Cost Benefit Analysis of Doing a MBA Course -NirmalM Runner Up

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    Worthiness of Pursuing MBA in India

    Nirmal M

    National Institute of Technology, Trichy

    February 2014

    Dissertation submitted for

    Crisil Young Thought Leader

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    Table of Contents

    Executive Summary .............................................................................................................. 3

    1 Introduction ...................................................................................................................... 41.1 Scope and Objectives ............................................................................................... 4

    1.2 Method and Data ...................................................................................................... 4

    2 Dissertation ...................................................................................................................... 4

    2.1 Ranking of Colleges ................................................................................................. 4

    2.2 Grouping of Colleges ............................................................................................... 5

    2.3 Fee Struscture ........................................................................................................... 5

    2.4 Salary Packages ........................................................................................................ 5

    2.5 Breakeven period ..................................................................................................... 6

    3 Cost Benefit Analysis ....................................................................................................... 6

    3.1 Group 1 Colleges ...................................................................................................... 6

    3.1.1 Monetary Benefits ............................................................................................... 6

    3.1.2Non Monetary Benefits ....................................................................................... 6

    3.1.3 Analysis ............................................................................................................... 7

    3.2 Group 2 Colleges ...................................................................................................... 7

    3.2.1 Analysis ............................................................................................................... 7

    3.3 Group 3 Colleges ...................................................................................................... 7

    3.3.1 Analysis ............................................................................................................... 8

    3.4 Group 4 Colleges ...................................................................................................... 8

    3.4.1 Analysis ............................................................................................................... 8

    3.5 Group 5 Colleges ...................................................................................................... 9

    3.5.1 Analysis ............................................................................................................... 9

    4 Comparative chart ............................................................................................................ 9

    5 Conclusion ..................................................................................................................... 10

    References ........................................................................................................................... 11

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    Executive Summary

    This paper deals with the monetary benefits as well as the social benefits attained by

    the students doing MBA from varying universities in India. More specifically, it is

    intended to determine whether to do an MBA from Top 100 colleges in India. Average

    starting salaries for graduates with a Masters degree in business were obtained from asurvey of Digital Mailers at 2011. The average program cost was obtained from

    learnhub and careeranna surveys. By comparing these numbers and taking into

    consideration the possibility of scholarships, student loans, reimbursement by

    employers, promotional opportunities and pay raises associated with newly acquired

    MBAs, a cost-benefit analysis is done. But whenever a student acquires a degree he is

    also acquiring a set of extra benefits from the institution which also has been included

    in calculating the cost of benefit by monetizing the non monetary benefits. By doing

    so it reveals that there are only a handful of colleges are worth pursuing a degree for

    the fee structure and the benefits provided in return within India. Top 100 colleges are

    analysed the results are provided in the following dissertation.

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    1. Introduction

    An MBA indicates that one have mastered a certain level of knowledge in business

    management, which provides them the ability and confidence to speak on equal terms

    with top executives on business problems. But in recent times there has been a spurt in

    the number of institutes offering MBA courses. The fees charged by these MBAinstitutes are steep and most aspirants are forced to take loans to finance their

    education. Adding to this cost is the loss of opportunity cost if the students were to

    take up employment. However, many recruiters feel that the education provided by

    most institutes does not meet their requirements and the compensation offered by these

    companies is substantially lower than the fees paid by students. This study deals with

    the monetary benefits as well as the social benefits attained by the students doing

    MBA from varying universities in India. More specifically, it is intended to determine

    whether to do an MBA from Top 100 colleges in India.

    1.1.Scope and Objectives

    The objective of the study is to find out whether the cost benefit analysis of doing an

    MBA is worth the fee structure many colleges demand based on the average starting

    salary paid and the social benefits obtained during the course.

    1.2. Methods and Data

    To begin my study, I gathered information regarding tuition fee for full-time MBA

    programs, opportunities for financial aid, starting salaries for MBA graduates, and

    increased earnings and promotional opportunities associated with obtaining an MBA

    degree. Primary data are obtained from the official sites and the secondary data arefrom various surveys conducted by bschool ranking agencies. To narrow my search, I

    used several controls, upon which I will elaborate as I proceed. After obtaining the

    necessary information from a variety of credible sources, I performed a cost-benefit

    analysis to compare the different MBA program available in India by the net monetary

    benefits and social benefits attained by completion of a MBA degree. Data are

    collected from reliable sources of various surveys conducted by Business Week,

    Browning University, and Forbes for understanding world scenario. The data of

    various colleges within India surveys of topbschoolsinindia.com, careeranna.com,

    tcyonline.com and official sites of IIMs and few top ranked colleges.

    2.

    Dissertation

    This paper deals with finding the worthiness of doing MBA in top 100 colleges in

    India. The colleges are grouped and then the worthiness are evaluated based on the

    data available.

    2.1 Ranking of Colleges

    There are numerous different rankings available in the market based on various

    criteria. But I am sticking to the ranking given by Business Today 2013(latest as per

    today). They have considered parameters like Learning experience, living experience,

    Placement, selection process and future orientation.

    http://www.cs.stir.ac.uk/~kjt/research/conformed.htmlhttp://www.cs.stir.ac.uk/~kjt/research/conformed.html
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    2.2 Grouping of Colleges

    Instead of analysing each college the data are grouped under six categories and

    analysed. The groups are Group 1 consists of Top 5 colleges; Group 2 includes

    colleges from the 5-15 ranks of colleges by Business Today. Group 3 consists ofcolleges from the ranks of 15 to 30 rankings while Group 4 have colleges of ranks 30-

    50 within them and the remaining colleges belong to Group 5.

    Group 1: Top 5 colleges

    Group 2: Rank 5-15

    Group 3: Rank 15-30

    Group 4: Rank 30-50

    Group 5: Rank 50-100

    Hereafter whenever a group name is mentioned it will denotes the colleges within the

    group.

    2.3 Fee Structure

    The fee structure of all the colleges were collected and studied closely. Mostly they

    fall at the range of Rs.7,00,000 15,00,000. This includes two year full time tuition

    fee, hostel if residential, mess and food and also common charges for using labs,

    examination and other resources within a school. In few colleges it also includes a

    laptop, Blazer and basic materials and few reference books which are mandatory.

    Apart from it the cost will go higher for other reasons like Travel expenses in this two

    years, study materials, medical expenses, living expenses, parties, gift and clothing.

    Adding to this cost the important opportunity cost to be taken is the loss of income that

    could have been earned if the students were to take up employment. Approximatelythe overall cost is to be calculated at the range from Rs.10,00,00020,00,000 for the

    overall period of two years.

    2.4 Salary Packages

    From the data collected it is evident that only a handful of colleges are having

    international placements. Even in those colleges only very few are been selected under

    international placements. The starting salary packages vary from Rs.3, 00,000 to

    16,00,000 based on the college .The top 15 colleges are having averages from Rs.

    10,00,00017,50,000. Whereas the average salary packages of next 15 colleges vary

    from Rs. 4,50,000 10,00,000. And the good thing is they are giving 100 percentplacements as like top 25 colleges. But the status of next 60 colleges is more or less

    similar and the placement trend is not always positive.

    When the lowest and the highest salary packages are taken into consideration for the

    Top 15 colleges it varies from Rs. 4,50,0006,50,000 and Rs. 14,00,00024,00,000

    (International placements apart). But in the group 4 colleges the lowest may go as low

    as Rs. 2,00,000 which is much lower than the bachelors starting salary. Few of group 3

    and group 4 does not place all the students that means after spending around 15 lakhs

    he gets nothing out of it. In Group 5 placements are very low and even those who gets

    placed go for a second tier role which mere salary.

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    2.5 Break Even Period

    Doing MBA itself is kind of doing a business. One invests money in MBA to get more

    out of it. Thus calculating breakeven is evident. Forbes has already done the

    breakeven analysis for foreign top universities and the approximate time found to be 4

    years minimum. It is done for the top 100 colleges in international level where noteven one college from India is ranked. It is calculated after deducting the basic

    expenses for living from the salary they start to work with. The same methods will be

    followed in our analysis also.

    3. Cost Benefit Analysis

    There are numerous factors to be included when we are about to do the cost benefit

    analysis of a MBA and its worthiness. I have taken the ratio between the cost of doing

    an MBA and the benefits he obtains from it. Benefits considered here include both

    monetary and non monetary values (values obtained because of the degree and college

    and not because of curriculum).And also cost benefit analysis is done for each groupseparately and compared together to obtain at the final result.

    3.1 Group 1 Colleges

    Costs include Tuition fees, opportunity cost, living expenses and other expenses. From

    the data collected it is given as tuition fee varies from Rs. 8, 50,000 14,50,000

    except Faculty of Management studies where the fee is just Rs. 20,960. Taking FMS as

    exception as it is falling way beyond in the normal distribution range. All these

    colleges are located in places where the yearly expenses comes around Rs. 1,50,000

    and other academic related costs gather another Rs. 1,00,000. Thus the overall

    expenses involved in the obtaining a MBA degree after proving to be the brilliant 1

    percent in India will be around Rs.12,00,000 at the lowest. It may sore up to Rs.

    16,00,000 to pursue a degree of MBA from Indias Top college.Moreover a student of

    that stature is spending his precious time by two years in this institutions either by

    opting not to take a job offer or by abandoning his job if an experienced professional.

    This cost varies with the job offers they leave or the positions they held. An average

    amount of Rs. 4,00,000 is included as opportunity cost lost. This increase the overall

    cost to Rs. 16,00,00020,00,000 for a MBA degree.

    3.1.1. Monetary Benefits

    From the records the monetary benefits range from 1 crore to several lakhs if

    international placements are taken into consideration. But not everyone is going to end

    up with an International placement. So the returns by placement on campus fall in the

    range of Rs. 15,00,000 17,00,000. And also other values as such conglomerate of

    top students giving a competitive environment. Many students are given dual or three

    placements from which they can choose the company of their interest.

    3.1.2. Non Monetary Benefits

    The most important benefit to be included when doing from Group 1 colleges is the

    Brand Value. Students from top colleges are recognised by the college and not thedegree. The brand value of the college like IIM can do wonders. If they are hired it

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    will be at high package of salary with allowances and straight into the top

    management. If they have an idea to be implemented venture capitalist thrive on those

    ideas. So it is important to evaluate this asset which is higher than the degree and the

    knowledge it give. Brand value cannot be monetized and there is no proper measure to

    do so. But it is such an important aspect which will increase the overall benefit of a

    student who pursues degree from Group 1 colleges. Apart from it these colleges openup a wide career pathin front of students to choose which is the prime reason student

    choose to do MBA. The third benefit is the Network it creates for each student with

    alumnus, experts from the area of interest, top industrialist, teachers, professors will

    add as a value that cannot be valued by money.

    3.1.3. Analysis

    Overall Cost Involved in Pursuing MBA from Group 1 colleges: 16 lakhs20 lakhs

    Average Salary Package: 15 lakhs17 lakhs

    Break even period: 18 months

    Worthiness of an MBA (5 point likert scale, 5 being highest): 5Other Benefits: Brand val...

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