Is an Executive MBA Worth It? Part II
Spoiler Alert: It’s partly about the money.
(Because it’s always about the money. That’s why you’re going to business school.)
Not to be pedantic but it’s ironic how many business school programs use the wrong business term—“ROI”—to tout the period of time, usually measured in years, it takes for a graduate to recoup their “investment” (a.k.a. the tuition you’re about to fork over) with increased compensation.
For starters—and you would think that of all places, a business school would know this—ROI is always expressed as a percentage, not a whole number or period of time. If the term “ROI” were being used correctly, instead of stating the average number of years it takes to recoup your “investment,” a program’s marketing materials would say, “Our graduates enjoy an average ROI of 253%” or something like that. Doesn’t exactly make sense, does it?
Even so, it’s not uncommon to find the term “ROI” being used when what an EMBA program is referring to is actually called the “break-even point.” What’s not clear is how that calculation is made (more on that in a bit) but if you’re like most prospective students, the first thing you want to know once you recover from the tuition sticker shock is the number of years it will take for you to recapture the cold hard cash-ola you’ve spent to earn your EMBA. Like SHOW ME THE MONEY, as someone once said. I don’t know why the term “break-even point” isn’t used more often but if I had to guess, it’s because maybe studies have shown that the term “ROI” is just sexier than “break-even” or maybe it’s just that it sounds more Wall Street-ish.
That’s not to say there isn’t some sort of ROI for earning an Executive MBA. There definitely is and it’s huge, and it’s more inclusive than a simple break-even equation. The paradox is that while an EMBA’s ROI is tangible, much of it is hard to express in quantifiable ways. There’s more to it than that and you can read about it in my post, “Is an EMBA Worth It? Part III.” (Nice hook, huh?
NOTE: For the purposes of this discussion and to avoid any confusion with what you may have already come across, I’ll use the term “ROI”/break-even point” here to refer to the break-even point. You’re welcome.
As it turns out, calculating the “ROI/break-even point” isn’t quite as straightforward as it would seem and it’s kind of annoying when you’re just trying to figure out the SHOW ME THE MONEY value of an EMBA for yourself.
The average ROI/break-even point for an EMBA graduate has been pegged at approximately 5 – 7 years depending on your industry and what you do. However, I recently read an article that estimated the ROI/break-even for an EMBA was 2.5 years! Wow! Unbelievable!
Exactly. Unbelievable. A review of the teeny-weeny notes at the bottom of that article revealed that (1) the article itself was over seven years old (begs the question of why it’s still on a website but whatever) and (2) the “Total Investment” used to calculate that spectacular ROI/break-even point was $25,000, which is a fraction of what an EMBA costs today.
This published misinformation points to the importance of the #1 Rule of Thumb when researching the ROI/break-even point of a particular program:
Consult the fine print and always, always, always understand how that figure was calculated. Once you know that, you can decide whether the info is useful to you by engaging your critical thinking skills. You’re gonna need to do that for business school anyway so might as well get a head start.
Here’s an example of what you might see. Let’s say a program’s marketing brochure cites that, compared to their compensation at the beginning of their EMBA program, the compensation of its graduates rises (or has risen) an average of 60% within two years of graduation. Consider the following:
Where did the data come from? To calculate the ROI/break-even point, most programs rely on information that’s self-reported by graduates. If your post-graduation experience hasn’t been as rosy as you expected, how psyched are you gonna be to fill out the alumni survey asking about your income? Not a whole lot, I would guess. And if you do fill it out, are you going to tell the whole truth and nothing but the truth? I don’t know but it doesn’t matter.
The problem with self-reported information is that it can’t be verified and if it can’t be verified, how do you interpret it and how useful is it? Without even knowing where you work, I’m pretty sure using unverified data to support a big decision for your organization wouldn’t fly, especially if you were using it in a break-even or ROI analysis. What I’m saying is, employ some discernment when you come across stats like this.
The increase noted is an average because it’s a very inclusive measure, right? Yeah…no. In any business school class, it’s not unlikely that at least one student is a start-up entrepreneur earning $20K at the beginning of the program. Two years post-graduation, that student now earns $60K, three times their incoming salary. In a calculation of the average, salaries like the entrepreneur who saw a 200% increase will skew the outcome just a bit. A more useful measure in this situation would be the median. (Don’t worry if you can’t remember what that is; you’ll be reminded soon enough in your EMBA stats class.)
The upshot here is that even if a school does publish this information using the correct term (break-even point), you’ll want to think of the data as directional. In the end, you’ll decide for yourself whether the break-even point is acceptable and if it’s not, then you have your answer to the question about an EMBA’s worthiness.
So now you have two ways to think about the worthiness of an EMBA for yourself. The first is whether you can continue to move forward on your life/professional trajectory without one (see my blog post “Worth It? Part I), and the second is whether the investment pencils out.
At this point, the discussion and your decision become a whole lot more personal. Check out my post “Is an EMBA Worth It? Part III” to get some additional and maybe even some new perspectives on the real real ROI of an Executive MBA.