Friday, March 23, 2007

ROI

One of my favorite buzzwords thrown around on forums and articles and rankings is "return on investment" or ROI. Simple ROI calculations take into account forgone salary, tuition costs and prospective salary post-MBA given the income statistics published by business schools. Looking up post-MBA statistics is the easy part. It becomes a bit more like multivariable calculus (from what I remember of it) if you actually try to figure out what your personal ROI is for a given program.

Here are the main points to consider for your personal ROI:

1) The ACTUAL cost of attendance. This is a simpler break out the calculator type of evaluation.
a) Cost of living difference. This difference can be stark and perhaps counterbalance other incentives such as tuition breaks. Cost of living issues include the usual food, shelter, but also a whole lot of other expenses that could vary greatly depending on your location such as car insurance, transportation costs. (Are you near/in a major city? Will you have to travel a lot for interviews?)
Using my own application as an example, at Notre Dame, a car would have been a necessity. At Yale, it would have been a big help, but you can suffer along without it thanks to Metro North. Georgetown- cars are pretty unnecessary for transportation, not to mention the huge cost of car insurance. The differences in rent can also creep towards ten thousand dollars. I could live in an apartment the same size as the two bed I share in Boston for a third of the price in South Bend. There are great bargains to be had in New Haven as well. In Georgetown, the grad student is generally the loser in the classic game of supply and demand.
b) Tuition. How much tuition will you actually pay? How does this change your decision equation given any interest in a particular element of the program? Will a full tuition scholarship change your mind away from a program with a specialty you like? Will a half-tuition grant?

2) Should forgone salary be included in your equation?
As a severe career switcher, I felt that I could not really include forgone salary in my personal ROI calculator. My options were to either quit my job this year or next in favor of starting at the bottom of a different industry, or going to graduate school, adding skills, and using my internship or other experiences to propel me into a different sector. I never really considered the former.

3) What is YOUR earning potential for your chosen industry? The published employment statistics on b school websites can be a good indicator of graduate earning potential, but the stats should not be your only guide. Be sure you look at the mean and median salaries for your sector, function, AND location. At a panel I attended, an IESE alumni said that the careers office advised people to change function, sector, or location. One area of change was expected, two was a challenge, and changing all three was a feat! What is your priority in searching for a job? How does the employment outcome for the student body at your chosen school mesh with your goals? Another statistical note- look at MEDIAN, not the average salary. Even better, look at the BOTTOM salary. Is that something you could live with given your time and investment in business school? Optimism and a healthy ego are good traits to have to be a successful business school applicant, but being realistic about what your personal finance situation could be is simply a smart calculation. Also, many of the employment statistics suffer from self-reporting bias. Perhaps the reported bottom salary is not actually the bottom salary.

Then there are those intangibles. I touched on a few throughout the post, but they include things like maximizing your idea of a high quality of life and the benefits you get from studying with a diverse group of intelligent people.

ROI wise- you could come up with a brilliant business idea during your first semester, meet the other two people with the expertise required to balance your experience, start a business, make tens of millions of dollars, and retire at 34. At that point all possible calculations will have flown out the window. Let's all sit back and hope for that next great idea. In the meantime, break out those financial calculators and figure out your ROI.

1 comment:

LeRose said...

I saw your blog from the Georgetown admit google group. I am deciding between duke and Georgetown and relate to many of your posts. Georgetown-85% scholarship, Duke-nothing. I will be going to the March open house.