Are the returns from an MBA worth the cost?

Think hard before doing a business master's degree, says Kathy Harvey. Times are changing

What is an MBA really worth? In the heady days of the late Nineties, before the dot.com crash, there was little need to ask the question. Everyone from blue chip corporates to consultancies were falling over themselves to attract aspiring young managers, but times have changed. These days, despite some green shoots of recovery in the job market, anyone embarking on a Master's in Business Administration needs to think long and hard about the sums involved.

The cost of a full-time course at a UK business school can vary enormously, from less than £10,000 to more than £40,000, and that is not taking living costs into account. Students need to think about the so-called "opportunity costs" of taking a year out of paid work, or sinking redundancy money in course fees. The more prestigious the business school, the more expensive it is likely to be.

For the price of an MBA from Warwick Business School - £23,500 - you could buy a sports car. But, while the upfront cost may be similar, business schools have long argued that a master's degree in business administration is an investment which can only grow in value.

Is this still true? There is no doubt that the qualification, designed to prepare aspiring young professionals for the upper echelons of general management, has never been more popular. Britain is the largest market, outside the United States, with more than 100 business schools offering the qualification. Since the 1960's, when London Business School and Manchester Business School were established to compete with US MBA provision, the qualification has become one of the most sought after for ambitious managers. Last year, 11,000 MBA graduates left British business schools.

Not all of them are destined to walk into highly paid jobs. Professor Howard Thomas, the Dean of Warwick Business School, said: "One of the reasons many people leave their job to study for an MBA is the desire for a career change. Another reason is to improve salary. But the MBA is no longer a rare commodity." Candidates who want to attract the attention of the highest-paying employers will, he said, increasingly focus on the top names in the sector.

The Association of MBAs (Amba), which monitors course content and quality, agreed. Less than a third of UK business schools run courses accredited by the association, but those which do can usually charge higher prices. Jeanette Purcell, the Amba's chief executive, warned against looking on an MBA as a passport to a higher salary, but acknowledges that this is an important factor for applicants. She said: "Treat the crude calculations with caution. But if your main motivation is a higher salary, the evidence is there."

The association's 2003 salary and career survey found that MBA graduates increased their salaries by 39 per cent, with an average starting salary on graduation of £64,000. Banking and consulting remain the sectors which offer the best hope of an immediate return on investment, though an increasing number of MBA graduates are opting for careers in the not-for-profit or public sectors.

At Bath University School of Management, where the MBA fees are £18,500, the emphasis is on long-term benefits, rather than a short-term fix. Professor Andrew Pettigrew, Bath's Dean, said: "Students achieve a rapid return on investment but this may not necessarily be financial. Some are inspired to take new directions ... and may involve the longer time-frame associated with setting up a new business venture."

This may be why the MBA continues to be one of the most attractive ways of advancing the ambitions of young professionals. Apart from telling you how to read a balance sheet, it provides a window into the main areas of management which are often a mystery to someone stuck in an expert niche within an organisation.

Engineers who aspire to general management will learn about marketing and human resources, while those more versed in the so-called "soft" skills of business will gain an insight into the financial side of management. Any good MBA will cover number crunching to project management and operations. Schools offer electives from creativity to entrepreneurship and e-business.

Along with its competitors, Bath offers a range of scholarships designed to entice the most able students. But this kind of financial help is unlikely to prove the answer for the majority of MBA applicants. If the thought of giving up a salary for a year (or two, depending on which course you choose) is too daunting, it may be worth considering part-time study. The Amba said that more than 90 per cent of those on part-time courses received some sort of help from their employer, though this varies from the cost of text books to full sponsorship. Anecdotal evidence suggests companies are becoming more discriminating about how they sponsor MBA courses; demanding tie-in contracts or promises to pay back fees if someone leaves within two years of completing their course.

Full-time programmes offer the chance to pause and take stock of future career options, and give participants a chance to network with a group of people from a wide variety of industries. But this kind of MBA will take the biggest chunk out of your bank balance, as the salary stops from the moment you start to study. If you have an offer from a reputable business school and a track record as an employee behind you, it should not be difficult to get a loan.

Some business schools run their own schemes, but the Amba and NatWest bank offer loans of up to two-thirds pre-MBA gross salary and the cost of tuition fees. More than half of full-time MBA students pay their own way, through a combination of loans, family savings and grants, though the latter are unlikely to cover much of the fees. Living costs will vary widely, depending on whether or not students are supporting a family, living in university accommodation or off campus. Warwick Business School advises students to put aside between £10,000 and £15,000 to live on during the one-year, full-time course.

Graham Hastie, the director of career services for London Business School, said the prospects for graduates are looking up after several years of hard times, and even claimed that students are being offered sign-on bonuses again. He said; "Sixty per cent of our graduates are reporting bonus offers and we've seen a huge increase in summer internships, which often lead to jobs." At Warwick, Professor Thomas is more cautious. He said: "Sign-on bonuses, which wipe out loans, may still exist but the honey traps of the pre-dot.com era have gone."

At the end of the MBA chain, the recruiters agree. Hamish Davidson is the chairman of Veredus Executive Resourcing, formerly part of Pricewater-houseCoopers, and a major headhunter for senior executives.

He said: "There are some good opportunities but don't expect to walk into a £100,000-plus job." He advised candidates to think of the qualification as a medium to long term investment, not least because the number of employers who also have MBAs is on the increase. "As time goes on," he said, "more of the people who hire top jobs will have MBAs. It's likely that they will look to recruit people in their own image."

'What is important is the doors it opens'

Phil White, 35, graduated from Warwick Business School in 2001 and went into management consultancy.

He is now working as a sector development manager for the telecoms group, Energis earning £70,000, £25,000 more than his pre MBA salary.

He says: "I had been working as a retail marketing manager for Intel Corp (UK) for six years when I took the decision to leave and study full time.

"I was fortunate in receiving some financial help from my previous employer, but I also took out a loan and accepted that I would need around £700 a month in living costs. I rented out my house in Swindon and moved nearer to the Warwick campus.

"It took me around two years to pay back my loans but I don't think the fees are the main cost. What you need to think about is the opportunity cost of being out of the workplace, earning nothing for the time you are studying.

"It is a mistake to see an MBA as a short-term gain. You do need some reward, and I increased my income after graduating, but the doors the qualification opens for you are more important. I have a much greater understanding of how business works, and can communicate with people at senior levels in a different way. Before the MBA, I was very specialised and I have achieved my aim of broadening my knowledge. If you don't do an MBA, there's always a danger you will limit your options or find promotion blocked beyond a certain level.

"I enjoyed my year in consultancy after graduating, but decided the long hours were not for me. [After] a year out, I am back in the workplace. I'm making use of my MBA and feel my time at Warwick was a worthwhile investment in myself."

FACT FILE: THREE TO CONSIDER

* INSEAD (THE EUROPEAN INSTITUTE OF BUSINESS ADMINISTRATION)

The school with a global reputation and fees to match is set in the woods at Fontainebleau, south of Paris.

Ten months rubbing shoulders with a multinational group of high flyers costs €43,500 (£29,000), but graduates are joining an elite network of alumni based in more than one hundred countries.

MBA students have the opportunity to take part in exchange programmes with Wharton in the United States, or complete some courses on Insead's Singapore campus. The school can take its pick of the best applicants and expects MBA students to have a second language before admission. A third language is studied during the MBA programme.

The school boasts an impressive list of faculty and visiting professors with international experience, and the students come from 79 countries. Insead alumni can be found in all sectors, but investment banks and consultancies feature strongly on the list of employees after graduation.

* THE UNIVERSITY OF BRADFORD SCHOOL OF MANAGEMENT

This is one of the longest established in the UK, having opened its doors in 1963. It runs part-time, full-time and corporate MBA programmes, and has been highly successful in exporting its expertise; joining with Nimbas, the Dutch school, to offer its programmes in Holland and Germany.

The business school, which runs undergraduate programmes, is accredited by the Association of MBAs (Amba) and is also listed in the influential Financial Times' ranking of the world's top business schools (in 86th position). The full-time MBA costs £16,500 and the school said graduates can expect to double their salary four years after leaving. The increase is higher for part-time students.

Stuart Sanderson, the school's associate dean, said the university's motto is "making knowledge work" and the MBA reflects this; aiming to provide graduates with the right managerial and personal skills.

An MBA from Bradford is a respected and well-recognized qualification.

* LEICESTER BUSINESS SCHOOL, DE MONTFORT UNIVERSITY

One of only a handful of the newer universities awarded accreditation by the Amba. Formerly Leicester Polytechnic, it has a good relationship with business in the Midlands and has strong links with the public sector.

Its part-time course is popular among local authority managers and health service employees.

MBA students study in a recently built graduate centre in the middle of Leicester, with up-to-date facilities and a friendly atmosphere.

The MBA has been running for 15 years and can be studied part time or full time, where the intake of students from outside the UK and Europe is 90 per cent. Leicester said it is proud of its international links, and has been running a branch of its business school in Johannesburg since 1994.

This is one of the less expensive Amba-accredited courses, costing just under £11,000. Its teaching was rated excellent by the Higher Education Funding Council in the last round of assessments.

FACT FILE: THE AMERICAN WAY

*Universities in the US were producing MBA graduates decades before London and Manchester established business schools in the 1960s. The majority of the world's most prestigious MBA courses are based in the US - although European business schools are gaining ground - with schools such as the London Business School in the UK and INSEAD in France in the top tier.

There are several key differences between the US and the European MBA. US schools offer two-year programmes whereas - with a few exceptions - the trend in Europe is for courses lasting a year. This means the cost - both in terms of time out of the job market and course fees - is likely to be higher in a US business school than a comparable European institution. Anyone applying for an MBA course at Harvard, left, for instance, needs at least $67,000 (£36,143) for fees alone

Advocates of the two-year programmes say they allow students time to study subjects in real depth. The US MBA model includes a summer internship. This used to be a chance to make contacts and earn money to pay off student debt. In recent years, well paid internships have been less common. UK nationals hoping to work in the US on graduation have found that it is no longer as easy as it was five years ago.

American business schools tend to attract a less internationally diverse mix of candidates. Whereas the big names, such as Harvard or Columbia, can attract the best students and faculty, the majority of students in middle ranking schools will still be from North America.