Monday, December 1, 2008

Taking an MBA in recession

It's official, Most of the world is in recession now and the downturn is expected to continue for another two to three years. So what an MBA should do in these difficult times.

In good times, it did not matter much, which B-school you went to, but in bad times like these, every decision can become important. Shorter programs have suddenly gained relevance. In some cases, students have begun to opt for lower cost programs at lesser known B-schools or even seek out specialized programs.

An MBA is a significant investment in one's personable development. But as with any investment, it has a measurable payback. Salaries for graduating MBAs from top international programmes have increased by more than 25% in the past three years. Average salaries for MBAs graduating from a top US school averaged $85,000 (£56,000) last year, compared with $80,000 (£53,000) in Europe. To calculate "true earnings" one must take into account an average "sign-on" bonus of £13,000 offered by most MBA recruiters, and the potential to earn a further £13,000 during a summer internship.

Ironically, a recessionary environment can make the MBA investment even more attractive than usual. Built into the assumptions is the opportunity cost of a £30,000 salary per year foregone. But, for someone uncertain about their short-term career prospects, or someone made redundant, now could be the best possible time to study. No salary foregone means a much quicker payback on the investment. For a two-year US course this reduces the payback period from three years to just 1.5 years.