec Empire. While the historical accuracy of this account is debated, it serves as a powerful metaphor for total commitment—eliminating the option of retreat. On the flip side, as Sun Tzu noted, undermining an opponent’s commitment may require offering them—if not a literal one—a golden bridge to retreat across.

In contrast, threats and promises are conditional moves with distinct dynamics. Threats aim to deter undesirable actions by imposing negative consequences. They are typically open-ended and often seek to preserve the status quo. Promises, on the other hand, incentivize desired actions through rewards and are usually intended to disrupt or improve the status quo.

Conflicts as Bargaining in Variable-sum Games

Schelling starts his book by establishing that pure conflict—where interests are entirely opposed—is an exceptional case. It arises only in scenarios of total destruction, a rarity even in warfare. More often, conflict involves a complex interplay of competing interests, where success is not defined by absolute victory over an adversary but by achieving favorable outcomes within one’s own value system.

In this context, "winning" means securing gains that align with one's goals and priorities rather than defeating the opponent outright. This can occur through bargaining, compromise, or by avoiding mutually destructive actions altogether.

Conflict management, therefore, is not solely about overpowering an opponent but about skillfully navigating the potential for conflict. Strategies such as deterrence, limited engagement, and negotiation highlight the importance of mutual dependence and shared interests. Whether in warfare, business negotiations, or labor strikes, the objective is often to find solutions that prevent costly and damaging confrontations.

Most conflict situations resemble bargaining scenarios more than zero-sum contests. Unlike constant-sum games, where one party’s gain equates to another’s loss, many conflicts are variable-sum games in which mutually beneficial outcomes are possible.

This perspective underscores the importance of understanding the other party’s motivations and decisions, as success often hinges on finding common ground rather than imposing unilateral solutions.

For example, a successful labor strike is not necessarily one that devastates the employer; it may be one that is never happened. As Sun Tzu stated, "The greatest victory is that which requires no battle."

Deterrence

Framing conflict as an essential type of bargaining, the concept of Deterrence then hinges on the credible threat of force, not its actual use.

It is the art of persuading an adversary that certain actions will incur unacceptable costs, not just to the adversary but to those making the threat too. For this to work, the threat must be believable, which depends on the perceived willingness and capability of the deterring party to follow through.

A key distinction lies between using force and exploiting its potential. Effective deterrence demands more than military strength, it requires strategic communication, psychological insight, and an understanding of the adversary’s calculus.

Deterrence operates where conflict and common interest coexist. It fails in cases of complete alignment or irreconcilable hostility. This dynamic applies not just to adversaries but also to allies, consider how nations deter partners from defecting on agreements, much like a state might deter an enemy.

Deterrence becomes critical in settings where no higher authority exists to enforce rules. Ancient feuds and modern criminal networks illustrate this dynamic: gangs rely on threats—not courts—to uphold agreements. Often limited conflict, retaliation, and fragile truces emerge as substitutes for formal enforcement among nations.

Rational Irrationality

Rationality, as a guiding principle in decision-making, often implies logical consistency, optimization of outcomes, and alignment with defined objectives. However, in conflict scenarios, this notion of rationality is not universally advantageous.

A purely rational actor is predictable, calculable, and sometimes exploitable. This creates a paradox: in certain strategic interactions, it may be advantageous to *limit* one’s own rationality.

Strategic interactions often reveal that strict adherence to rational decision-making can be a disadvantage. In certain contexts, especially where unpredictability or deterrence is required, the appearance of irrationality can be a valuable asset.

Rationality encompasses not only cognitive processes but also the systems, structures, and agents through which decisions are enacted. These include technological tools, communication channels, legal frameworks, and even the rationality of one’s collaborators. From a strategic standpoint, disrupting or limiting these rational components may be beneficial. For example, impairing communication systems or legally constraining access to resources may serve as deliberate tactics to counter external coercion or exploitation.

Bargaining

Most real-world conflicts resemble variable-sum games where mutual gains are possible. Yet, achieving favorable outcomes is not only a matter of efficiency but also of distributional strategy—determining who gains more from the agreement.

The conventional wisdom that effective negotiators should have full authority and flexibility to make concessions is misleading. Often, the power of a negotiator lies precisely in their apparent inability to yield or compromise. A negotiator who can credibly claim to lack authority to make concessions possesses a strategic advantage. By limiting their own flexibility, they force the other party to adjust its position.

Schelling’s insights into commitment strategies highlight how deliberately restricting one’s options may enhance bargaining power.

For commitments to be effective, they must be credible, visible, and costly to break. The mechanisms that enforce these commitments range from formal contracts and technological solutions to cultural norms and reputational stakes. In certain contexts, verbal oaths or public statements may suffice; in others, formalized agreements or technological tools are required to ensure credibility. The effectiveness of these commitments often hinges on institutional enforcement or social expectations that render renegotiation prohibitively costly.

The strategic use of commitments also involves timing and communication. In scenarios where commitments are made sequentially, the first mover often holds a decisive advantage by setting terms that subsequent actors must either accept or challenge under constrained conditions.

However, when communication is delayed or obstructed, as in negotiations conducted through indirect channels, parties with limited receptiveness to counteroffers may inadvertently strengthen their bargaining position. By appearing or genuinely being unable to reconsider their stance, they create an impression of unyielding resolve.

Ultimately, Schelling posits that the paradox of bargaining power lies in the deliberate cultivation of weakness. By surrendering certain options or reducing one’s flexibility, a negotiator can alter the expectations and strategies of their opponent. This counterintuitive principle applies across a wide spectrum of bargaining scenarios, from labor disputes and business negotiations to geopolitical standoffs.

Negotiations

The concept of BATNA—Best Alternative To a Negotiated Agreement—was developed by Roger Fisher and William Ury in their book Getting to Yes: Negotiating Agreement Without Giving In.

Negotiations are seldom balanced; differences in power—whether financial resources, political connections, or organizational influence—can significantly impact outcomes. While no negotiation method can guarantee success against a stronger opponent, strategic preparation can greatly enhance your position. The core strategy here is your BATNA.

A common error is to rely on a rigid "bottom line"—a fixed threshold beyond which an offer will not be accepted. While bottom lines can protect negotiators from poor deals, they also severely limit flexibility. Such rigidity prevents negotiators from identifying innovative solutions that better address underlying interests.

In contrast, clearly defining your BATNA enables more strategic and dynamic negotiation. A BATNA represents your most favorable option if negotiations fail. Instead of setting a rigid boundary, you measure proposed agreements against this best alternative. This approach safeguards against overly optimistic or pessimistic expectations about potential outcomes.

To illustrate, consider a family selling their home. Rather than simply stating a minimum acceptable price, they should explore their BATNA: Would renting the property or delaying the sale be preferable to accepting a lower offer? Identifying and clearly understanding their BATNA empowers them to evaluate offers effectively and avoid agreements that are detrimental to their interests.

Effectively using BATNA requires intentional development through three critical steps:

1. Identify Alternatives: Generate a comprehensive list of possible actions if negotiation fails.

2. Improve Feasibility: Refine the most promising alternatives into actionable, realistic options.

3. Select the Best Alternative: Choose the strongest alternative to serve as your benchmark during negotiations.

A robust BATNA strengthens your negotiating power. Consider job interviews: entering negotiations with multiple job offers significantly shifts the power dynamic in your favor compared to having none.

The strategic disclosure of your BATNA should be carefully evaluated. Revealing a strong BATNA can enhance your leverage; however, disclosing a weak BATNA can weaken your negotiating position. Similarly, understanding the other party's BATNA provides crucial insight. If their alternative is overly optimistic, helping them assess it more realistically can create opportunities for mutually beneficial agreements.

The BATNA framework is essential in project management contexts. Leaders who rigorously analyze and strengthen their BATNA position their teams effectively, mitigating vulnerabilities during negotiations and optimizing outcomes. Whether negotiating contracts, partnerships, or internal resource allocation, clearly defining and continuously improving your BATNA is a cornerstone of strategic negotiation.

Credibility of Strategic Moves in Project Environments

Dixit and Nalebuff classified the approaches to establishing credibility for strategic moves into four categories of tactics:

1. Changing Payoffs: Restructuring the game to make compliance more attractive or deviation prohibitively costly.

2. Restricting Choices: Limiting options to reverse commitments, effectively creating credible threats or promises.

3. Incremental Moves: Using repeated, smaller engagements to build trust incrementally.

4. Using Agents and Teams: Employing external entities or teams to enhance credibility and accountability.

Among these tactics, restricting choices through automated systems, contractual terms, or similar measures is the most readily available and practical option for project managers. In contrast, tactics such as employing third-party arbitrators or auditors (agents and teams), significantly changing payoff structures, or incorporating incremental moves usually require higher levels of arrangements than of the daily plans of project managers, making them less immediately accessible.

Projects, by definition, are temporary endeavors aimed at achieving specific, unique outcomes within clearly defined timeframes and resources. Unlike ongoing business operations, project settings often lack the luxury of repeated interactions between the same stakeholders, fundamentally altering how credibility and trust are established.

While reputation within the project-based industry is critical—given the interconnected nature of project stakeholders and the limited pool of clients, contractors, and consultants—the traditional tactic of incremental moves, which relies heavily on repeated engagements to foster trust, is typically less accessible.

Nonetheless, contracting strategies such as progressive contracting are essentially aiming to bridge this gap. Progressive contracting involves dividing the overall scope into sequential phases or milestones, each with clearly defined deliverables and decision points. At each stage, parties assess performance and decide whether and how to proceed.

Question then Becomes

As this review has shown, managing conflict in project environments requires more than interpersonal skills. It demands a strategic mindset rooted in an understanding of bargaining, credibility, and negotiation dynamics.

Drawing from Schelling’s work on strategic moves and deterrence, and complemented by Fisher and Ury’s practical insights on BATNA, we see that conflicts in projects are rarely zero-sum. They more often resemble variable-sum games, where value can be created or lost depending on how threats, promises, and commitments are made and enforced.

Yet applying these principles in real project settings raises important questions. For instance: How can project managers strategically limit their own flexibility to strengthen their bargaining position without also giving in to the paradox of bargaining power and appearing weak?

In what ways and to what extent does the absence of a central enforcement authority manifest in multi-stakeholder megaprojects, particularly between contractors? Does the presence of a client always serve as an effective arbiter, or are there conditions where deterrence becomes necessary?

Notes

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Refer to this article using the following citation format:

• Zangeneh, P. (2025), “Conflict, Bargaining, and Negotiation in Project Management - Exploring Core Concepts and Thomas Schelling’s Insights in Project Management Context.” EPM Research Letters.

This article is a reading material for the “Strategy in Projects: Game Theoretic Approach” course at the University of Calgary, Department of Civil Engineering.

References

• Dixit, A. K., & Nalebuff, B. J. (2008). The art of strategy: A game theorist's guide to success in business and life. W. W. Norton & Company.

• Schelling, T. C. (1980). The strategy of conflict (2nd ed.). Harvard University Press. (Original work published 1960)

• Fisher, R., Ury, W., & Patton, B. (2011). Getting to yes: Negotiating agreement without giving in (3rd ed.). Penguin Books. (Original work published 1981)