The return on investment (ROI) of an MBA has always been the topic of heated debate among students, alumni, academics and business education experts. As the expenses for the degree can be quite substantial, the main question is whether the whole MBA route is worth it. How are we to measure ROI correctly? To what extent are these calculations reliable? And is it possible to express everything around the cost of the degree in numbers? The MBA also has a deeper, quality side, and carries potentially long-term advantages that go way beyond the monthly pay check.

Calculating the return on investment

Albert was enrolled in a 1-year MBA course in a Top 20 European business school and has to pay a tuition fee of 42,000 EUR. His annual salary as a Project Manager, prior to his studies, was 32,000 EUR, but he has to leave his job to start the degree. He is 31 and has been accustomed to a comfortable life, but is ready to live more modestly for the duration of his MBA. He has calculated that 24,000 EUR will be enough to cover his expenses while he studies. This sum includes accommodation, food, books and spending money. 

The so-called opportunity cost for Albert's MBA is 32,000 EUR – the salary he has to give up for the period of his education. The overall investment is 32,000 EUR + tuition fee - 42,000 EUR + living expenses - 24,000 EUR. This makes 98,000 EUR.

After graduation he lands a job at a consulting company, again as a Project Manager, but here he is responsible for a bigger team and bigger accounts. His annual salary is 58,000 EUR. When you subtract his prior-to-MBA salary from his post-MBA salary you get 26,000 EUR. Then you divide the MBA investment (98,000 EUR) by 26,000 EUR and you get the figure of 3.77. 

What does this mean? It means that Albert will be able to get his investment back within less than 4 years.

Of course, this is a pretty generalised case. Life is not an equation, and the variables may change. For example, Albert may be able to live on less than 24,000 EUR, which would alter the calculations. Also, he may not be able to find work right away after he finishes the degree. Should he finances his studies with debt, the estimates would also be different. On the other hand, his salary could increase every year and then his ROI would be even faster. But the example shown above is the commonest way to calculate the payback.

Highest in ranking or highest in ROI

Rarely do we have access to investments with a higher return than an MBA. The biggest investments one makes during one's life are usually property – apartment or house – or a car. Depending on the economic cycle, the property may appreciate, but the car will almost certainly depreciate, unless it is an antique or rare model. If we look at education as investment, we will discover that it can have high return and slower return. The MBA, assuming that the right school and the right courses are chosen, tends to fit into the first category. But no matter how prestigious a school is, don't presume that a top school, necessarily, equals higher ROI.

A Bloomberg Businessweek survey from 2014 confirms that "elite business schools are so expensive that it tends to takes their graduates longer, on average, to profit from their degrees than do those who choose less-selective, more affordable programmes." For example, in an equal amount of time, Stanford graduates will have earned less than 20% of the amount they spent on their MBA, in comparison to nearly 60% for University of Wisconsin–Madison alumni. For the bastion of quality education, Harvard, this figure is slightly above 20%. Regardless of how unimpressive Stanford and Harvard results may seem to the untrained eye, it would be best not to rush to conclusions.

ROI of 20% not only easily beats the results of the large majority of hedge fund portfolios and the bulk of other high-risk investment schemes. These statistics also illustrate why the importance of ROI shouldn't be overestimated. There is an inherent problem with oversimplified calculations concentrating on the first years after graduation. They give little clue about the long-term perspective and the more complex quality value of the degree. How do we assess a world-class education with rich traditions in terms of fragmented salary figures that do not take into account what happens in 5, 10 or 20 years? It is simply not doable.

This is why the 2013 Forbes rankings, that only measure earnings during the five years after graduation, concluded that Stanford is the best American business school. That's right – the very same Stanford whose alumni recouped less than 20% in the first year after graduation, according to the Bloomberg Businessweek survey. The 2014 Bloomberg analysis took into account more recent data. However, Forbes' evaluation went deeper, with its assessment of five-year professional experience of the class of 2008 that received their diplomas just on the eve of the most severe crisis since the Great Depression.

Longer and shorter term dividends

Expensive degrees generally do not do well in the shorter term, but they tend to reveal their full potential in the long run. Schools that accept students from the developing world with more modest incomes also have an edge in the ROI competition in the first years following graduation. The battle for a better place in the rankings makes some of them choose lower income candidates, so their salary skyrockets after they get their MBA. This is later reflected in the rankings that are viewed by many schools as extremely important marketing-wise. This could provide a logical explanation for some of the recent unusual volatility in some rankings.

In the Financial Times 2015 ranking, the Shanghai Jiao Tong University went from 77th to 55th place. In the FT Value for Money ranking the first place is occupied by the University of Cape Town GSB in South Africa, while Harvard Business School enjoys a respectable 66th place. But cry not for Harvard, as it is advancing – in 2014 it was 86th. The second position in Value for Money is taken by the Chinese HKUST Business School and the third goes to the Lisbon MBA. The Portugal school also remarkably jumped from 52nd to 36th place in the FT's Best Global MBA ranking. In 2014, the top three Value for Money schools were led by the Brazilian Coppead, the Lisbon MBA, and IMD.

All that being said, it is not correct to assume that you shouldn't pay due attention to numbers. When you have loan instalments to make, it is crucial to be precise in your calculations. But ROI is just a fraction of the overall worth of MBA, albeit a very essential one. It should not become the only focus and criterion in the search for the right school. Candidates should use ROI rationally, as just one of the tools they utilise, and be careful not to turn it into a fetish. The soft skills you learn from your studies, the new self-confidence you gain, and the attitude you display every day are what will pay the most in the long run of a career development.