What is the ROI of an Executive MBA?

The ROI of an executive MBA differs from the ROI of an average MBA by quite a lot.

For starters, this is because an executive MBA is designed to be an MBA for older candidates. It comes with a syllabus and teaching style geared for candidates with a significant amount of work experience.

Naturally, the returns it offers are different from those of a program designed for younger professionals with less experience.

Now, if you’re considering going in for an executive MBA, you’ve most probably already gotten comfortable with your professional life. At some point, you’ll ask yourself,

“Is this executive MBA worth it?”

To find an appropriate answer to this question, you will first need to consider what the real cost of doing an executive MBA will be. Then, you’ll need to quantify the outcomes before you can compare and figure out if the return on your investment will make the executive MBA worth it.

This article looks to help you figure out if the executive MBA will be worth your time and money. To that end, this article shall discuss:

1. What is the meaning of ROI of an executive MBA?
2. What are the Factors Affecting the ROI of an MBA?
3. What is the Comparative ROI of Popular MBA Programs?
4. How do I Calculate Value of Intangibles?

Let us begin by understanding what ROI on an MBA really means.

1. What is the meaning of the ROI of an Executive MBA?

Doing an MBA is an expensive proposition. But before we can jump into the return on investment, let us take a look at what exactly you’re going to invest in getting your MBA.

1. Direct Cost

You will have to make a direct financial investment in the form of tuition fees. This is generally a sizeable amount if you’re going to a reputed institution.
Further, there will be indirect costs involved in enhancing your MBA experience. For example, you may have to spend on exchange programs, traveling for internships, and studying one of the semesters abroad.

2. Secondary Cost

You’ll also need to spend a fair amount on getting a decent laptop, phone, and other gadgets. And all that is apart from the expenditure on getting the right books.
Additionally, there will be expenses on formal as well as informal meet-and-greet events you’ll need to attend. There may even be student club activities that require some investment or expenditure on your part.

Of course, you can get through B-School without doing any of this.

But these experiences are integral to making the best of your MBA and you’ll be missing out on HUGE opportunities if you aren’t willing to go the extra mile.

3. Opportunity Cost

In case you’re not already familiar with the term ‘opportunity cost’, here’s what it means:
Opportunity Cost is the amount of wealth you stand to lose by not doing something. In this case, your opportunity cost would be the salary and perks that you will lose for a year or two when you take time off to do your MBA.

Including increments and incentives, this can come up to be quite a significant sum of money.

So, now you have an idea of what your investment in an MBA is going to look like. Here’s a quick overview:

If you’re already planning to forget about this MBA business, hold on a moment. There are many ways for you to get an MBA without burning a hole in your pocket. Take a look at our tips on how to finance your MBA and then decide if you still want to give up!

But maybe you’re wondering, “Why should I spend on getting an MBA when I could be making money instead?!”

Don’t throw in your hat yet – this next section will take you through how you can calculate the returns on the amount you’ll need to invest.

2. What are the Factors Impacting the ROI of an MBA?

Now, even if you’re Bill Gates (or Ambani, whatever you prefer) and you manage to finance your MBA on your own, you’re going to want to know what you’re getting in return for your time, effort and money.

It will be more so if you’re a mere mortal like us and will be taking a loan to get your MBA!

In fact, if you’re looking to take a loan, even the loan provider will be interested in knowing the salary you’ll get afterward, and how soon you can repay your debt.

Before we get to that bit though, here are a few things you should remember.

1. Think Long-Term

Getting an MBA is not like recharging your prepaid mobile number, where you can start expecting to use your phone immediately. You won’t get the results of an MBA that rapidly.

Think of an MBA like a house you’re building. Its value will appreciate in 10-15 years, and the ROI will also rise at a similar rate.

2. MBA vs. Non-MBA

One of the critical things most people forget to consider when it comes to the ROI of an MBA is the opportunity cost of not doing an MBA.

Sure, you considered how much money you’d have to forfeit in order to do an MBA. But have you taken a moment to think about the rise in salary that you would have to forfeit if you didn’t do an MBA?

Statistically speaking, that is a pretty sizeable number!

3. Consider the Intangibles

One of the primary reasons many people choose to get an MBA is because they feel like they’re stuck in their careers. Whether it is a dead-end job or a line of work you’re just not interested in, an MBA frees you from having to be stuck with a job you don’t like.

How do you put a price on something like satisfaction?

And that is not the only benefit. You gain a strong and powerful network from an MBA as well.

Before you discount that, remember that after a certain point, your next job will no longer come from some job portal on the internet. You cannot become an MD or a CEO unless you’re referred, and that’s only one of the benefits of having a strong professional network.

Understand that there are many such intangible benefits to doing an MBA that you cannot calculate in numbers.

Now, since we’ve got that out of the way, let us get down to business and look into the factors affecting the ROI of an MBA.

• Job Function

Let’s say, for example, your job function is that of a technical support person. Within the first 5-6 years, you’ll begin to realize that there’s some kind of a glass ceiling you hit and you can’t move any further in your career.

This could happen in any job function, not necessarily just in tech support.

An MBA is a hammer with which you shatter that ceiling and change your job function. So, how badly you need that hammer is a factor that will affect the ROI of an MBA for you.

• Career Path

Whether you want to switch career paths or not will also massively affect the ROI of an MBA for you.

After a couple of years of working in one particular career, it becomes increasingly tougher to switch to something else. For example, if you’ve been a coder for 6 years, you can’t just ask for a product management job because you think your true potential will only be unleashed as a product manager.

That can happen if you get an MBA.

Getting an MBA is one of the only ways to smoothly transition out of an undesired career and into another that you enjoy.

Once again, your expectations with respect to the help an MBA can offer you to make a career shift will play a big role in how valuable you find the degree.

• Industry

If you work in the consulting industry, an MBA is your ticket to go from being an Analyst at an industry-leading firm to working as an Associate in the very same place. But if you’re a research scientist who plans to continue working in that industry, the MBA will not help you much.

The point is, how much value your industry of choice places on an MBA is critical in figuring out the ROI of your MBA.

• Country

When trying to understand the ROI of an MBA, your country is usually your frame of reference. The continuity of calculating in the same currency surely helps quite a bit, but there’s more to it than that.

If you’re looking to move abroad, or even to only do your MBA abroad, everything changes.

The obvious issue here is currency, but you should also note that the number of unknowns with respect to insurance, employability and many more things, rises exponentially if you change countries at any point.

This is bound to affect your investment as well as the ROI of your MBA.

A critical thing to remember when you’re looking to calculate the ROI of an MBA is that 80% of the money you’re going to make will be in the last 10 years of your career. What this means for you is simple: plan your MBA in such a way that at the age of 40-45, you can leverage your position to make the big bucks.

So, in essence, your entire MBA journey should be aimed at preparing you for that last decade of your career.

3. What is the Comparative ROI of Popular MBA Programs?

In the previous section, we discussed calculating the ROI of an MBA in terms of which aspects will impact the ROI of an MBA for you. However, there’s one rather obvious and easy to calculate the kind of aspect that we’ll look at in this section.

That aspect is the percentage rise in salary of the alumni of popular MBA programs around the world.

According to the Financial Times MBA rankings, these are the percentages of average salary hikes among the alumni of the following schools:

• Indian School of Business – 187%
• Indian Institute of Management – Ahmedabad – 100%
• Indian Institute of Management – Bangalore – 124%
• INSEAD – 104%
• London Business School – 102%
• UCLA: Anderson – 102%
• University of Michigan, Ross School of Management – 108%

An important thing to note here is the methodology used to calculate these statistics. Half of the number for each School is calculated based on the absolute salary increase from the time before they got the MBA to three years after getting it. The other half is based on the percentage increase between pre-MBA and post-MBA salary.

4. How do I Calculate the Value of Intangibles?

Ultimately, the aim of this article was to provide you with the knowledge it takes to figure out what the ROI of an MBA is. We hope we have done that effectively. But before we part, here’s a thought we’d like to leave you with.

The one thing we highly recommend you consider while figuring out the ROI of an MBA for yourself is what Amazon founder Jeff Bezos calls the regret minimization framework.

It involves a simple test – put yourself in the shoes of an older version of yourself and check whether you’d regret doing or not doing something.

We recommend that apart from that from all this number crunching, you should take a moment to try out the regret minimization framework. Ask yourself, if you don’t do this MBA, will you regret it at the age of 50?

We hope you’ve found this article useful. We’ll be happy to hear your feedback or questions in the comments section below.

More information on doing an Executive MBA in the US…

Is Your Profile Good Enough For An MBA?