Cash Back in 4 Years!

The Value of a Business Education

A new survey shows it takes 4 years for MBA graduates to receive back 100% of investment in their degree. Investments, however, are more than time and money, and the return goes beyond salary to valuable experience and a priceless network. An MBA degree requires a substantial investment of time, effort and money, but the return on it may be much more valuable. Determining the ROI is an important part of making a decision about doing an MBA and selecting the right school. To put it simply, the calculation helps give you a general idea of what your total investment in an MBA will be and how long it will take to recoup that cost and turn it to profit.

Main factors

To calculate the ROI, the main things you should take into account, are:

  • Your salary before starting an MBA, which is  also called an opportunity cost, since  you lose that salary in order to study;
  • MBA costs, which include tuition fee and other related costs, such as books and accommodation;
  • Salary after graduation plus potential bonuses and/or additional compensation, which  needs to be estimated realistically on the basis of relevant salaries in the particular business you want to go into.

 

Additional factors

There are many MBA ROI calculators on the Internet which can help you make a basic calculation, but if you want to obtain a more clear picture of the costs of an MBA and its repayment, you should also add other subjective factors to the calculations, for example how long you plan to work, based on your age, since the net profit from your investment will depend on the number of years you work after repaying the initial investment. You should also try to collect information about the average salary you can achieve  on graduation and  5 years later, 10 years later, and so on, since there are MBA programmes with an impressive average salary on graduation, which provide no or little growth in the future. On the other hand there are other MBA programmes which do not have a very exciting average salary on graduation but can have a strong salary growth for their alumni going forward. Another important factor is: how will you  finance your education. A large number of students take bank loans to finance their expensive MBA education, and they need to know whether they will be able to repay the loan comfortably over its life. So, you need to include in your calculations also the loan repayment, its time period and interest rate.

Compare schools in terms of ROI

The ROI helps you compare the different schools offering MBA courses and choose the one which  matches your needs and ambitions. Many renowned publishers, including Bloomberg BusinessWeek, Forbes and Financial Times, conduct  research and publish rankings of the business schools ROI, so you can easily compare the ROI of the different MBA programmes. A recent survey by BusinessWeek shows that some schools offer a much quicker return on the tuition investment, but they are not the ones that are most commonly regarded as the best. The study indicates that it can take a Harvard or Stanford MBA graduate more than 10 years to recoup his investment in the degree fully , while less prominent schools give students faster returns on their investment. One theory, explaining this phenomenon, is that the most renowned b-schools generally have the highest tuition costs, and they are also likely to attract applicants with high pre-MBA salaries, which affects the ROI calculation. So, choosing a school for your MBA depends a lot on your motivation and your needs. If you seek a fast return on your investment, then attending one of the top business schools may not be the best option for you.

Education philosophy

The education philosophy of the school is another factor that you should take into account when choosing a business school. Dr Himadri Das, Professor at IMI Delhi, says that some b-schools focus on teaching students narrow-based employable skills which  guarantee quick employment on graduation, as entry level positions are usually routine, structured jobs which  do not require much need to think. Other schools focus on conveying to students broad-based competencies and teaching them to think. Those graduates might find it a bit more difficult to find a job quickly, but in the long term they usually significantly outperform their peers from other MBA programmes which have a skill focus, since more senior management positions require broad-based competences and out-of-the-box thinking. Better future performance leads to better career growth and better future salaries. To define what kind of philosophy a school has, you should look at the faculty quality, as there are typically people who have PhDs and preceding degrees from top-class academic institutions who are able to give you more than the hard skills.

MBA graduates report 100% ROI in 4 years

A new survey by the Graduate Management Admission Council (GMAC), a global non-profit education organisation of leading graduate business schools, shows that alumni from graduate management programmes recoup one third of their financial investment in their graduate degree within the first year after graduation and 100% of their investment after four years. The Alumni Perspectives Survey discovered that within ten years of  graduation on average alumni nearly doubled their return on investment. The study conducted in late 2011 includes responses from 4,135 alumni, who graduated from 2000 through 2011, including 963 members of the class of 2011. The survey showed that 86% of the 2011 graduates were employed after graduation, compared to 88% of class of 2010. The percentage of alumni currently employed varies considerably based on the type of programme completed by alumni  and their pre-degree work experience. Three out of four employed alumni of the class of 2011 reported they could not have obtained their job without their graduate management degree. A total of 93% of class of 2011 alumni employed at the time of the survey had found the job they were looking for. Some 82% from the class of 2011 said their salary met or exceeded their expectations. "Anyone considering a graduate management degree should do a thorough economic analysis, including an evaluation of the potential return on their investment," said Dave Wilson, GMAC president and CEO. "These results demonstrate that a graduate management degree is, in fact, a solid investment in your future, both in good and bad economic times."

Beyond the financial aspects

An MBA is not only an investment of time and money, aimed at getting a better job and salary. The result is much more than financial - it is the hard knowledge, the new skills and competences, the valuable experience and the extensive business network which you create while doing an MBA. Everyone you meet at school, including fellow students, alumni, faculty staff, and visiting speakers, may be very useful when you start looking for a high-profile internship or a top management job. The extensive business network will prove also very useful once you start your post-MBA career.



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