New Forbes MBA Ranking Due Oct. 9

Since 1999, when Forbes cranked out its inaugural ranking, there have been few tweaks to that basic methodology. Badenhausen, a Forbes editor who handles several of the magazine’s big list stories, has been involved from the start. A former editor of the now defunct Financial World, he was called into a meeting of a dozen business schools deans during his second day on the job at Forbes in 1998. BusinessWeek began its business school ranking in 1988, and The Financial Times followed ten years later in 1998.

“We wanted to do a ranking and we didn’t want to copy what BusinessWeek had been doing or what The Financial Times had just begun to do,” recalls Badenhausen. “The deans all screamed and said, ‘Not another ranking!’ Schools have a love/hate relationship with rankings. They love them when they’re doing well and they hate them when they are moving down. At the time, the deans welcomed the idea of having input and resigned themselves to another ranking. Ultimately, they recognized the value in focusing on return-on-investment.”

FORBES METHODOLOGY BASED ON THINKING FROM A PROFESSOR AT THE SIMON SCHOOL

The original methodology, says Badenhausen, was informed by a University of Rochester Simon Graduate School of Business professor, Ron Yeaple. Five years before Forbes began cranking out ROI numbers, Yeaple had written a book called “The MBA Advantage” in which he introduced the notion of ranking business schools by the return-on-investment of their MBA degrees. “We used some of his work as a model,” explains Badenhausen.

In the first year of the ranking, he says, surveys of alumni were done by paper. “In 1998, we didn’t know if the ranking was entirely feasible so we took a subset of a dozen schools and surveyed them with paper surveys. We got a surprisingly good response rate and it made sense. The lesser known schools didn’t do better than the big brand schools. It passed the smell test.”

Perhaps the most significant change in Forbes methodology occurred in 2009, when the magazine factored into its ROI calculation required fees–in addition to tuition–and the average scholarship aid given to students by each school. The schools report financial aid figures to Forbes with the understanding that the magazine will not publicly disclose the numbers. No changes are being made to this year’s ranking methodology.

 ‘THIS IS THE MOST COMPLEX, TIME-CONSUMING PROJECT I DO’

Badenhausen is in charge of about a half dozen of Forbes’ lists, from its ranking of the highest paid athletes to the best cities for business. But none of them require as much work as the business school ranking. “This is the most complex, time-consuming project I do at Forbes, from the scope of surveying thousands of alumni, 100 business schools, to all the moving parts,” says Badenhausen, who will be working late nights and weekends to get the new ranking out on Oct. 9, barring any major news that could force a delay.

Badenhausen says Forbes attempts to reach the schools in February, contacting business schools around the world for both information on their programs as well names and email addresses of alumni. Typically, a dozen schools decline to participate, including McGill, Rotterdam, and Babson this year. “They say there are too many surveys,” says Badenhausen. This year, Forbes surveyed about 100 schools and 17,000 alumni. Forbes usually gets a response rate of 30% to its alumni survey and requires at least a 15% response rate for a valid result.

Forbes limits the questions on its alumni surveys to about 35 questions, including questions on overall satisfaction with the school and student debt levels, even though neither is part of the ranking. The magazine also does not ask some questions that might cause a alum not to respond. The magazine, for example, does not ask respondents who their employers are. “This is very private information they are sharing,” adds Badenhausen. “It’s a one-time shot. The survey is brief. I think people would be more uncomfortable supplying employer data so we don’t ask for it.”

Besides its ranking of the best U.S. business schools, Forbes also publishes separate rankings of the best one-year MBA programs outside the U.S. and the best two-year programs outside the U.S. “We want to group European programs together because we think it’s the same clients looking at those schools,” says Badenhausen. “We also want to separate the one-year programs because their ROIs are dramatically higher than two-year programs five years out.”

After crunching the ROI numbers on MBAs for some 14 years, Badenhausen has not doubts that the degree remains a good investment. “I fall into the camp that an MBA from a top line program is still an outstanding investment,” he says. “You have two tiers of schools: You have the really elite schools like Harvard, Wharton, Chicago, and Stanford. The doors open up wherever MBAs from those schools go. And you have another group of 15 to 20 additional schools where an MBA is still hugely beneficial.”

(See following page for a table of how payback periods and pay gains have changed over the years at top schools)