The Future ROI of Today’s MBA Investment

It used to be climbing the corporate ladder required a huge investment
to gain an MBA. Evidence is mounting that the ROI on an MBA is showing a
considerable shortfall. 

Byrne’s article
summarizes a recent
Brazen Careerist post (which we’ll get to in a moment) with these items
concerning current devaluation of an MBA.

all rising stars go to business school these days
. Hotshots are too busy making money,
so what’s the point?

the top-tier MBA schools deliver the “Big Job.”
The time and
expense of an MBA from a 2nd or 3rd tier school could be
better spent elsewhere to advance your career.

We tracked down additional posts from Penelope
to learn more. She offers 5 more situations where an MBA doesn’t
make sense.

humanities PhD could make you
employable not more employable.
Getting a doctorate is good for
teaching, but doesn’t help climb the Fortune 500 ladders.

2.    You can shift careers by enrolling in
a night-class.
Many fields require some knowledge, but not a degree.

school is a bad way to deal with uncertainty
. It’s too
expensive as a back-up plan.

who love to learn don’t need a degree for it.
Consider the real
qualitative reasons to get an advanced degree.

LinkedIn instead of an MBA
. If you’re going to grad school to
make connections, you might be better served networking yourself. With the
growth of social &
networking communities
, this might be the
best advice of all.

 We determined further investigation into calculating
was needed. An economic analysis is one way to decide between
spending tens of thousands of dollars, while losing two or more years of
salary, to pursue an MBA.

The information below was gleaned from MBA Podcaster transcriptions featuring Janet Nakano, Anthony Davies, Assistant Professor of Economics at
Duquesne University
, Thomas
Cline, an Associate Professor at St. Vincent’s College
, and Toby
Hemmerling, admission consultant from Dream MBA. 

says start with the internal rate of return.
“If I look at the tuition that I’m paying for the MBA as
an investment and the extra money I’m earning over the course of my career as
return on that investment, what’s the effective interest rate I’m getting? And
that’s the internal rate of return.”

They found
the internal rate of return—on average using figures ’93-2001—is on a par with
the NASDAQ and better than the Dow Jones Industrial Average—hovering around

  • For every dollar invested in
    tuition for an MBA degree, you can expect a return of $1.18.

net present value of your investment.

Consider all the money required to get an MBA compared to the lifetime expected
return. How much would the check have to be to forego an MBA today?  

  • They found the net present value
    is significantly more than $500,000.

your break-even point.

How long until your initial investment is paid off? The average pay back period
is about nine years—down one year from what it was 15 years ago. Although
tuition is increasing, starting salaries are also increasing.  

  • The growth rate for professional
    degrees is about 2% better than inflation vs. 1% for Bachelor’s degrees.

rankings can be another consideration when calculating your ROI
. The less-established schools, Davies
says, are the ones that may not add as much economic value. But top-50 schools
can be just as competitive says Anthony Davies.  

  • Top-20 schools will, typically,
    earn a better ROI.

Their final
analysis is an MBA is a safe bet, and there is nothing wrong with an MBA that
hasn’t made the top 50. But if you can get into a top-50 school, you should go.
And if you can get into a top-20 school, go even if you have to borrow.   

The Bottom Line:
Professional educators and recruiters agree that investment in education will
provide a good return. Penelope Trunks asserts you might want to reconsider
unless you get in a 1st tier school. Also, consider qualitative
factors. An advanced degree may substantially enhance self-esteem, and if money
is not an issue, then an exercise in ROI isn’t even necessary.