Evaluating the long-term earning power of an MBA
Acquiring a Master of Business Administration degree (MBA) is often the next step for a graduate with a Bachelor of Arts degree. There are hundreds of first-rate MBA programs that add value to MBA graduates and offer high return on investment. MBAs are becoming more and more popular because there is a growing demand and business schools are meeting that demand. While an MBA may seem particularly valuable if it is earned from a top-ranked school, statistics show that any MBA yields a high ROI without fail.
Increasing demand for MBA
Earning an MBA requires commitment, focus, discipline and money. The top-ranked schools graduate a small percentage of total MBAs because their standards are high and they do not accept just any candidate. Even for students who are accepted in first-rate MBA programs, it is hard to graduate. This doesn’t make the pursuit of an MBA any less popular.
A key fact to remember is that demand for MBA programs counter-fluctuates with the economy. During a weak economy, MBA applications increase. This is explained by the fact that an increasing number of job seekers consider business school a good solution for anticipating a downside labor market.
Added value of second-tier MBAs
There is a general notion that MBAs earned from second-tier schools don’t increase graduates' earning power because a mediocre business school attracts mediocre students and produces mediocre managers. In today’s competitive business environment, a mediocre degree does not make a candidate stand out in any significant way. Employers believe that it is easier to earn an MBA from a second-tier school than from Harvard, for example. It’s not only the lower cost of attending the program, but most importantly the curriculum that is not regularly restructured with relevant coursework to provide support for entrepreneurial experimentation. There is little doubt that holding an MBA from Harvard or the University of Chicago is far more competitive than an MBA from Warrington College of Business of the University of Florida or even F.W. Olin Graduate School of Business, which is considered the best second-tier business school nationwide.
However, according to the Graduate Management Admission Council (GMAC), the 10-year annualized return on investment for top-ten schools is 12 percent, while for schools that are ranked outside the top-ten is 18 percent. Moreover, schools that are ranked in the top 50 have average return of investment of 17 percent, while schools ranked outside the top 50 have a 20 percent ROI. The long-term earning power of second-tier schools is better than top-tier schools because top-tier schools cost more and their graduates need to get extremely good jobs and earn very large salaries to have a return on their investment. Therefore, it is all a matter of perception: Holding a Harvard MBA is definitely prestigious, but if there are no jobs available to support this degree, it may be a better option to consider a second-tier school for an MBA degree.
A good return on investment, if needed
Students who are not top achievers before business school will most likely remain under-achievers during their business school studies. Although employers use a grade point average of 3.0 as a basis and consider extracurricular involvement and the university’s reputation, they are more likely to hire a candidate with a GPA 3.95. Furhtermore, for particular fields of study an MBA is not enough. Engineers need to get Master’s in Engineering Management alongside an MBA, which means double investment in time and money.
An MBA has a long-term earning power if a career path calls for it. There is opportunity cost involved because of forgone salaries while attending business school. Therefore, pursuing an MBA makes sense only if the career path requires it.
Each graduate knows better
Whether pursuing an MBA is a good choice in terms of long-term earning power is a decision that needs to be based on the answers to six basic questions:
1) Where do you see yourself 10 years from now?
2) What degrees do employees in similar positions hold?
3) Is the MBA necessary for your career path?
4) Can the school under consideration open the door for you?
5) How much will the MBA cost? (opportunity cost, cost and benefit relationship)
6) How much will the MBA earn?
In the main, MBA graduates are satisfied with their MBA degrees in terms of increase in work environment flexibility, preparation for getting a good job, opportunity to network and increasing earning power. However, the decision to pursue an MBA needs to consider how important an MBA is for one’s prestige and psychology. Earning an MBA is undeniable evidence that the holder is smart, articulate, well-informed about the latest business practices and disciplined. Although MBA degrees cannot guarantee future success, they increase the credibility of the holders making them more respected in a corporate environment because of formal business education. This explains why, for many candidates, holding an MBA is the most important investment in oneself.
