Difference between “Earned Value” and “Contribution Margin”?

Question

I have been searching here and there for the meanings of "Earned Value" and "Contribution Margin", it doesn't seem to make sense to me why so many project could have a positive(+) Contribution Margin, but yet have a negative(-) Earned Value?

I understand that Contribution Margin represents profit and Earned value represents the actual cost involved, but until now Im actually a bit confused...

Answer 1

I'm a bit confused. These terms come from two quite different disciplines.

Contribution Margin is used in management accounting and is the marginal profit per unit of sale. I've never encountered contribution margin in my (admittedly short) career in project management.

Earned Value is a concept that is limited to earned value management, which is very definitely employed in project management. Earned value management is a mechanism for measuring whether work (effort) is proportional to schedule(estimate).

Moreover, I can't conceive of a realistic situation where earned value is negative. (I can imagine contrived situations, but none that are plausible). Furthermore Earned Value most definitely does not represent cost.

I suspect that you need to revisit the concept of earned value management. There is a relatively decent example worked in at pmis. The following pages provide some additional resources & explanations.

• ProjectSmart
• Tutorials point
• Planning Engineer

Answer 2

“Contribution Margin” and “Earned Value” examples

Mark covered the concepts well. Here are some examples that might help:

• Here is a Contribution Margin example where a company is selling a product for $2.00 each with its variable cost being $0.80 each. During one month the company sells 50,000 units. So the revenue is $100,000, the variable cost is $40,000 and the contribution margin (towards overhead and profits) is $60,000.
• Here is an Earned Value calculation example. Even though Earned Value is designated in dollars, it is really a distilled assessment of scope, schedule and cost into one single number.

When you said negative earned value, were you perhaps referring to the difference between the Earned Value (EV) and Planned Value (PV) as shown in this example?