MBA (Master of Business Administration) is a popular course among the students all over the world. Different universities in different countries offer the wide range of study courses for MBA. An MBA is a hefty investment at a top business school loaded with tuition fees and many other hidden expenses. In today’s fast-paced environment many employees seek out job candidates with robust experience and a solid education- something an MBA can provide.
If we go to the full form of abbreviation ROI – Return on Investment means how much one can acquire after doing investment in any particular field. We can do proper planning for ROI which is related to the income we have gained and expenses we have made. “An investment in knowledge always pays the best interest“. These words said by Benjamin Franklin are so true in context with MBA degree. All the courses of MBA require huge expenses. Hence it is always suggested to do the calculation of the return that one can get after completing the studies. In our “Determine your MBA ROI” infographic we examine salary statistics and the latest facts we have compiled will convince you that your MBA degree will pay off in a big way.
After getting a detail about how much your MBA course can cost, now time to examine if an MBA degree is worth the cost by determining what kind of ROI will you get for your hard work for MBA programme. For MBA ROI we need to examine a few things.
1. Cost of MBA program: Once you have decided on which program you wish to start, you will roughly know what will be the cost. This will include the cost of books and other additional expenses which are required for that program.
2. Opportunity cost: This is the forgone salary while you attend your MBA program.
3. Post-MBA Salary: Off course this is unknown to you but thankfully most MBA programs keep a track of this information from past students. You may be able to make an estimate. You need to select the industry you wish to work with after your graduation. Your cost of living in that place also matters in estimating ROI.
4. Estimating the years of work: This number can be estimated roughly that how long it will take to get your expenses back done for an MBA course.
Factors to be considered while calculating MBA ROI
There are several factors which are required to be considered keenly while calculating ROI.
1. Loan Facility: Most of the students finance their education by taking education loans, which also forms a major part of expenses upon graduation. If the student is presently employed, however, a commitment to pursue an MBA education also means letting go of two years salary as opportunity cost. A prospective MBA must have emotional and professional maturity to make the transition from an earning professional to being a student and letting go of the financial earnings for two years.
2. Course Duration: ROI gets affected by the duration of the course opted. If you take a course duration of more than two testator ROI will surely take the longer time to get over.
Calculate Your MBA ROI
Now coming to the point where the formula for calculating actually starts working. The below calculation is done just on assumptions.
As an example, let us assume you currently earn $50,000 per year, and the MBA program you have been accepted to costs $20,000 per year. Assuming this is a 2-year course, you will spend $40,000 on tuition, and give up $100,000 in forgone salary. However, the total cost of your program is not just $40,000, it is really $140,000 because you missed out on your salary for two years.
Next, you take your post-MBA salary and determine how long it will take to make up that $140,000 difference. Let us assume your post-MBA salary is $85,000. For easier math, we will say your MBA is directly responsible for adding the $35,000 to your annual salary. With the additional salary of $35,000 per year, you will earn back that $140,000 in 4 years. Although it will take you 4 years to earn back the cost of tuition and lost salary, everything you earn after that is “profit.” This is where your return on investment comes in.
Assuming no raises, we can determine a 5 year ROI of $35,000. This is determined by taking your post-MBA salary, subtracting your pre-MBA salary, and subtracting the total cost of the MBA (tuition and forgone salary).
Salary (5 * $85,000 = $425,000) – (5 * $50,000= $250,000) = $175,000
Total cost of MBA (tuition and forgone salary) = $140,000
Total ROI = Salary – Total cost of MBA = ($175,000 – $140,000) = $35,000.
For 10 years, we get $850,000 – $500,000 – $140,000 = $210,000.
The above method to calculate in rough as it doesn’t take into account all the raises or promotions. Sometimes the best ROI is not where you think it might be. In most of the cases getting an MBA is definitely worth it. ROI is just emerging to consider while deciding on an MBA program. Stay tuned with AfterGraduation for the other deciding factors for choosing your MBA program.
Hope you got the details about how to determine ROI of Your MBA program, furnished in this article. AfterGraduation suggests MBA Aspirants to determine ROI of the MBA programme, before finalizing any form of MBA course. If still any doubts, you can discuss via the AfterGraduation Forum or post your comments or queries in the below comment box. Stay in touch with us for more on higher education, Professional course, entrance exams update, among other information through Linkedin, Facebook, and Twitter.