MBA Still Worth It? Absolutely, Say Alums

by John A. Byrne on

The most frequently asked question by anyone considering an MBA degree is simple enough: “Is the MBA still worth the time and the expense?”

A new study out today (Jan. 12) from the Graduate Management Admission Council has a conclusive answer to that question: Absolutely, yes!

The 2012 Alumni Perspectives Survey, which is based on opinion polls of 4,135 MBA alumni, including 963 members of the Class of 2011, found that three out of four alumni of the class of 2011 with jobs report they could not have obtained their job without their graduate management education. GMAC said this finding has remained relatively consistent over the last seven years and far exceeds the percentage of alumni who responded similarly during the recession of 2001–2003.

The vast majority (93%) of class of 2011 alumni indicated the job they took after graduation was exactly what they were looking for. Interestingly, when comparing responses from different age groups, individuals ages 28 to 34—the traditional MBA age group—were more likely than their younger and older cohorts to consider their graduate education degree essential to finding a job, GMAC reported.

Meantime, four out of five graduates (82%) in the Class of 2011 said their salary met or exceeded their expectations.

The highly positive results, moreover, come from a wide swath of business schools—not merely the top ranked institutions whose graduates receive the highest reported compensation directly out of school and are the most likely to be satisfied with their MBA experience.

“Anyone considering a graduate management degree should do a thorough economic analysis, including an evaluation of the potential return on their investment,” said Dave Wilson, president and CEO of GMAC, which administers the GMAT exam, in a statement. “These results demonstrate that a graduate management degree is, in fact, a solid investment in your future, both in good and bad economic times.”

Not everything in the report was upbeat, however. GMAC found, for example, that the employment rate for responding MBA alums actually slipped two percentage points to 86% from 88% a year earlier. That’s in all likelihood a statistical glitch with the sample because almost all business schools reported substantially higher placement rates for the Class of 2011 than they did for either the Class of 2010 or 2009. Nonetheless, it’s sobering to think that 14% of the latest graduating class responding to this report are unemployed.

Even so, alumni reported what GMAC termed a “stellar” return on investment (ROI), with graduates recouping one-third of the financial investment in their degree within the first year after graduation, and 100 percent four years out. After 10 years post-graduation, alumni reported that they nearly doubled their return on investment.

RETURN ON INVESTMENT BY GRADUATION YEAR

Source: Graduate Management Admission Council

These ROI numbers are even more pronounced for full-time MBA alumni than they are for graduates of other program types, as full-time MBAs reported recouping an average of 91 percent of their investment compared to 77 percent reported by executive MBA alumni and 73 percent reported by part-time alumni across all graduating years (2000–2011). When asked whether their ROI met or exceeded their expectations, full-time MBA alumni not surprisingly were more likely to respond in the affirmative than alumni of other program types, having recouped the most for their graduate management education investment.

1 2 Next
  • satish

    the currency in my country(india) has depriciated by 20% in less than a year. my plans of mba have taken a back seat now as i have pay more in dollar terms.

  • EBR

    Note the low response rate for the survey: “Of the 32,730 contacts initiated for the 2011 Alumni Perspectives Survey, 4,135 people responded, yielding a 12.6 percent response rate.” (found in the methodology of the report, at http://www.gmac.com/NR/rdonlyres/A79709E3-4CEB-4585-B8E2-5F550F58A714/0/Alumni2011_Public.swf). This is a very low response rate.

    Also, the roughly 32k alums who constitute the survey sample SELF SELECTED to participate in follow-up (i.e. they had been surveyed as students prior to graduation and agreed to continue being surveyed as alumni). This means they are not representative of the population of MBA students as a whole.

    I’m highly skeptical of the findings given the lack of rigorous research methods used. As far as I’m concerned the MBA is still very much “caveat emptor.” The way the survey results are being touted both in this blog post and in the GMAC report does a real disservice to prospective MBA students.

  • Steve

    EBR: The two issues you point out do not call into question the validity of this study. First of all, a 13% response rate is not low, even if an incentive were offered. These folks have no loyalty to GMAC and, thus, they have no particular impetus to take half hour (or whatever survey length it was) out of their busy day to take a survey. Even if 13% was a low response rate, 4000+ completed interviews is a very robust base size to perform this type of analysis. Even 300 to 500 representative completed surveys would have been sufficient. Which brings me to my next point…

    Of course these folks are self-selected. There is no getting around this outside taking a census of every person who obtained an MBA in the last decade. Assuming invitations to join this panel were provided to all graduates (and not only to, say, those with offers from McKinsey or Apple), there is no reason to believe that only those with positive perceptions of the MBA experience would agree to join. In fact, research on research frequently proves that those with negative perceptions are more likely to respond as a way to vent their frustrations.

    This research may not be sound, but it wasn’t because of the two issues you raised.

  • http://poetsandquants.com/members/llavelle/ Louis Lavelle

    I have a slightly different take on this:
    http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2012/01/the_mbas_value_debatable.html#more

    Louis Lavelle
    Associate Editor
    Bloomberg Businessweek

  • EBR

    Steve, thanks for your response: you make some good clarifications re: response rate. The point still remains there is no indication of how representative these survey findings are of the population of MBA alums. Also, good survey design would have meant going out and seeking a sample from the population to study (e.g. using random sampling or stratified random sampling or some other strategy). Instead they simply took those who “responded to past GMAC Global Management Education Graduate Surveys prior to graduation and who agreed to further follow-up as alumni.” I find it doubtful that those who agree to follow-up aren’t also going to be those with a better outlook and outcomes. If you’re worried about landing a job in a tough economy after graduation you simply aren’t going to waste time signing up for some survey in the future about your MBA experience. There is a major self-selection problem here that remains unaddressed by the folks at GMAC.

  • Steve

    EBR: again, outside of a full census, there will always be some degree of self-selection bias. That said, a random sampling would not have mitigated this issue (outside of forced participation)… only a proportion of those invited to participate in a random sample would actually agree to it, and there, again, would be a self-selection bias.

    You could even argue that those not with a job are more likely to join the panel and participate since they have plenty of time on their hands. I’m guessing bankers will 100+ hours per week in the office put very high value on their limited free time.

    The one unknown (or maybe it is known but I just haven’t read the methodology) is whether the data is weighted. They should ensure that their responses match known proportions of important metrics such as rate of employment, industry, income, geographic region, etc.

    Anyway, all that research-ese aside, the data that does it for me is found on the second to last paragraph “97 percent of all employed alumni surveyed from 2000 to 2011 said they still would have chosen to pursue a graduate management degree”. Ultimately this is the only thing that matters.

  • HYP

    First of all, I agree with EBR, there’s a HUGE self-selection bias. And people like to talk about success more than failure. The only time they are likely to “complain” is when they think something will happen as a result. If I was unhappy about my MBA program and got a GMAC envelope in the mail, I would probably disgard it right away. If I was making a lot of money and feeling good about my MBA in general, then yeah I would consider chatting up my good fortune for 30min. Who doesn’t like to talk about themselves favorably?

    Also, there could be confirmation bias on those who say they found “exactly what they are looking for.” IF they didn’t, they’d be admitting to themselves that they still need to work on it or that they’ve failed in achieving their goals. If they’re calling talking about their success in the first place, they don’t want to admit, even to themselves, that they’ve failed in any way.

    An MBA being “essential” to finding a job? Most who feel the need to get the MBA have to get their ticket punched in their career paths (consultants, i-banks, which together probably account for over 50% of students and all top 10 programs combined). Additionally, some are “stuck” in a position anyway and may have to get the MBA. So, in other words, if you can move up without the MBA, then you may not be better off with an MBA.

    The first few questions asked are very important as well. Once you get the respondentds started with positive yeses, they will continue with positive yesses. For example, salary meets or exceeds their expectations (I said yes to i’m happy, then yes to this too…subconsciously). Additionally, if they say no then they oblige themselves to find another job…something they probably don’t want to after all they’ve been through…so they say to themselves “yeah it’s enough” and, thus, report the same.

    The fact that 14% are unemployed is actually startling. That’s more than 60% higher than the nationwide unemployment rate. I understand most of them are probably ‘waiting’ for a better opportunity, but having the MBA probably makes them wait longer than they would have otherwise because of a feeling of higher worth…which can be detrimental. Just one year of losing out on an $80k salary, for example, will take at least 5yrs of a $100k because you also have to account for the time value of that forgone $80k.

    The ROI should take into account the cost of forgone wages AND the full cost of the MBA. And the return is not the salary, but the “increase” in salary compared to similary-qualified individuals who don’t get an MBA. If you make $100k at the age of 30 because you’re a fresh MBA grad and someone similar to you in intelligence/talents but no-MBA makes $80k at that point, then here’s the analysis:

    2yr MBA even after some scholarship money (not including living expenses because you’d have that no matter where, unless you’re moving to a more expensive city) = $120k – $20k free money/scholarship/grants = $100k + $60k x 2 (salary) = $220k.

    How many years and how much of a higher salary will it then take to make up for the $220k? If, as in our example you’re at $100k and the non-MBA guy is at $80k, then at least a decade, even when you account for both wages increasing over time, because you also have to account for interest on the $220k.

    We can’t compare the lifetime earnings of a top MBA ($2.8M avg) with the lifetime earnings of a bachelor’s-degree ($1.8M avg), because the type of people who even think about getting an MBA in the first place and have the discipline and smarts to apply, get in and work hard are not going to be just at the $1.8M lifetime earnings scale to begin with. But EVEN IF we say that there is indeed a $1M difference, then:

    So is it worth spending $220k now to get $1M over a LIFETIME, on average? Note that I am calculating the lifetime earnings from TOP MBA programs. Even if you got that $1M two decades before you retired (age 50), then for those 20yrs post-MBA, you’re ROI would’ve be 7.9%. Decent, but not stellar.

    Finally those who say they’d do it again may not just be calculating the cost vs benefit in monetary terms. They may have enjoyed the experience as well which tilts the calculation in the favor of an MBA. If you’re already enjoying life fully and may not increase your enjoyment by much (or even decresase it) at a b-school, then that calculation becomes less favorable for an MBA.

    Bottom line, this study is what it is, but in no way can we say that it represents what MBA alumni think in general. There may be thousands who are not happy and wouldn’t want to contribute to GMAC in any way as a result and so would never be accounted for in this survey. Think about it, if you’re not very fond of your high school and you got a phone call from them asking you to take a 30min survey, would you? But if those were some of the best years of your life, then you’d probably try to make time for it.

    Some of my reasoning may be flawed, so please feel free to correct me or argue any points you think are not strong.

  • EBR

    Steve: We will have to agree to disagree because I still think the data have a good likelihood of being non-representative. They owe their readers some sort of descriptive data on who these respondents are and whether and to what extent they reflect the full population of MBA students (the group of interest). On a side note the results were not weighted: “The data have not been weighted to reflect the demographic composition of a target population.”

  • Mario

    this study like the one that shows that 90% of the wall street billionaires whom hold an MBA, they did at one of three schools: HBS, Wharton, and Columbia.. but the question is HOW MANY BILLIONAIRES IN WALL STREET HOLD AN MBA? very very few..so such studies don’t really reflect all the picture..the sufficient study is the one that include +50% with response rate over 50%..otherwise it doesn’t give useful info or indication..

  • David

    Good commentary. I am far from a research expert, but have some practical and learned experience. I think Steve may be technically correct about the method and statistical significance of the research. The debate seems to revolve more around the psychological aspect of “why” and “who” would actually participate in the survey. That’s an entirely different conversation that we’re probably not qualified to debate. But the bigger point, to me, that EBR and HYP bring up is simply the act of ‘questioning’ the true ROI of and MBA and, even further, education in general. I’m certainly not “anti-education”, but I don’t like how it’s just assumed that it is the right thing to do. It is expensive and many times there are alternatives that if actually weighed and considered, may be a better route. For some reason, it seems like there has been no debating this topic. You either agree that further education is worth pursuing, or you’re an idiot!

  • Douglas

    Let us all take a step back and be realistic in our expectations. VERY FEW of us will be accepted let alone have the opportunity to attend a Top 10 B-School. I am a working professional and felt going through an Evening MBA program at the major university nearest to me was a no-brainer (even though it was not Top 10.) The ROI is heavily dependent on the individual, the industry and metro area in which you live/work.
    In my personal opinion (and I am sure this can be argued) anyone who forgoes an MBA because they feel they do not need one to advance in their current company is shortchanging themselves in the future. Few professionals in our generation (currently 28-34) will start and end our careers at a singular employer. Therefore you should stack the deck in your favor as best you can. An MBA will soon enough be commonplace and the this is definitely an example where first to market pays its dividends.

  • Steve

    If the data was not weighted, then the results may not be representative. GMAC should have been able to obtain the break-down of MBAs by important demographic metrics, such as industry, income, region, job title/position, etc. If they did not check to see if the results among completed surveys were similar to known proportions among MBA graduates, then this research was not methodologically sound. However, without additional data as to who these respondents were, it is impossible to hypothesize what impact it had on the data

  • No Way MBA

    MBA: frequently wrong but seldom in doubt

  • Vladmir

    This data is interesting in that it is taken in a very difficult market. I’d be interested to see how different it would be if we were in more economically benign times.
    However correct me if I am wrong as I am not in the US, but is it not part of the US culture to undertake an MBA? It seems to me that most of the ‘high flying careers’ require an MBA in the US.
    Investment Banking analysts need to go to business school to become associates.
    Management consultants are either sponsored or recruited via the MBA path.
    Industry fast track training programs require MBA’s.

  • HYP

    LOL at myself above. I didn’t mean to say “some of my reasoning may be flawed” at the end of my long post. Still cracking up at myself for saying that!

    Just meant: correct me if you think I’m wrong.

  • http://www.accepted.com/mba Linda Abraham

    I commented on this post and the different views of Louis Lavelle and John Byrne at http://blog.accepted.com/2012/01/18/what-is-the-real-value-of-an-mba/.

  • Ferdinand

    Now that we know the obvious value of an MBA in this century, the next big study should encompass the value of Ivy League vs. the average institution, and maybe even the comparison of value to include online MBA programs (or any Master’s degree program). Are people truly getting their money’s worth by attending $40,000.00+ a year MBA schools, or are they paying too much? Universities like Harvard, U. Mass, and other private universities have implemented online graduate degree programs, but is the expense worth it? Are graduate students from lower cost, lower rated online degree programs getting the career advancement they wanted after graduating from their institutions? If so, what’s the rationalization for paying such high tuition rates if my chances are just as good, or slightly higher than a lower cost school? You get the idea… Would love to see the results of that kind of study…

  • Greg Farrell

    Ferdinand brings up a good point. An MBA from Harvard can be more beneficial than one from a smaller, less know institution. If one has an accounting/finance background, an MBA is just the icing that may make that candidate more hireable.
    It’s all about contacts. The ivy league schools have more business contacts than lesser known institutions. For start-up companies, this may not be as important as long as the individual is flexible, and does everything needed to make the company successful. I’ve worked with some Harvard grads who don’t do everything, and will not do work with they might feel is beneath them.
    The on-line courses might be helpful for an MBA, but I would rather hire an potential employee who has attended a full-time university, and who has collaborated with other classmates on projects and assignments. The key here is can they get along with others.
    If you’re one of the privledged, it doesn’t matter what university you attend or what degrees you have. If you’re not, and want to succeed in business, you’ll need an MBA, preferably from a name school, be an over achiever, and stay focused on your goals.

  • Greg

    Douglas Said: “In my personal opinion (and I am sure this can be argued) anyone who forgoes an MBA because they feel they do not need one to advance in their current company is shortchanging themselves in the future. Few professionals in our generation (currently 28-34) will start and end our careers at a singular employer. Therefore you should stack the deck in your favor as best you can. An MBA will soon enough be commonplace and the this is definitely an example where first to market pays its dividends.”

    Douglas, here is where I disagree with you. In pursuing an MBA, one has to consider the value of the MBA. What will you get in return and will it be worth it in the long run? The answer is contingent on one’s career goals. I have been out of college for 7 years now and was considering an MBA for the past two years. After going back and forth and thinking about it, I realized that it isn’t the right choice for me considering my industry and my career goals. I work in the fashion/retail industry in the supply chain/finance field. At the age of 30, I already make more than the average B-School graduate. My salary is in the high $70K. This was one evidence that I am already doing well for myself in comparison to those my age. In addition, I work in an industry where advance education doesn’t really mean much or get your foot in the door. My field is competitive and it is hard for people to get their foot in the door. Think about it, working in fashion industry in NYC. Trust me, people are breaking doors to get into it. Employers really care about one thing and that is EXPERIENCE. Employers get a lot of great resumes, and even MBA grads, who want to work in the industry. So many lack one thing, retail/fashion experience. Understanding things like open to buy, inventory management, sales forecasting, trend forecasting, vendor RTVs…These are things they care about. That being said, after realizing an MBA isn’t going to advance my position or experience, I decided to not pursue. Guess what, it was the best thing I did. Last year, I got promoted and this year I took a job with a new employer, making a lot more than I was making previously.

    To that end, obtaining an MBA is great but it isn’t always necessary.

  • Toromale

    I agree with you. Paying $40K a year and forgoing salary does not make sense, if you are already doing well in your career.. for example most software engineers make $65K to $85K plus bonus after 5 years. I do hold a Masters in Software (Private University paid <$30K) and MBA (State University paid <$40K). Based on my personal experience Masters and MBA adds value, but top schools are charging way too much for education, which means i takes 5 years to recover the costs.

  • Sam

    I’m 6 years out from my undergraduate degree as a Petroleum Engineer. I’m in the Oil & Gas Industry and I’ve worked my way up the ladder, although I am still “just an engineer”, I currently earn nearly 150k/year. For me in my career, getting the MBA is not about earning more income ASAP. I’m about to enroll at Texas A&M MBA program, which is not a Top 10 B-School, but in the top 50. Coming from an engineering background, I want the MBA to not only diversify my background and open myself to a more business related positions (with a formal business education), but I want it for the strong networking, especially in the Oil & Gas Industry.

    I worked for a 50,000+ employee company previously with tremendous resources and during my tenure there I was able to research all the manager and upper executive positions. I was able to see what they did to reach where they are, because that’s where I want to be someday. I found a strong trend. You can “work your way up the ladder” without a graduate business degree, but most 30+ year experience people, the highest they could ever get was middle management. Those who were in director or executive level (VP and Presidents) all were mostly YOUNGER than middle management, but they all had graduate level degrees, whether it was in business or some other technical degree.

    So for me, I won’t see my ROI immediately or maybe even in the next 5 years. For me it gives me the opportunity to open doors and quickly move up the career ladder without having but 15+ years experience. There were people with MBAs with only 15 years experiences who were in VP positions over a Bachelor’s only in middle management with 30+ years experience, because of their MBA.

    75K may sounds like a lot of money right now, but when you get it early in your career, rather then waiting till you really need it, (because it’s a road block), it’ll be worth it when that time comes and the doorways are opening up for you to move to executive level positions in those 300-500K+/year positions in large corporations.

  • Nicholas Prieve

    Great article. As an MBA candidate with another masters and an undergraduate degree in business, I can say with some certainty that there are a lot of options and it really depends on who you are and what your goals are. There is a book I read recently that is contrary to this though.
    By personal MBA and outlines why getting an MBA might not be the best idea. I don’t really agree however the book has a point that a lot of folks wonder, is it better to just by the textbooks and read on your own or is there some big secret that MBA’s get? 
    I think that each person is different but for me it helps with clients and has been a good deal, though everyone is different. It is what you make it.

  • WNJ

     Hi Greg,

    In regards to your experience in the fashion industry, I seek your advice. I’m 38 years old and looking to transition into the fashion sector. I applied to LIM’s MBA program in Fashion Management/Entrepreneurship and Parsons AAS in Fashion Marketing, I was recently accepted to both programs.  My goals are to gain extensive knowlege in fashion business through my studies and work experience within the product development department of a fashion company. My ultimate goal is to continue to launch my pet apparel and accessories company, and eventually branch out on my own. Given that you work in the NYC area and have several years of experience in  fashion sector, would you recommend the MBA or AAS program ?

    Thanks

  • http://www.facebook.com/gregston1 Sandra Gregston

    I have an MBA and I went into my MBA directly from my undergrad. I didn’t have a job when I graduated with my undergrad. and I still don’t have a job. So, talking about ROI, I don’t need ANY ROI at all. I’d take a job that offered $14 an hour. Yes, $28K a year, I’d take it with an MBA. I need a job, not $100K a year.

  • http://www.facebook.com/profile.php?id=25503923 Bruce Vann

    You could start a business.

  • JasonRg

    II will be graduating With a dual degree in finance and economics in a year. I have been strongly considering getting an MBA right after with the concentration on supply chain management. In the 2.5 years it would take to complete this program full time and be done with it. I also planned on working as small business banking specialist at boa or chase because the hours may allow me to have time for the mba. I am having a tough time convincing myself and im not sure how the retail banking experience of 2 years will.translate over to consulting or any higher level position. I worked all through my undergraduate years and have almost 5 years retail management experience. I don’t want to corner myself into retail. My reasoning behind the banking job was the consultative experience and the tuition reimbursement but I read they will require you swear two years of your life to the branch upon completion of grad school which is not okay with me. I also wanted to get the graduate degree now before life starts rolling and it’s even more difficult to break away for two years for schooling. The other consideration is try to find a job and be stuck in a field doing grunt work for too long and eventually get too settled in to.go back for grad school. Any ideas or advice on wether or not this is something to look into, maybe something I missed?

  • Nathan

    this is a very good article buti have already done mba from well reconized universty but i am not getting that much salary how much i invest in mba i dont know why it can be because am unlucky till now i doesnot find any answer nor even a good job!!

  • Nathan

    one thing more forget to comment because peoples are crazy for mba thats why always choose the best….http://www.mbagambit.com

  • qwerty_ca

    You mean more in Rupees.

  • qwerty_ca

    Uh, don’t mean to be callous here, but you realize that a $14 per hour job is still SOME ROI right? It may be negative, if your pre-MBA job paid more, but it is still an ROI. Whatever you do, don’t talk like this in a job interview, or the interviewer will wonder what you really learnt in b-school. And good luck with your job search.

  • qwerty_ca

    Did they teach you to write properly in your ‘well reconized university’?

  • Winnie

    Hey, what did you choose in the end? Would you mind sharing your experience as I am currently going through the same situation! Thanks a lot!

  • Ken

    I am still a little befuddled by what seems to be a certain amount of bickering and over-analysis here on the board. Each one of us here have a certain expectation we have in acquiring certain sets of skills and knowledge through our MBA education, but none seem to tackle the issue of how you apply those skills in our own real world scenarios.

    I am expecting to be attending one of the well referenced school in southern california next year and in the process of choosing whether or not I attend, I’ve encountered many a issue of program administrators not providing the essence of what you actually learn. Of course, why spoil the beans when there are teasers available for building more profit for these schools, right? At 85K USD tuition cost, the ROI would have to take close to 30K each year on top of all my living expenses and an annual trips to Somewherebeach, Baja. That would mean a salary of a good 100K for three years. In an environment where I am in, only a handful of sales professionals and managements are able to take that sort of a salary and not get any setbacks from other employees who are earning anywhere between 30K-60K.

    It’s a toss up to think whether all these MBA schools provide the opportunity for adding value to the overall pie of the economy. But I also do know that at work, value is added when you provide an insight or a feature of your product that makes it easier for your customer to take control of their operation or their jobs. I see the opportunity to learn as an opportunity to give back and share knowledge. Could this work for non-finance, non-management position? I don’t know. It may possibly, it very likely would take more time for the ROI to hit all the way. So at the of the day, it’s just all a perspective and I really have to apply what I can learn from these boards and visions in to my life and determine them from my own metrix, right?

Partner Sites: C-Change Media | Poets & Quants for Execs | Tipping the Scales | Poets & Quants for Undergrads