What is the real value of an MBA?” This is the question that all applicants to MBA programs must ask themselves at one point or another.

A recent survey by the Graduated Management Admissions Council (“Graduate Management Alums Report 100% ROI After Four Years”) offers one answer to this question. The survey discovered that:

• 87% of those surveyed report that they had recouped their investment within four years of graduating.
• 86% of those that graduated in 2011 were employed after graduation.
• 75% of those employed after graduation in 2011 said they could not have obtained their jobs without a graduate management degree.
• 93% of the graduating class of 2011 “indicated the job they took after graduation was exactly what they were looking for.”
• 82% of graduates in the class of 2011 felt that their salaries lived up to their expectations or went beyond their expectations.
• The gap between salaries for women and men has become smaller among management graduates than in the population as a whole.

Poets and Quants (“MBA Still Worth It? Absolutely, Say Alums”) analyzed the GMAC survey responses and agreed that the survey results demonstrate the value of the MBA degree. The high ROI reported by all categories (full-time, part-time, EMBA, and other management degrees) is persuasive. Moreover, 80% of respondents felt that their MBA degree helped them weather the economic storm and maintain job stability in rough times. Possibly the most important statistic for P&Q was that 97% of employed alumni surveyed in the past 11 years said “they still would have chosen to pursue a graduate management degree.”

Yet, BusinessWeek (“The MBA’s Value? Debatable”) is skeptical about all this rah-rah back-slapping. It is not surprising that the Graduate Management Admissions Council, which publishes the GMAT, is telling people that an MBA is a valuable degree. However, if you look at the fact that it can cost more than $300,000, including opportunity cost, to obtain the degree at some of the top schools it is hard to imagine people really seeing that quick of a payback. It is incorrect to measure return on investment without including opportunity cost, and surely there is a bias built in for people who have already completed their MBA—they want to believe that they made the right decision once their degree is complete. As BusinessWeek explains, “optimism is deeply engrained in the b-school mindset, but in this case it’s the worst kind of optimism: misplaced.”

My take:

BusinessWeek is spotlighting legitimate weaknesses in the GMAC survey. It should recognize these weaknesses, especially the inherent biases of surveys, because those are the same flaws that exist in its own survey of business school “customers” – current students and recruiters – the backbone of its bi-annual MBA ranking. It is at best ironic if not comical that BW is blasting P&Q and GMAC for flaws intrinsic to surveys.

The other significant flaw that BW points out is that ROI is going to be heavily influenced by the definition of “investment.” If you sloppily include only tuition and exclude opportunity costs, then the payoff will occur much more quickly and ROI will be higher. If you more accurately include opportunity cost (lost income) in the investment, time to recoup investment is longer and ROI is lower.
It is unclear whether GMAC instructed alumni to include opportunity cost or if alumni did so on their own. As MBAs they should have known to include them, but judging by the results of the survey, I share BW’s skepticism about the ROI results.

Moving beyond the P&Q/BW smack down, a few observations:

• The satisfaction portions of the survey are overwhelmingly positive, even if the ROI data is less than compelling. Viewed as a customer satisfaction survey, these are impressive results, even allowing for survey bias. Barring outright suppression of negative results and acknowledging that those really happy and really unhappy are most likely to voice their feelings, when 93% of 2011 grads indicate “the job they took after graduation was exactly what they were looking for” or 96% of alumni from 2001 -11 indicate they would still choose to pursue a graduate management degree, you have a satisfied group of MBAs. These are the results that justifiably led to P&Q’s rave.
• The wage gap between men and women is smaller for MBAs than for the U.S. population as a whole. It would be interesting to compare the gap for lawyers and doctors and other professional categories and see how graduate management education compares with other graduate degrees in this area. Comparing it to the overall numbers is not that helpful.
• The internship can be determinative in getting your first post-MBA job. 23% – almost one fourth – of the responding 2011 grads held internships or work projects that continued after graduation. Applicants, you need to start your MBA with direction and a clear set of goals so that you know what you want when the internship job derby starts – immediately after you’ve sharpened your pencils for the first day of class. I’ve said it before and I will say it again: While you can always change direction, changing direction is not the same as being clueless. Before you apply, know what you want to get out of the MBA.
• Early career candidates have a harder time competing in the job market. MBA graduates who had less than one year of pre-degree work experience have a higher initial unemployment rate (19%) than those with three or more years of work experience. Overall unemployment after graduation was 14% for the class of 2011; the difference is significant. The survey did not compare less experienced MBA with those who graduated from pre-experience masters programs, which would have been a valuable comparison.

Caveats and Concerns

• GMAC’s reliance on “averages” is of limited value for applicants. It’s OK for school benchmarking and for showing trends over time. However, it says little about what you can expect coming from your individual background attending School X and going into industry Y in Location Z. To the extent that GMAC breaks the data down by geography or industry, which it does to a limited degree in the body of the report, it is providing information of use to applicants. Broad references to averages for all MBAs is of very limited value to applicants.
• The declining response percentage overtime probably exacerbates the survey bias towards those who are extremely happy with their MBA outcomes.