The R.O.I. of an MBA

Bertrand Guillotin asks if an MBA is really worth the cost? 

R.O.I. (Return On Investment) is often a formula that MBA applicants think about when they try to decide if an MBA is worth the cost, especially in difficult economic times.  If you think more broadly about this accounting concept you might come across the straight-forward pay-back method. 

Let's assume a simplistic scenario where your post-MBA salary will help you generate an additional US$ 25,000 per year compared to your pre-MBA (current) salary.  If your MBA costs US$ 100,000, then you will need four years to pay-back your initial investment.  After that, you profit at a rate of US$ 25,000 (or more, hopefully) per year. 

If these broad assumptions were not just valid but somewhat guaranteed, then an MBA would be "worth it" from a financial standpoint and life would be simple - it is not.  Why?  You also need to consider the loss of salary between dates of employment (assuming that you do a full-time MBA).  In addition, you need to estimate the costs associated with the loss of fun times with family and friends.  This is what economists call the opportunity cost.  In effect, you need to look at the big picture before deciding to get an MBA.  I will gladly offer some advice on this.   

By the way, what happens if you lose your job?  Obviously, it would take you longer to pay back your investment.  One of the questions you need to ask yourself is whether this type of issue really matters.  In other words, should a pay-back period of eight instead of four years be a critical decision factor?  I think not.  Even in this great recession -I would argue, especially in this great recession- long-term investing is a wise choice, as long as you acquire a valuable asset.  In my opinion, management education, is among the most valuable assets that you can acquire. 

A few years ago, I noticed a bumper sticker in the U.S. that said: " If you think education is expensive, try ignorance."  This is the essence of the value proposition that still holds true in regards to an MBA.  Maybe you will not make the additional US$ 25,000 per year that we mentioned above.  Maybe it will take you ten years to pay-back your MBA investment.  Regardless, in many cases you will be overcoming challenges better than others and you will have some real peace of mind. 

As you know, in most countries people live (and work) longer than ever.  That means that you will have several careers, not just one or two like your parents.  In some cases, you will need to make very tough choices in life, without complete data and while being under a great deal of stress.  A world-class MBA program will put you in these situations day-in, day-out.  Through case studies and simulation games, you will acquire real-world skills to analyze any kind of topic and craft the best strategy while juggling many academic, professional, and personal priorities.  Once you graduate, you will be prepared for just about anything in life.  A solid MBA program is a military-like training camp for the mind. 

With this, many will point out that a Liberal Arts education will also help you broaden and train your mind and that you can always hire an accountant to do the numbers.  Yes, that's one way to think of it.  However, I would argue that being able to use business and economics concepts will help you analyze these numbers so that you can craft the best strategy.  In the end, you are the decision-maker who will allocate your own hard-earned money.  How well you will sleep at night is the real question.  Your accountant, in this case, will sleep well, as long as you paid his or her invoice.

Still, the skeptics might say that the cost of an MBA is still too high, that you must hold on to your cash in a tough economy. I would like to remind them that many well-known ventures were launched during recessions.  For example, General Electric was founded during the recession of 1873, Revlon Cosmetics in 1932, Hewlett-Packard in 1939, Microsoft in 1975 (between two major oil shocks).  When times are tough, an opportunity-driven strategy with a long-term focus is the best strategy to adopt.  It is also unique since everyone else is focused on the short-term and acts as if they are paralyzed by fear.   

Whether you are optimistic or pessimistic by nature, I encourage you to compute your own formula.  What is the cost of that peace of mind that you would like to have now and for the next 50 or 60 years?  How prepared do you want to be when you will have very tough choices to make?  In a world where change is the only constant, where competition is intensifying globally, you have to arm yourself against these challenges by, among other things, getting your MBA. 

Last but not least, please consider another way to look at this "R.O.I." acronym.  Let's imagine now that R.O.I. stands for Rate Of Internationalization.  Whether it's your career, personal life or university, I strongly urge you to carefully look at this kind of R.O.I. and make sure that it trends upward over the long term.  Best wishes. 

Bertrand Guillotin is P.I.M. Chair for North America and Director of the International Center at Duke University's Fuqua School of Business (Durham, NC – USA)