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The True Value of YOUR MBA

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The True Value of YOUR MBA [#permalink] New post 20 May 2008, 15:37
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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.
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Re: The True Value of YOUR MBA [#permalink] New post 08 Oct 2010, 10:07
Great spreadsheet... except it doesn't account for the fact that some people earn bonuses in their pre-MBA jobs.
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Re: The True Value of YOUR MBA [#permalink] New post 08 Oct 2010, 11:48
thatsku wrote:
Great spreadsheet... except it doesn't account for the fact that some people earn bonuses in their pre-MBA jobs.


Can't you just add that to salary and enter that final amount in the salary section :) ?
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Re: The True Value of YOUR MBA [#permalink] New post 07 Apr 2011, 15:06
Great stuff ryguy904 !!
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Re: The True Value of YOUR MBA [#permalink] New post 28 Apr 2011, 17:44
Not a bad tool. Just finished learning about NPV in class actually. Good stuff.
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Re: The True Value of YOUR MBA [#permalink] New post 03 May 2011, 12:28
Super awesome!!

+1 for you my friend..
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Re: The True Value of YOUR MBA [#permalink] New post 25 May 2011, 13:04
is the starting salary the "whole package" or just the total pay? 120k for default is pretty generous as an average isn't it? just kinda curious about it.
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Re: The True Value of YOUR MBA [#permalink] New post 26 May 2011, 11:02
Depends on the job role 120K is probably a little on the "higher" end but it's normal if you go banking or consulting. Great tool +1
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Re: The True Value of YOUR MBA [#permalink] New post 07 Aug 2011, 15:32
I'm looking at the "Three Stage NPV" tab.... shouldn't this model only assume approx. 22 months out of work for a full time program? It is currently assuming 2.5 years without work (i.e. 36 months) which I think is excessive unless I'm missing something. This changes the break even of my analysis from 6 years to 4 years.
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Re: The True Value of YOUR MBA [#permalink] New post 04 Sep 2011, 00:32
Brilliant thanks for sharing....
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Re: The True Value of YOUR MBA [#permalink] New post 06 Feb 2012, 21:48
thanks for the update!
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Re: The True Value of YOUR MBA [#permalink] New post 07 Feb 2012, 00:26
Awesome. Thanks for sharing.
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Re: The True Value of YOUR MBA [#permalink] New post 27 Feb 2012, 18:25
Great tool!

Cheers!
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Re: The True Value of YOUR MBA [#permalink] New post 30 Aug 2012, 01:56
It makes more sense to do an MBA for folks in US who are on such high packages (>100 K). An year's salary is all that you forgo for MBA.
For international students, the loan amount + interest rate + economic situation (possibility of finding a job with work visa) make it a much tougher decision to make. Still, I'd say if you have been feeling that inclination to go for an MBA since last few months or years, then it may be better to get it done, and you need to project yourself few years ahead and compare your career with / without the MBA.
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Re: The True Value of YOUR MBA [#permalink] New post 07 Jan 2013, 11:15
Good stuff.
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Re: The True Value of YOUR MBA [#permalink] New post 15 Feb 2014, 12:48
Hello from the GMAT Club MBAbot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.
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Re: The True Value of YOUR MBA [#permalink] New post 02 Apr 2014, 02:27
Good spreadsheet - i can imagine the effort which must have gone into creating it.

Just a few pointers ...

funding mba via own savings vs bank/ federal loans will tilt the scales significantly. some might say its not prudent to wipe out a large chunk of personal savings, but i believe if you can afford to do it, it kind of relieves the pressure of finding a high paying job at the end of the program.

secondly, it might be valuable to include a small "bump up" in the salaries post MBA depending on the school strength/ alumni strength. i have come across many alums who continue to have mouth watering growths in their salaries 5 - 6 years after graduation ...
Re: The True Value of YOUR MBA   [#permalink] 02 Apr 2014, 02:27
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