Return on Investment

People often ask themselves - more so in ISB than other B-schools in India -

• Whats the RoI of my MBA education ?
• Was it worth it?

There are several ways in which this can be computed or derived. In this post I am only exploring some of the ways in which you can look at the same. 

I am ignoring emotive payouts of being an MBA like higher standard of living, seemingly better opportunities. social standing etc because these are highly contextual in nature. For some these payoffs are far higher than monetary payoffs and hence their RoI is taken care of. Have also ignored tax benefits and Loan moratorium. It'll only improve the RoI.

What you need:

• PRE = Pre MBA Annual salary (Cash component -> Take home + Annual Bonus etc)
• DP = Downpayment for MBA loan
• EMI = EMI being paid for availing MBA loan
• POST = Post MBA 
• Annual salary (Cash component -> Take home + Annual Bonus etc)

** Not including on-campus expenses as we would be incurring similar expenses if we were not doing an MBA. However you can include it by adding to your DP. Also have not taken a post Loan payoff scenario which is 5 or 7 years after MBA while you'll be generating returns on it till the day you retire.

Assuming some values for demonstration purpose

• PRE = 4.1 Lacs (30K p.m + 50K annual bonus)
• DP = 2.0 Lacs
• EMI = 3.6 Lacs (30K p.m)
• POST = 11.8 Lacs (90K p.m + 1 Lac annual bonus)

1) Perspective A: Downpayment as Investment

RoI =  (POST - EMI - PRE) * 100 / DP

       = (11.8 - 3.6 - 4.1) * 100 / 2 

       = 210 %

** Above RoI tells you how quickly your incremental salary (vs. your old salary, after paying EMI) post MBA will payoff your Downpayment

2) Perspective B: Downpayment + Annual EMI as investment

RoI = (POST - PRE) * 100 / (DP + EMI)

       = (11.8 - 4.1) * 100 / (2 + 3.6)

       =  136%

** Above RoI tells you how quickly your incremental salary (vs. your old salary) post MBA will payoff your EMI as well as Downpayment

3) Perspective C: Total Loan payout as investment

RoI = (POST - PRE) * 100 / (DP + (EMI*Loan Tenure))

       = (11.8 - 4.1) * 100 / (2.0 + (3.6*7))

       = 7.6 * 100 / 27.2

       = 28%

** Above RoI tells you how quickly your incremental salary (vs. your old salary) post MBA will payoff your entire Loan. Doesn't factor in Salary increments over the 7 years. You can assume the same but make sure you make similar adjustment in your PRE MBA salary as well.

If you want to compare RoI of a 1 year MBA vs. 2 year MBA then you have to factor in the 1 'addtl' year that you'll be working and earning in a 1 yr MBA scenario.