Why Earn an MBA Degree: What is the Potential ROI of an MBA?
MBAs have always been considered sure-fire investments, much like owning a house. But now that the United States economy is shifting in a direction it hasn’t seen in a while, the actual worth of an MBA these days is up for debate. If you research the worth of an MBA online you will find that the lines are divided, particularly when it comes to one of the latest buzzwords in the field—ROI. ROI, or “Return on Investment,” is usually related to gauging the worth of products or services in the business world. But ROI is being applied to the MBA degree itself more and more these days, making the decision about enrolling in an MBA program exponentially difficult.
Before you confuse yourself further and begin reading all the different points of view on the worth of an MBA degree, there are some major factors to consider. An MBA may have benefits you never even thought of, independent of the fiscal advantages.
MBA Expectations and Measurable Benefits
Graduate students pursue MBA degrees for a variety of different reasons. Most MBA students enroll at least partially in hopes of advancing in their professional life and, consequently, making more money. Some students earn an MBA at the behest of the company for which they work, while others enroll in an MBA graduate school in order to start up their own businesses.
Those are all valid reasons for pursuing an MBA, and if you’re someone who has his or her sights set on that corner office with the fantastic view, then an MBA is mandatory. However, many of the benefits of an MBA degree may not be reflected in a huge salary or prestigious job position. There are many less tangible gains to be had as a degree holder when you take into consideration the importance of having the ability to “speak business speak” and thrive in the business culture.
Much of what you’ll get out of an MBA degree program depends upon your expectations of what you’ll gain from being a degree holder. This is where the troubles with calculating MBA ROI begin. It is difficult to reconcile that there is an ROI that applies to all students seeking an MBA degree when the measurements used can vary so widely with each person. To quote the old adage, “Beauty is in the eye of the beholder,” and so is the worth of an MBA.
ROI of an MBA Degree
Research and opinions on the worth and ROI of an MBA degree abound. If you search the Internet, you will immediately realize that you can find the numbers and opinions to support either perspective on why earn an MBA. It will get you wondering who comes up with these statistics in the first place. Interpreted with care, the statistics aren't completely useless.
While some believe that entering an MBA program at this delicate economic time is unwise, there are many more that point out that perhaps enrolling now is a smart business decision. After all, even if you have not just lost your job or feel it is in danger, the economy may have rebounded by the time you’ve earned your degree, and you may have put yourself in the best place possible.
The Graduate Management Admission Council (GMAC), indicated in its 2007 Global MBA® Graduate Survey that MBA degrees continue to lead their holders to increased salaries and that most students express satisfaction with the MBA programs they choose. According to the survey, students were not interested in simply having a professor drone on in front of the classroom but would rather be more engaged in the learning, in terms of hands-on experience and open discussions.
When it came to being satisfied with the quality of the MBA program they chose, three-fifths of the students surveyed gave the value of their degrees such adjectives as “outstanding” and “excellent.” Full-time MBA students reported that they expected to increase their salary by 54 percent, while part-time students expected a 43 percent salary increase. Executive MBA programs students expected to increase their salary by 33 percent after graduation. Over the course of a career, that’s some pretty astounding ROI, with returns way over the initial cost of investment.
What to look for in an MBA program
Once you have your expectations in mind as to how you will benefit from earning an MBA, you need to locate the MBA graduate school and program that fits those personal preferences. Much of the criticism surrounding today’s MBAs has to do with the perceived lack of practical experience gained by students enrolled in MBA programs. Theory is necessary knowledge to have, but experts have spoken out against the tendency of programs to place too much focus on the theoretical.
When you seek out an MBA program, find one that combines theory with practical, real-world experience in your field. Simply having the ability to spout off the research and numbers you studied in graduate school won’t get you that six-figure job. Employers will be much more impressed if, in addition, you can tell them how you have applied your extensive knowledge of theory to a real business problem.
Experts have also criticized today’s MBA programs because students often do not receive the training in social skills required to succeed in the current global marketplace. Intangible skills like leadership, good communication, self-discipline, and interpersonal relations are necessities for MBA students wishing to be successful, so you should look for programs that incorporate coursework that addresses these skill sets. That will increase your MBA ROI.
Personal MBA ROI
The U.S. Department of Education reports that the MBA students in this country are the most diverse students in any other type of graduate program. Some MBA holders go on to become millionaire entrepreneurs as a result of a great idea developed in class, while others find comfortable jobs as executives in large corporations. Still others earn an MBA in order to begin their own small business, while some decide they’d like to teach business. These diverse results of earning an MBA shouldn’t be surprising, and further back up the belief that MBA ROIs are personal calculations.
MBA programs can be as diverse as the students who participate in them. Programs will vary depending upon location, faculty, coursework, and more. There are MBA programs that specialize in a myriad of business topics, from human resources to e-commerce. In addition, online MBA programs are becoming increasingly popular and available, tailored to students looking to cut costs or work while earning an MBA.
MBA programs and degrees are not standardized or mainstream, so it’s natural that students in the programs differ based on expectations, goals, academic background and work experience. Taking into consideration the differences in MBA programs and students, it seems unlikely that the worth of the degree can be effectively measured with averages and standardized ROI calculations.
Now that you’ve seen the numbers, explored your expectations, and realized that what you get out of a program depends on the one you choose, you can attempt to calculate your MBA ROI. But how do you measure things like leadership and communication skills? That is much of the trouble with the ROI calculations available online and through business organizations. You should take those intangible skills into consideration when you forecast your earning potential after graduation. You’ll be in higher demand if you possess those skills, and are likely to command a bigger salary. To that point, you might want to frame your decision in terms of managerial negotiations and figure out your BATNA, or "best alternative to a negotiated agreement," or you might employ some good old-fashioned "scenario" planning.
To figure your specific MBA ROI, first calculate the actual cost of attendance for your MBA program. This should include tuition, fees, cost of living, class materials, transportation and any other costs you may incur. Cost of living should include expenses like your car insurance, rent and other bills and purchases. Once you’ve done that, if you have a job that you’ll have to leave in favor of attending graduate school, you must factor in any money you’ll no longer be bringing in.
The earning potential portion of the calculation is more difficult. Earning potential is not the same for everyone, which is another reason you cannot rely on statistics alone. You must consider factors including job function, job location and commute. You could find yourself working in many different industries, all of which value an MBA in their unique way. Your professional priorities should guide you in calculating your earning potential.
If you look to salary reports to help you figure out your ROI, do so with care. Don’t focus on the higher percentiles—you’re better off looking at the median salary, or even the lowest salary. This will keep you realistic, and if your ROI turns out to be better than projected, great! What the ROI does is help you look at your MBA degree as an investment—you give something to get something back.
Think of it this way: you could attend a second-tier MBA school that offers coursework in the intangible skill sets and end up with a higher ROI than a student that attended a top-notch program without that crucial coursework. You will be of more value to employers, and thus your MBA degree could be functionally more valuable than that of a an Ivy League MBA student without those "soft" skills.
Remember, an MBA ROI should help you determine your quality of life resulting from working so hard to earn that degree. The right MBA program will provide you with theoretical knowledge as well as practical experience. It will also instill a sense of self-satisfaction and respect for others, and equip you with the networking skills necessary to succeed in the business world today.
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