Containing Transaction Costs in ERP Implementation through Identification of Strategic Learning Projects

Implementation of enterprise resource planning (ERP) systems requires in-depth understanding of the idiosyncrasies of the receiving organization, thus implying specific learning costs. ERP projects delivered in form of contracted projects in a competitive market environment often ignore costs for competitive reasons (Linderoth & Lundqvist, 2004). However, these learning costs add to the overall transaction costs of a project. If not budgeted into the individual projects, these costs accumulate at the project portfolio level of project delivery organizations (sellers) and must be managed adequately. One way of minimizing learning costs at the portfolio level is to identify strategic learning projects, which accrue higher than planned (competitive) costs, but lower the costs of future projects and thereby the overall learning costs at the portfolio level. The present study investigated the practices of dealing with costs of learning projects at a Swedish ERP consultancy over a period of six months. The results show how to lower portfolio-level project costs in the long-term through identification of strategic learning projects, with expected budget overruns in the short-term. The study takes a transaction-costs-economic (TCE) perspective. A model shows the impact of short-term learning investments on the lowering of implementation risks in future projects. The model can be used by managers for understanding long-term profitability by exceeding time and budget objectives in the short term.