Business-school students in reputed programs make heavy investments to earn their degrees. Many or all of them work out the returns on these investments well beforehand. A few students may be able to estimate what their earnings might be 5, 10, 15, or even 20 years after graduation. In-depth surveys by management-education experts often come to their aid.
Graduate business management programs hardly hold the same sway; some earn better-quality rewards and some bring quicker rewards for their alumni. Alumni of full-time two-year MBA programs make good their investments in less than four years after graduation, on average, as per the Global Management Admission Council’s (GMAC’s) “2016 Alumni Perspectives Survey,” which covered 275 programs in 20 cities worldwide in late fall 2015.
Alumni of full-time one-year MBA courses take only two-and-a-half years on average to recoup their investment, in view of the lower fees and the shorter period away from work.
MBAs in North America can expect to recoup their money in only 44 months, according to the “QS Return on Investment Report: North American Full-Time MBA 2015,” which surveyed 85 top b-schools in the region.
This is hardly surprising, considering that an MBA alum in North America sees a post-MBA pay gain of as much as 75 percent on average—the average pre-MBA salary of $52,723 jumps to $91,417 after an intellectually enriching two years on a b-school campus.
What about RoI over longer periods? Most b-school alumni do extremely well financially throughout their careers. According to the QS report, North American MBAs are likely to make an RoI (return on investment) of $500,000 10 years after graduation and $2.57 million in 20 years on average.
Degrees from 28 b-schools in North America earn 20-year RoI of over $3 million for their alumni. The average 20-year RoI goes up to $2.71 million if only the US is taken into account. It is $1.5 million if Canada alone is considered. The QS survey points out that there are difficulties in making such long-term estimates and explains that the findings carry a 20 percent margin of error.
The best returns obviously come from the world’s best MBA programs. A Stanford GSB MBA is likely to make an RoI of over $6,000,000 on average—yes, six million—two decades into a most profitable career, according to the QS survey.
Along with Stanford GSB, Harvard Business School ($5.04 million), MIT Sloan ($4.68 million), Wharton School ($4.34 million), Chicago Booth ($4.15 million), and others also make multimillionaires of their MBAs in two decades, says the QS report.
It also lists the Columbia Business School, Tuck School of Business, Berkeley Haas, UCLA Anderson, and Yale School of Management among the top 10 schools that give their MBA top dollar, with 20-year RoIs between $3.7 million and $4.1 million. Stanford is the only North American b-school that gives a 20-year RoI of over six million and a 10-year ROI of over a million dollars.
The high earnings show the strength of the US and Canadian economies and the MBA degree’s continuing appeal to recruiters, the QS survey report says. Although Europe has faced a number of economic problems and China has suffered a stock market crash, the US and Canada have managed to hold their own.
Although the QS report does not list Canadian b-schools that provide the highest 20-year RoIs, it does mention that the University of Calgary’s Haskayne School gives the best 10-year ROI—$645,000—in that country. The survey estimates the average 10-year Canadian RoI at $298,000 as against the US figure of $527,000.
Although Haskayne is ranked only 25th in the region in the matter of returns from a management degree, the report says that lower fees in Canada make it easier for MBA aspirants to decide to invest in b-school education (the average program fee in Canada is only $65,000 compared with $88,000 in the US).
A 2014 Payscale survey, conducted in association with Poets & Quants (P&Q), calculated median MBA alumni earnings over the previous 20 years, from 1994 to 2014. It found that Harvard Business School (HBS) graduates benefitted the most from their MBA degrees ($3.23 million). HBS was followed by Stanford MBA holders ($3.01), Wharton ($ 2.98 million), and UC Berkeley’s Haas ($2.85 million).
Surprisingly, MBAs who graduated from a few schools lower in the pecking order made nearly comparable 20-year RoIs. For example, MBAs from Boston University, ranked 40th in the list of top b-schools, earned $2.32 million over two decades to win the 19th rank in 20-year earnings. Graduates from UC-Irvine’s Merage Business School (program rank 47) earned $2.31 million for the 21st place. Those from University of Virginia’s Darden School of Business took $2.7 million to their banks.
The term “return on investment,” or RoI, has been repeated here often enough to justify a review of how it is calculated. Estimating the future RoI from an MBA degree is not the easiest of tasks because of the number of assumptions that may go horribly wrong (read changes in economic conditions, percentage of salary hike, etc.).
But, in theory, RoI is the benefit from an investment minus the cost of the investment, divided by the cost of the investment. In the case of MBA RoI, the cost of investment includes the tuition fees and the loss of salary from leaving the current job, since MBA students doing a full-time two-year program are likely to have been employed for a few years before they joined b-school.
For example, suppose an MBA aspirant with an annual salary of $70,000 a year and a yearly salary hike of 5 percent joins a reputed b-school program in 2015-16, with tuition fees and other expenses of $200,000 in two years but with a summer internship that pays $15,000.
The cost of investment is, therefore, $328,500 (loss of salary of $143,500, plus tuition fee, etc., $200,000, minus $15,000 from the internship).
Now, if this person had continued in his old job and not gone for an MBA, he would have earned $70,000 in the first year (2015-16) and a total of about $385,000 in five years (till 2020-21) with yearly hikes.
But after completing his MBA in 2017-18, he would likely be recruited for an annual salary of $125,000, assuming a modest pay gain of around 75 percent, and earn nearly $400,000 by 2020-21, making good his investment in just three years.
Even if the MBA holder in this example had chosen a school that doesn’t have international branding, chances are that he would still be able to recoup his investment in about four years. Not to forget that he would be benefiting from cumulative pay increases over an entire career.
Obviously, the post-MBA starting salary has a significant impact on long-term RoI. In North America, the Schulich School of Business in Toronto tops the QS list of b-schools that give the highest pay increase after graduation, with a mind-boggling 138 percent, followed by Weatherhead School of Management, Ohio (128 percent), and Katz GSB, Pennsylvania (127 percent).
Moreover, the higher average starting salary of MBAs compared with that of postgraduates in other disciplines—$97,300 against $59,800 as reported by the QS survey—gives MBAs a clear edge over other PGs, an advantage that is likely to last over an entire career.
Seventy-five percent of the over 14,000 MBA alumni who were interviewed as part of the GMAC survey felt that their management degrees were adequately financially rewarding. The quality of their time in b-school was evident in that nine in every 10 respondents said they would “pursue the MBA degree again.”
Not just for the big money, whether it comes in 10 or 20 years, the alumni surveyed felt that b-school was a rewarding experience personally (for 93 percent of the survey respondents) and professionally (for 89 percent of the survey respondents).
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Resources: 1, 2, 3, 4, 5, 6, 7 | Image credit: iacpublishinglabs.com