Abstract for: A System Dynamics Exploration of Agency Theory Interpretations of ERP Acquisition Methods in DOD

Implementing ERP is difficult. We examined three Department of Defense ERP programs: one a success, one delivering value many years late, and one a total failure. Misaligned incentives between stakeholders especially sponsor organization and system integrator, failure to accommodate rework in the master project plan, choosing the right contract terms, lack of in-house technical expertise, control of sponsor over project execution were some of the aspects which emerged to be important during the case study analysis. We used System Dynamics to model Agency Theory concepts to help in evaluating the alternative project governance structures of Lead System Integrator v/s In-House project management. We consider factors such as the sponsor’s ability to adjust the customization component estimations, effects of incentives to expand scope through change orders, and the credibility of the contractor-staff working on the project. This paper sets an outline for importance of governance models and delving deeper onto the process of selecting a contract model and setting incentives which help align the goals of the contractor to those of the sponsor organization.