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The True Value of YOUR MBA

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Current Student
Joined: 27 Jul 2007
Posts: 872
Location: Sunny So Cal
Schools: CBS, Cornell, Duke, Ross, Darden
Followers: 12

Kudos [?]: 200 [88] , given: 4

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20 May 2008, 16:37
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So I’ve had a little downtime over the last few days in the office and was thinking about my cost of earning an MBA. This mini-analysis ended up taking on a life of its own and it turned into a pretty sophisticated look at figuring out what am I giving up and how long (and how much) it is going to take to pay off. I realize that $$is not the (only) reason that people go to b-school, but it's definitely an important factor. As a very analytical person, I thought it was important to dig deep on this topic. I have put together what I think is a comprehensive MBA return on investment (ROI) tool/model (more specifically, I used net present value, NPV). It looks at the MBA and non-MBA career paths and identifies not only when you’ll “breakeven” but also how your compensation will look over an extended period of time. I believe there are some other tools available online, but I don’t think that any of them offer much flexibility and are way to simplistic for a very important and complicated decision. Since I’ve gained so much from gmatclub, I wanted to share this tool so that my fellow g-clubbers can tailor it based on personalized life plans. For example, some people want to go into i-banking. This particular job function has a pretty unique compensation path. Moreover, most people that (want to) go into banking, only do so for a few years before jumping to investment management or private equity or some other excursion. Therefore, it wouldn’t make sense to say, “My compensation is going to be 350k for the next 12 years.” Other folks want to go into marketing, consulting, operations, strategy, etc. - areas that have different compensation tracks than investment banking. This tool is designed for any person starting with/transitioning to any career path. I realize this may not be perfect, but I think it will be very informative regardless of your interests. This should help you whether you’re considering an elite vs. a trans-elite or a tier-two school vs. a regional program. It will also be helpful for those that are deciding between a part-time or full-time program. This will also help high-income earners that are deciding whether to go back to school at all. Ultimately, I wanted to create something that is user friendly and allows for almost an unlimited number of scenarios. If you have any questions, feel free to ask. Enjoy and let me know what you think. Cheers, ryguy EDIT - Version 2.0 Available Now! I made a handful of changes since I created this model last summer, but below are the two major changes that I have made: 1) Updated fields to incorporate internship earnings 2) Ability to easily compare a part-time v. full-time MBA program (from a financial perspective) A couple of comments and feedback that were suggested from last time that I did not specifically address (and my reasons for choosing not to do so). 1) Debt service of student loans. So here’s the deal. This model assumes that tuition is paid upfront (i.e., during school). This is unrealistic for the vast majority of folks on the board here, and probably most students in general. However, I prefer to take a highly conservative approach when it comes to figuring out when I will break even. I suppose this is a worst-case scenario (i.e., makes the payback period look longer than it should), but in my mind, I’d rather err on the side of a longer payback period than a shorter payback period. So why does this matter when tuition is paid? It is more expensive to pay for tuition with today’s dollars than it is X years down the road. For instance, if you are on a 10-yr repayment plan paying 600 a month - 600 in today’s terms is a lot more money than it is 5, 6, or 7 years from now (and for simplicity’s sake, let’s ignore fluctuations in the value of the US dollar). If you don’t believe me, ask yourself this: Would you rather I gave you 600 today or 600 in 6 years from now. Good, I’m glad we’re on the same page. For more detail on this, I explain this in general assumption #3 on the Instructions worksheet. In that section, I’ve also included instructions for a scenario that could be applicable for folks that go into investment banking, private equity, or any other very high paying post-MBA job. 2) Taxes. I received some comments saying that tuition is paid with after-tax dollars, but salary is listed in before tax dollars. Sure, fair enough. If you think that it is appropriate to adjust for this, multiple your salary by (1 minus your expected tax rate) and plug that in for your post-grad salary. I chose not to do this for the base case scenario, but again, I’ve tried to make this model flexible enough where you can put in whatever assumptions YOU think are appropriate. Updated directions are included on the first worksheet of the excel file. Let me know if you have any questions. I’ll be happy to address any issues/comments that may be related to your particular circumstances. Also, if you think there are any improvements that could be made to this for future versions, I’ll see what I can do to incorporate them. And again, I'm human, so if you find any errors, let me know and I'll correct them. Enjoy and let me know what you think. Attachments File comment: Value of an MBA v2.0 Value of an MBA v2.0.xls [70 KiB] Downloaded 5420 times  To download please login or register as a user File comment: Value of an MBA Value of an MBA.xls [62 KiB] Downloaded 2149 times  To download please login or register as a user _________________ The True Value of YOUR MBA: http://gmatclub.com/forum/103-t64239 GMATClub's Unofficial Chartered Financial Analyst thread: http://gmatclub.com/forum/103-t63245 How Much Weight Does the CFA Carry with Admissions: http://gmatclub.com/forum/103-t68059 Manager Joined: 11 Apr 2008 Posts: 202 Followers: 2 Kudos [?]: 17 [0], given: 1 Re: The True Value of YOUR MBA [#permalink] Show Tags 12 Aug 2008, 17:06 thanks ryguy947 for your explanation. Owe you one. +1 _________________ Nobody dies a virgin, life screws us all. Intern Joined: 10 Aug 2008 Posts: 12 Location: Research Triangle Park, NC Followers: 0 Kudos [?]: 0 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 26 Aug 2008, 21:20 ryguy904 wrote: I realize this may not be perfect, but I think it will be very informative regardless of your interests. This should help you whether you’re considering an elite vs. a trans-elite or a tier-two school vs. a regional program. It will also be helpful for those that are deciding between a part-time or full-time program. This will also help high-income earners that are deciding whether to go back to school at all. Ultimately, I wanted to create something that is user friendly and allows for almost an unlimited number of scenarios. If you have any questions, feel free to ask. Enjoy and let me know what you think. Brilliant rguy. Thank you. I just plugged in my current salary, estimated non-growth, a 50% increase in salary post MBA with growth to keep pace with inflation, and the ROI break-even was well beyond 10 years, even allowing for a bargain basement priced un-rated MBA program. Given my current age, and likely age upon graduation, it's not pretty. In fact, money-wise, I'd be better off staying put and waiting out retirement or the next layoff. Maybe getting the MBA anyway would be enough to open doors to make bigger leaps going forward. It certainly is better making some forward progress rather than staying put at a place where growth or promotion is unlikely. Guess that's a perk of being in the wrong industry in the wrong location in the wrong country... :/ cP _________________ Just a few electrons short of a full cloud... VP Joined: 30 Jun 2008 Posts: 1043 Followers: 14 Kudos [?]: 512 [0], given: 1 Re: The True Value of YOUR MBA [#permalink] Show Tags 21 Oct 2008, 08:30 ryguy .. do you even need an MBA ?? brilliant !! [+1] for sharing !! _________________ "You have to find it. No one else can find it for you." - Bjorn Borg Intern Joined: 05 Nov 2008 Posts: 2 Location: Minneapolis St Paul (MSP) Followers: 0 Kudos [?]: 0 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 05 Nov 2008, 11:20 Thanks for the spreadsheet. That was very helpful. I am basically trying to compare, part time and EMBA programs. Current Student Joined: 12 Nov 2008 Posts: 368 Schools: Ross (R2), Cornell (R3) , UNC (R3) , INSEAD (R1 Jan) WE 1: Advisory (2 yrs) WE 2: FP & Analysis (2 yrs at matriculation) Followers: 23 Kudos [?]: 103 [1] , given: 45 Re: The True Value of YOUR MBA [#permalink] Show Tags 19 Nov 2008, 19:53 1 This post received KUDOS very useful, thanks much Just trying to wrap my head around your discount rate assumptions. Are you assuming that the initial outlay (i.e. cost of MBA - tuition, books, etc) is amortized over the whole investment horizon (12 years in this case)? This is probably really picky, but there could be a situation where an individual borrows money to complete their MBA in year 1 and again in year 2, while accruing interest the whole time (so year 2 will have one period less in accrued interest charges). Just wondering what flexibility can be built into the model to allow for calc-ing degrees with borrowed funds (different amounts, amort schedules, etc). _________________ ~ If it is to be, it is up to me ~ GMAT Club Premium Membership - big benefits and savings Current Student Joined: 10 Dec 2008 Posts: 217 Schools: Kellogg Class of 2011 Followers: 1 Kudos [?]: 15 [0], given: 18 Re: The True Value of YOUR MBA [#permalink] Show Tags 18 Dec 2008, 13:49 Great model, very helpful. Also very important, because breakeven seems much less certain and much farther into the future than I had previously thought. I still think an MBA makes sense for me, but this is only the case when I consider (a) a 3-stage MBA career that is far more aggressive (in terms of salary) than a 3-stage no-MBA career; (b) the fact that I'm ready to get a new job in a different industry, and the ones that interest me necessitate my getting an MBA. Thanks for passing this along. [+1] Forum Moderator Status: mission completed! Joined: 02 Jul 2009 Posts: 1426 GPA: 3.77 Followers: 181 Kudos [?]: 798 [0], given: 621 Re: The True Value of YOUR MBA [#permalink] Show Tags 10 Oct 2009, 05:19 I would like to add an assumption that this model works in stable economies like USA's or Europe's, but not in Russia. _________________ Audaces fortuna juvat! GMAT Club Premium Membership - big benefits and savings CEO Status: Nothing comes easy: neither do I want. Joined: 12 Oct 2009 Posts: 2795 Location: Malaysia Concentration: Technology, Entrepreneurship Schools: ISB '15 (M) GMAT 1: 670 Q49 V31 GMAT 2: 710 Q50 V35 Followers: 220 Kudos [?]: 1514 [0], given: 235 Re: The True Value of YOUR MBA [#permalink] Show Tags 23 Dec 2009, 12:10 Excellent! Thanks for sharing _________________ Fight for your dreams :For all those who fear from Verbal- lets give it a fight Money Saved is the Money Earned Jo Bole So Nihaal , Sat Shri Akaal Support GMAT Club by putting a GMAT Club badge on your blog/Facebook GMAT Club Premium Membership - big benefits and savings Gmat test review : http://gmatclub.com/forum/670-to-710-a-long-journey-without-destination-still-happy-141642.html Intern Joined: 30 Oct 2008 Posts: 11 Location: San Francisco Followers: 0 Kudos [?]: 2 [0], given: 5 Re: The True Value of YOUR MBA [#permalink] Show Tags 23 Feb 2010, 21:45 Fantastic! +1 _________________ thehermit ============================= http://mbaquestencore.blogspot.com CEO Joined: 15 Aug 2003 Posts: 3460 Followers: 68 Kudos [?]: 832 [0], given: 781 Re: The True Value of YOUR MBA [#permalink] Show Tags 27 Mar 2010, 11:58 thought this may be useful.. Intern Joined: 08 Oct 2009 Posts: 39 Schools: Cal, Stanford, HBS, Yale, UCLA, USC WE 1: United Technologies (Pratt&Whitney Rocketdyne) Followers: 1 Kudos [?]: 2 [0], given: 4 Re: The True Value of YOUR MBA [#permalink] Show Tags 30 Mar 2010, 16:29 yeah, should find a way to include this in your applications makes the part-time mba look pretty good... sort of (well, actually the long term difference is minimal and since working fulltime + part time mba probably means youre driving yourself a bit more insane than you would otherwise... maybe not) +1 Manager Joined: 15 Mar 2010 Posts: 100 Followers: 1 Kudos [?]: 75 [0], given: 30 Re: The True Value of YOUR MBA [#permalink] Show Tags 26 Apr 2010, 20:53 amazing.. thanks! _________________ If you like my post, consider giving me a kudos. THANKS! Current Student Joined: 15 Mar 2010 Posts: 65 Schools: Texas '12 Followers: 1 Kudos [?]: 4 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 29 Apr 2010, 09:15 Not sure if I should be happy or sad, but all three stages resulted in a 3yr ROI. I guess that's why I'm switching careers. Intern Joined: 29 Apr 2010 Posts: 4 Followers: 0 Kudos [?]: 1 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 29 Apr 2010, 12:14 Thank you for this excellent tool. What do people think of the ROI rate/horizon for candidates from MC or IB background? I currently work for a MC firm with a very competitive package. Given a realistic post-MBA salary expectation of 160k (10% annual raises), it will take me approximately 20 years to break-even. For a 10-year breakeven horizon, I'd need to shoot for those 200k jobs (PE/VC/HF...) I am set on getting a MBA (matriculating this Sept.), but this does worry me a bit... Intern Joined: 28 Apr 2010 Posts: 3 Followers: 0 Kudos [?]: 0 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 01 May 2010, 12:14 I'm really surprised to see people willing to forgo a 160k+ salary to pay full price for business school. I guess it depends on your exact work situation, but I feel like 100k tuition plus the opportunity cost of two years making 160k would be too high of a price for me. What are your guys motives? Are you looking to move more into upper management, a career switch, or do you just hate your job? Intern Joined: 29 Apr 2010 Posts: 4 Followers: 0 Kudos [?]: 1 [1] , given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 01 May 2010, 15:49 1 This post received KUDOS af16 wrote: I'm really surprised to see people willing to forgo a 160k+ salary to pay full price for business school. I guess it depends on your exact work situation, but I feel like 100k tuition plus the opportunity cost of two years making 160k would be too high of a price for me. What are your guys motives? Are you looking to move more into upper management, a career switch, or do you just hate your job? When you are making 120k-160k in your mid-20s, chances are you are in MC or IB (PE). In my case, work-and-life balance simply does not exist. This is at least part of the reason why people start to look for exit as soon as they are promoted. My friends and I are always wondering why people would fight so hard to get into B-School so they can land a MC/IB job, when many of us are simply using B-School as an exit strategy. I guess the grass is always greener on the other side... In terms of motivation, monetary ROI isn't the only metric for me. I genuinely want to learn more about business from world renowned professors and ambitious/smart classmates. However, I am still bit shocked to see the 20-year breakeven horizon (even with an above-average pay). Intern Joined: 28 Apr 2010 Posts: 3 Followers: 0 Kudos [?]: 0 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 01 May 2010, 20:57 Interesting perspective. You're in MC now looking for a career switch - what are you looking to do after graduating, if you don't mind me asking? I personally would have no real interest in IB after business school, and very limited interest in MC due to the insane hours and travel. It's just that I'm not sure they're avoidable in most MBA-grad jobs. Intern Joined: 29 Apr 2010 Posts: 4 Followers: 0 Kudos [?]: 1 [0], given: 0 Re: The True Value of YOUR MBA [#permalink] Show Tags 01 May 2010, 21:18 af16 wrote: Interesting perspective. You're in MC now looking for a career switch - what are you looking to do after graduating, if you don't mind me asking? I personally would have no real interest in IB after business school, and very limited interest in MC due to the insane hours and travel. It's just that I'm not sure they're avoidable in most MBA-grad jobs. I think I want to work on startups after B-School. Hopefully, I will have a successful business on my hand by the second year, or I will use the recruiting season to find out what I really want to do. As a last resort, I could always head back to my firm. For some MCs, B-School actually slows down your career trajectory. For example, I am up for promotion in December, the same kind of position I would get after 2 years of B-School. Manager Joined: 21 Jan 2010 Posts: 231 Followers: 5 Kudos [?]: 84 [0], given: 38 Re: The True Value of YOUR MBA [#permalink] Show Tags 05 Jun 2010, 01:53 This is one of the best posts I have seen in the forum! Have always wanted to create something similar and here it is! Thanks. Indeed, an IB job brings you no life, but it becomes attractive when you find out such career could significantlt shorten your breakeven period... Founder Affiliations: AS - Gold, HH-Diamond Joined: 04 Dec 2002 Posts: 13983 Location: United States (WA) GMAT 1: 750 Q49 V42 GPA: 3.5 Followers: 3471 Kudos [?]: 20695 [0], given: 4340 Re: The True Value of YOUR MBA [#permalink] Show Tags 04 Aug 2010, 23:58 ryguy904 wrote: So I’ve had a little downtime over the last few days in the office and was thinking about my cost of earning an MBA. This mini-analysis ended up taking on a life of its own and it turned into a pretty sophisticated look at figuring out what am I giving up and how long (and how much) it is going to take to pay off. I realize that$$$is not the (only) reason that people go to b-school, but it's definitely an important factor. As a very analytical person, I thought it was important to dig deep on this topic. I have put together what I think is a comprehensive MBA return on investment (ROI) tool/model (more specifically, I used net present value, NPV). It looks at the MBA and non-MBA career paths and identifies not only when you’ll “breakeven” but also how your compensation will look over an extended period of time. I believe there are some other tools available online, but I don’t think that any of them offer much flexibility and are way to simplistic for a very important and complicated decision. Since I’ve gained so much from gmatclub, I wanted to share this tool so that my fellow g-clubbers can tailor it based on personalized life plans. For example, some people want to go into i-banking. This particular job function has a pretty unique compensation path. Moreover, most people that (want to) go into banking, only do so for a few years before jumping to investment management or private equity or some other excursion. Therefore, it wouldn’t make sense to say, “My compensation is going to be$350k for the next 12 years.” Other folks want to go into marketing, consulting, operations, strategy, etc. - areas that have different compensation tracks than investment banking. This tool is designed for any person starting with/transitioning to any career path.

I realize this may not be perfect, but I think it will be very informative regardless of your interests. This should help you whether you’re considering an elite vs. a trans-elite or a tier-two school vs. a regional program. It will also be helpful for those that are deciding between a part-time or full-time program. This will also help high-income earners that are deciding whether to go back to school at all. Ultimately, I wanted to create something that is user friendly and allows for almost an unlimited number of scenarios. If you have any questions, feel free to ask. Enjoy and let me know what you think.

Cheers,
ryguy

EDIT - Version 2.0 Available Now!

I made a handful of changes since I created this model last summer, but below are the two major changes that I have made:

1) Updated fields to incorporate internship earnings

2) Ability to easily compare a part-time v. full-time MBA program (from a financial perspective)

A couple of comments and feedback that were suggested from last time that I did not specifically address (and my reasons for choosing not to do so).

1) Debt service of student loans. So here’s the deal. This model assumes that tuition is paid upfront (i.e., during school). This is unrealistic for the vast majority of folks on the board here, and probably most students in general. However, I prefer to take a highly conservative approach when it comes to figuring out when I will break even. I suppose this is a worst-case scenario (i.e., makes the payback period look longer than it should), but in my mind, I’d rather err on the side of a longer payback period than a shorter payback period.

So why does this matter when tuition is paid? It is more expensive to pay for tuition with today’s dollars than it is X years down the road. For instance, if you are on a 10-yr repayment plan paying $600 a month -$600 in today’s terms is a lot more money than it is 5, 6, or 7 years from now (and for simplicity’s sake, let’s ignore fluctuations in the value of the US dollar). If you don’t believe me, ask yourself this: Would you rather I gave you $600 today or$600 in 6 years from now. Good, I’m glad we’re on the same page. For more detail on this, I explain this in general assumption #3 on the Instructions worksheet. In that section, I’ve also included instructions for a scenario that could be applicable for folks that go into investment banking, private equity, or any other very high paying post-MBA job.

2) Taxes. I received some comments saying that tuition is paid with after-tax dollars, but salary is listed in before tax dollars. Sure, fair enough. If you think that it is appropriate to adjust for this, multiple your salary by (1 minus your expected tax rate) and plug that in for your post-grad salary. I chose not to do this for the base case scenario, but again, I’ve tried to make this model flexible enough where you can put in whatever assumptions YOU think are appropriate.

Updated directions are included on the first worksheet of the excel file. Let me know if you have any questions. I’ll be happy to address any issues/comments that may be related to your particular circumstances. Also, if you think there are any improvements that could be made to this for future versions, I’ll see what I can do to incorporate them. And again, I'm human, so if you find any errors, let me know and I'll correct them. Enjoy and let me know what you think.

BUMP!
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Re: The True Value of YOUR MBA   [#permalink] 04 Aug 2010, 23:58

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