A look at Return on Investment, as reported in QS TopMBA Scorecard.
Bhavneet Singh made a careful assessment of his likely return on investment (ROI), before deciding to study at Manchester Business School. “I was already earning a high salary working at IMG, the sports management company. I looked at the MBS median salary, estimated that, with my experience I should be in the top quartile, and calculated that my ROI was sufficient to go ahead with my MBA.”
Twenty years ago, the conventional wisdom was: always ‘study at the most prestigious business school you can get in to, irrespective of cost’ - the logic being that over a twenty to thirty year working life post-MBA, course fees would be relatively insignificant, compared to the salary uplift from a prestigious business school. Subsequently, many new MBA programs have emerged around the world, which are challenging this convention. Does the tenet still hold true and can ROI shed some light?
QS TopMBA Scorecard has recently completed a study of average Returns on Investment (ROI) achieved by graduating full-time MBA students at 200 MBA programmes around the world. The results show that the typical 2 year MBA model favoured by US schools, remains competitive, but a couple of UK business schools have edged ahead. Recognising that 12 months MBA programs offer a different learning experience, we separately show the ROI table for these shorter programmes, which are dominated by European business schools.
An MBA is a significant investment in one’s personal development (more important than buying a house, because it will affect your stream of income for the rest of your life). But as with any investment, it has a measurable pay back. To estimate the ‘true cost’ to complete an MBA, we take into consideration tuition costs, living, travel and book costs. In the table below, we assume annual living costs and book costs of US$23,000 per annum and apply a weighting depending on whether the location is rural, suburban or metropolitan. In addition, the opportunity cost of salary foregone, must be included in the calculation. Tuition costs for two-year MBAs like Wharton and Harvard are approximately US$35,000 (£21,250) per annum. In Europe, London Business School (LBS) and IESE offer two-year courses, whereas IMD, INSEAD, Cranfield, Warwick and other leading programmes are one year. The annual tuition cost for a full-time MBA program can be as little as £5,000 or as much as £31,500.
Salaries for graduating MBAs from top international programs have increased steadily over the last eight years (with the exception of a slight dip in 2003), and this increase has continued in 2005. Average salaries for MBAs graduating from a top US business school like Tuck, Chicago and Stanford averaged US$90,000 (£50,000) last year, compared with US$82,000 (£49,500) worldwide. Among the top 20 business schools, MBA salaries in the US in 2004 averaged US$86,000 and US$82,500 in Europe. To calculate ‘true earnings’ one could also take into account a “sign-on” bonus offered by many MBA recruiters, and the potential to earn a further US$15,000 (£8300) during a summer internship (these are not included in the results below).
Table 1 shows some assumptions a typical MBA applicant can make to calculate a 20 year ROI, as well as how long it would take him or her to pay back the MBA investment, and what would be the Net Present Value from an MBA over a 20 year period (all figures are in US$).
| Assumptions | A) US School US$ | B) UK School US$ |
| Length of Course (Years) | 2 | 1 |
| Pre-MBA Salary | 50,000 | 50,000 |
| Post MBA Salary | 90,000 | 84,600 |
| Summer Intern/Bonus | 0 | 0 |
| Salary Growth | 0.57% | 0.57% |
| Interest rate % | 0.065 | 0.065 |
| Annual Course Costs | 36,000 | 29,700 |
| Weighting for Cost of Living | 1 | 1 |
| Annual Living Costs | -21,000 | -21,000 |
| Annual Books/ITR | -3,600 | -3,600 |
| Loan Outstanding | 72,000 | 54,000 |
| Loan Repayment Period | ||
| (Years) | 4 | 3 |
| Outcome | ||
| Pay Back Period (Years) | 3.6 | 2.5 |
| NPV (£-20 Years) | 687,500 | 564,400 |
| ROI (20 Years) | 830% | 1,074% |
The calculations reveal that for a two year MBA taken in the US, the pay back period is usually just over three and a half years. This means that three years after your MBA, you will be better off, even taking into account the salary foregone. For a one-year European MBA the typical pay back period is between two and three years.
In these scenarios, over a 20-year working period, the Net Present Value of incremental future cash flows is approximately US$0.7m (£0.4million). The ROI ranges between 800-1,200%. In comparing results between schools, some words of caution are required. Though the assumptions are sensitive to pre- and post-MBA salaries, an annual salary increase of just 7% per annum is cautious. For a strong performer entering consulting, investment banking or becoming an industry leader, the NPV would be higher. When comparing schools, it is worth exploring where graduates end up working - there are strong country variations – an MBA is likely to earn far more in New York or London than in parts of Asia or Latin America. Comparison between US and European schools is also sensitive to the dollar exchange rate.
The tables below show 20 year Returns on Investment, using the same assumptions, for the twenty best performing long programmes (13 months or more) and the twenty best performing shorter programmes (12 months or less).
| Course Cost US $ | Avg. Start Salary US $ | Length Months | 20Year ROI | |
| London Business School | 70,000 | 102,500 | 24 | 922 |
| Manchester Business School | 45,900 | 91,800 | 18 | 846 |
| Richard Ivey, Univ of Western Ontario | 22,000 | 75,000 | 20 | 832 |
| Tuck School of Business | 69,000 | 92,000 | 24 | 829 |
| Melbourne Business School | 33,500 | 83,000 | 16 | 806 |
| Australian Graduate School of Management | 39,600 | 80,520 | 18 | 780 |
| Stanford University GSB | 73,000 | 90,200 | 24 | 756 |
| Bradford University | 28,000 | 75,000 | 13 | 754 |
| Harvard Business School | 72,000 | 93,300 | 24 | 721 |
| Helsinki School of Economics | 24,600 | 69,000 | 13 | 714 |
| UCLA Anderson School of Management | 41,306 | 85,000 | 21 | 664 |
| International University of Monaco | 25,000 | 65,000 | 24 | 647 |
| Rotterdam School of Management - Erasmus | 39,360 | 78,720 | 15 | 640 |
| Universiteit Nyenrode | 35,055 | 66,966 | 13 | 617 |
| Kellog, Northwestern University | 70,000 | 87,000 | 24 | 614 |
| HEC School of Management | 46,740 | 83,416 | 16 | 609 |
| Wharton, University of Pennsylvania | 70,406 | 89,000 | 18 | 606 |
| Columbia Business School | 72,000 | 89,091 | 24 | 595 |
| S.C. Johnson GSM, Cornell University | 65,600 | 87,600 | 24 | 585 |
| Haas School of Business - UC Berkeley | 67,000 | 85,000 | 24 | 577 |
Manchester Business School and London Business School can currently claim to yield among the highest ROIs for programmes over 12 months in length, when comparing in dollar terms. Amongst US schools, Tuck narrowly edged out Stanford, Harvard, UCLA, Kellogg, Wharton and Columbia in terms of this ROI measure, partly because of the lower cost of living of its location.
Among one year programmes, Vlerick Leuven Ghent (VLG) in Belgium achieves a strong ROI. It charges just Euro12,000 for its one year programme, making it one of the lowest cost MBAs. According to Peter Rafferty, MBA Director at VLG, its graduates average 7 years work experience and tend to stay and work in Belgium, or other European countries. VLG is one of only three MBA programmes targeted by ING Barings bank in London.
Those who stay and work in Belgium are entering a well-paid labour market, with a shortage of skilled, experienced business managers, as is the case in much of Western Europe.
Dessy Arfianni has no doubt she made the right choice when she chose to study at Vlerick Leuven Ghent. “I wanted a less expensive MBA, which offered good contacts with employers and hence pretty good salary prospects. At the back of my mind I was looking at ROI. Coming from a low pre-MBA salary, I did not feel comfortable with the cost of some of the top schools.” Dessy adds “Three prominent companies in Belgium had offered me jobs within 1 month of my graduation. By working in Europe, my salary has increased three times more than I could have earned without an MBA, if I had stayed in Indonesia.”
| Course Cost US $ | Avg. Start Salary US $ | Length Months | 20 Years ROI | |
| Trinity MBA, University of Dublin | 20,500 | 90,000 | 12 | 1844 |
| Vlerick Leuven Gent Management School | 14,452.5 | 80,000 | 11 | 1529 |
| Kingston Business School | 25,111 | 90,000 | 12 | 1419 |
| ESCP-EAP | 36,900 | 98,400 | 12 | 1417 |
| Cranfield School of Management | 45,000 | 100,800 | 12 | 1390 |
| Ashridge Business School | 53,100 | 110,000 | 11 | 1319 |
| Lancaster University Management School | 29,700 | 88,200 | 12 | 1216 |
| Imperial College London, Tanaka BS | 39,600 | 95,400 | 12 | 1171 |
| The University of Strathclyde GSB | 31,140 | 90,000 | 12 | 1161 |
| Judge Institute, Univ of Cambridge | 41,400 | 93,600 | 12 | 1154 |
| Nottingham University Business School | 29,700 | 84,600 | 12 | 1074 |
| IMD | 55,000 | 107,000 | 10 | 1064 |
| Theseus | 28,044 | 79,950 | 10 | 993 |
| INSEAD | 53,505 | 93,818 | 10 | 950 |
| Warwick Business School | 42,660 | 86,572 | 12 | 911 |
| GISMA Business School | 25,215 | 70,000 | 12 | 776 |
| Henley Management College | 57,000 | 86,400 | 12 | 769 |
| ENPC MBA Paris | 34.440 | 79,950 | 10 | 757 |
| IE (Instituto de Empresa) | 44,280 | 77,490 | 12 | 730 |
| Temple/IGS International MBA | 22,500 | 69,000 | 11 | 575 |
The old adage ‘if you can get into a top school, go there’ still seems to apply for many candidates interested in consulting and investment banking, in particular. MBAs from top schools may outperform their peer group from other schools, for no other reason than they join some of the best firms, which pay the highest salaries. Three years after graduation, alumni from Tuck School of Business earn the highest salaries in the finance sector - just under US$180,000. They beat alumni from Stanford (US$175k), Chicago (US$163k), MIT (US$163k), Harvard (US$157k), and London Business School (US$154k). These sorts of results significantly raise the ROI achieved by these MBAs.
Bhavneet Singh joined MTV Network International in June 2004 as a director responsible for revenue strategies worldwide, outside the US. "I chose MBS because of its focus on strategy and international business. I was able to gain further experience through an internship to develop the video streaming strategy for Manchester United. Now I have been able to secure my dream job at MTV in an international role, at the cutting edge of the entertainment industry. I only had to borrow about £15,000 to fund my MBA, which I will have paid back within another twelve months. The tools I have acquired, I will be using for the rest of my life.
Today, many MBA candidates are looking to work in a region or sector, which will not pay high-flying salaries. Others wish to start their own business. Identifying which of the less well-known schools yield a high ROI does provide a basis for differentiation. In reality, after the first few years in any job, it is a combination of skills acquired and personal performance, which will have the biggest impact on salary progression. Identifying the strengths and specialisations of an MBA programme should be at least as important in making a final choice.
The tables above are based on assumed starting salary of US$50,000. You can enter your own salary on TopMBA Scorecard and identify your own potential ROIs. Complete ROI results for 200 MBA programmes are available on TopMBA Scorecard. To access these results applicants must first join TopMBA Mentor. Visit www.topmba.com for details.
Source: QS TopMBA Career Guide