Which Business Schools Produce the Highest Returns?

by Jeff Schmitt on

 

San Francisco-based firm SV Angel invested in a dozen of our top 100 MBA-founded companies

San Francisco-based firm SV Angel invested in a dozen of our top 100 MBA-founded companies

Choosing a business school is much like picking an investment. You can spend big on a blue chip, looking to compound your money over the long-term. You can sift through discounts, hoping the value turns around over time. You can even plow your money into a low risk treasury bond, to ensure you land a safe return. No matter what: You need to spend money to make money.

Make no mistake: Business school is a long-term investment. For two years, you’ll leave your job and forego an income, costing you anywhere from $100K-$200K. On top of that, tuition and fees can run up to $150,000 – and that doesn’t even include living expenses like rent and groceries. Then again, you must balance these short-term costs against the long-term cost of not attending – roughly $60K-$100K a year according to Shawn O’Connor, Founder and CEO of Stratus Prep. It’s a huge decision, especially when you consider that the right program can help you earn an extra $3 million dollars over the next 20 years.

Earlier this year, The Economist published its list of the MBA programs with the highest first year ROI. Not surprisingly, the most prestigious schools – Wharton, Harvard, Stanford, Columbia, and Kellogg – didn’t fare so well. Then again, it takes time for students to pay off their loans and gradually raise their salaries. When it comes to first year compensation, these are the schools where students are earning $135K-$141K in pay and bonuses to start.

And that brings up a question: Does the gap on return begin to narrow for more expensive schools after the first year out of business school?

The answer: not necessarily.

How The Financial Times Measures ROI

Financial Times

Those were the findings from The Financial Times’ most recent rankings of “Value for Money” (otherwise known as return on investment). According to The Financial Times, “Value is calculated using the salary earned by alumni today, course length, fees, and other costs, including the opportunity cost of not working [during the MBA].” Overall, Value for Money accounts for 3% of a school’s overall global ranking. Unlike most data points in The Financial Times’ 2014 rankings, which contain three years of data, Value for Money is derived from 2014 data collected from the schools.

Since The Financial Times doesn’t make data like tuition and opportunity cost available, Poets & Quants is also including two data points in its tables. The first is a “Weighted Salary,” which is the “average alumnus salary three years after graduation.” Weighted Salary is based off of an American dollar equivalent, “with adjustment for variation between sectors.” The weighted salary is based off two years worth of data, with each year encompassing 50% of the average. The highest and low salaries have also been removed from the average.

The second data point is a “Salary Increase,” which, in the words of The Financial Times, reflects the “average difference in alumnus salary before the MBA to now. Half of this figure is calculated according to the absolute salary increase and half according to the percentage increase relative to pre-MBA salary.” Combined, these data points comprise 40% of each school’s ranking.

American Schools Fare Poorly

Coppead

Coppead

For the second consecutive year, Brazil’s Coppead tops The Financial Times’ ranking for the highest return–if you can actually believe that result. At an average salary of $88,256, The Financial Times ranks Coppead #95 in overall compensation. However, this total also represents a whopping 138% increase in weighted salary (and that’s despite Coppead graduate salaries dropping by $8,365 from 2013 to 2014). Still, these numbers are nearly identical to the $86,410 salary and 132% increase reported by the University of Pittsburgh’s Katz Graduate School of Business. Like most European schools, Coppead students benefit, tuition-wise, from an 18-month program. In addition, over half of Coppead’s graduates flock to the consulting and banking industries according to The Financial Times.

The Lisbon MBA (Portugal), IMD (Switzerland), The University of Strathclyde (UK), and Lancaster University (UK) round out the top five. Seven United Kingdom institutions made the top 25 for schools with the highest return – and two German schools (ESMT and Mannheim Business School) ranked #6 and #7 respectively, reinforcing the growing popularity of the German MBA.

Among American schools, only Texas A&M and the always-underrated Brigham Young University made the top 25. In fact, American MBA programs comprised 44 of the bottom 50 programs for return, with MIT Sloan, Wharton, Stanford, and NYU Stern ranking #97 through #100 three years after graduation.

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  • amir

    St.Gallen may be ranked low, but it is a great school.

  • halo

    I’m not sure why you are so riled up. ROI is just one of the metrics in comparing schools, and while it can be gamed just like any other metric, it is certainly valid. To some people immediate ROI might not be that important, to me it was critical, along with fit. Not everyone buys the same product, or has the same taste.

  • devils0508

    That’s my point, it’s shouldn’t be critical for ANYONE. The figure that should be important to you is STARTING SALARY. All ROI tells you is the pre-mba salary of the class, NOT what salary progression you’ll personally get once you graduate,

  • hedgemanager

    “If Harvard decided to take a bunch of unemployed people”… then the real and valid question is: what is the value the school add if the student already qualified and high paid??? It will be super if the school turns normal and low paid participants into stars with good salaries…

  • halo

    Why shouldn’t it be critical? I went to a one year program, I only lost 10 months of income, and in my second year (the year that I would have graduated if I had gone to a two year program) my earnings are almost triple that of a Harvard grad. Btw my starting salary right after graduation was right on par with what graduates of a top two year US program are getting.
    I am calculating my ROI based on foregone income, cost of the program, salary year one, and salary year two (salary I wouldn’t be earning had I gone to a two year program). Four different factors, not just the Pre-MBA salary. Apples and Oranges.

  • osera

    One year after graduation your salary was TRIPLE of harvard grad!!! Lets assume a harvard grad gets the avg at graduation almost 120k, are you saying that your salary after ONLY one year out of your fonty party is something around 360k!!! Correct me please if im wrong!! otherwise dont write when you are high …

  • halo

    That’s correct.
    Any other childish questions?

  • osera

    No sir. No more questions at all. Enjoy your triple things, as you guys always like it triple ;)

  • guest

    I have a question. Which one year program did you attend? If you don’t want to say, at least tell us if it was in the U.S.

  • herman

    There is no 10 month program in US. US system does not allow such garbage to be offered unless it is non degree executive education.

  • Ramitan

    could you please tell us what is the name of such an amazing program?

  • Bastion

    That is a good point. I think the real value is the network that the MBA opens for you, especially if you want to later transition to another industry.

  • Bastion

    If you don’t mind me asking, where did you do your MBA?

  • realistic Man

    If its the network then why not taking short, less risk, and comfortable executive program that would offer the same networking opportunities ?!!

  • Bastion

    I’m no expert but I do know for a fact that the longer you wait to get your MBA (or executive MBA), the lower your lifetime earning potential gets. Most people want to make big money right out of undergrad and go straight to grad school… The executive MBA is for people in managerial positions who in all likelihood already make a good living. Some people are risk adverse to working their way up to that level and then doing the MBA….

  • YouBS

    Kellogg, Notre Dame etc..there are many one year MBA schools in the US.

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