MBA is a post graduate education. In India the definition of educated appears to culminate in being a graduate. Some places where this is specifically exhibited is that the ECNR stamp on your passport is valid for those who have shown proof of completing their graduation. To take it to a bigger extreme, the law says that if you are educated you are entitled to certain benefits in case you are arrested and jailed for some reason, and again here the proof required is that of graduation. In other words, the barrier between educated and uneducated in our country appears to be crossed once you have completed graduation. This also means that while a family can plan to educate their children as part of their responsibility till graduation, any education beyond that should have a clear justification.
We can also say then that post graduate education is an investment over and above the defined society norm and therefore such an investment must be justified. The most scientific and factual way to justify an investment is in monetary terms which come from the concept of Return on Investment.
“The primary motive of doing an MBA is to make a good corporate career”
The meaning of good career is mostly defined by a well paying one. The money spent in MBA therefore must be justified by the earning derived after MBA in a corporate career. To put the calculation simply, let us put together the costs of MBA:
a) Monetary cost in terms of fee, etc
b) Opportunity cost i.e. the potential earning in the same time period of doing the MBA. The other costs of travelling, hostel etc. are not being considered assuming that the same would be there in any case whether the person does MBA or something else.
Earning estimation before and after doing MBA
The total estimated cost above should get justified by the growth in earning post doing the MBA. If a person could earn 10000/- per month without doing an MBA, and the cost for doing an MBA is say 2.5 Lacs then the total cost for 24 months of doing the MBA is Rs. 2.5 Lacs + Rs. 2.4 Lacs (lost opportunity cost) i.e. Rs. 4.9 Lacs. Therefore, after doing an MBA if the starting salary becomes Rs.25000/- per month, the additional earning per month is Rs. 15000/- per month because of the post graduate management education. Rs. 15000/- per month means Rs. 1.8 Lacs per annum. On an investment of 4.9 Lacs a return of 1.8 Lacs per annum is a return of almost 35% per annum which is a very good return on investment.
“Many institutions today are not doing well purely because they have only increased fee over time and not delivered the expected education”
However much the economy or extraneous reasons are blamed then, the fact is that the course of these institutions no longer have a viable return on investment and hence over period of time their value has faded away.
Advice for graduates:
Students must do this simple mathematics and work out the return on investment for the MBA they are choosing. A good return on investment always is a good justification to do an MBA.