Startup Project Margin Cross-Subsidy

The Project Margin Subsidy

A consolidated result can describe an acceptable outcome while concealing the project relationships inside the total and below the headline result, where stronger work produces sufficient margin and cash to absorb the losses accumulating on weaker work across the portfolio over the ongoing project delivery horizon.

The subsidy can persist because the company total records both positions together, allowing the work producing cash to offset the work consuming it until timing changes, a strong project ends, or the underlying losses become too large for the portfolio to contain.

Tom Patton, President of Evergreen Surety, has seen strong projects support weaker work for extended periods, leaving the financial exposure when work approaches completion.

A single strong project or major client can carry the company appearance for a quarter or two while other projects lose money, leaving management with a consolidated result that cannot identify the underlying work carrying the economic burden within operations.

Profitable projects generate the margin and cash that fund losses elsewhere, and the subsidy can continue until healthy work approaches completion while the weaker projects retain delivery horizon, absorbing resources.

The consequence appears later, when the profitable work no longer carries the weaker positions and a condition obscured inside the total becomes concentrated in the portfolio.

A project margin subsidy changes the interpretation of an acceptable company result, because the reported total can retain enough strength to defer attention while the portfolio becomes progressively more dependent on work whose economics remain materially stronger than underlying work.

The subsidy ends when the work producing the result no longer offsets the work consuming it elsewhere.