ROI on an MBA

In the December 10 edition, The Wall Street Journal ran a worthwhile article about the return on investment (ROI) from attending an executive MBA (EMBA) program. I found the article to be not entirely clear about the underlying methodology and assumptions, so I went to the online version and tested out the associated calculators. I still couldn't prove out the numbers completely, but the methodology seemed to be directionally sound.

In short, the calculations depend on these assumptions:

• The MBA program attended and its cost.
• The amount of tuition and fees paid by your employer.
• The increase in salary that you can expect from graduating the program, based on median results from other respondents.

If your circumstances deviate significantly from the assumptions, especially the median results reported by other graduates of these programs, the calculator will be a less reliable indicator of the returns that you can expect. Moreover, one big oversight in the analysis is that it is conducted on a pretax basis. This may greatly overstate your ROI, since your salary increase definitely will be reduced by income and payroll taxes, whereas your expenditure on tuition and fees is likely to be non-deductible.

One of the chief findings in this article is that lesser-known, less-renowned executive MBA programs often offer the best ROI. What the article fails to say, however, is whether the ROI will differ based on where you work. That is, these programs that are less-renowned nationally may have strong local reputations, and the ROI results may be skewed if their graduates are thus overwhelmingly local. In other words, if you travel cross-country to go to one of these high ROI programs, you may not get the same results back in your home region as do the local attendees. That is another factor that should have been controlled for, difficult as it is.

Despite all these caveats, this article is a useful reminder that you should engage in detailed empirical analysis of the costs and benefits of augmenting your credentials, be it through a regular MBA, an executive MBA, or other means.