Every decision must be financially evaluated – that’s what the holy book said. Well, the Oxford MBA is no exception. I take you through a journey of building and calibrating my returns estimation model for the Oxford MBA.
Taking an MBA is not cheap from the perspective of an African applicant; some would argue that you could buy an apartment in a reasonable neighbourhood with the total cost of top-rated programs like the Oxford MBA. Nevertheless, stories abound of the unceasing flow of benefits to some candidates who took the plunge. In this article, I share my framework for evaluating the Oxford MBA and share what the ex-post model currently looks like.
Most return models start with an initial outlay, and in the case of the Oxford MBA this included the tuition (upon which the Saïd Foundation was gracious enough to offer me a partial scholarship), visa application expenses (plus Immigration Health Surcharge, IHS), travel costs, living expenses – all of which I will estimate to be £90k. I also had a view on the opportunity cost (lost income) I could have earned if I had not taken the MBA. Stay with me… it’s not yet complex finance.
Then comes the interesting but very subjective part of estimating annual positive ‘cashflows’ or benefits of the MBA. To my mind, this should include two major buckets: financial and non-financial. Financial benefits included signing-on bonus, assuming I get any, and an uptick in post-MBA gross compensation. Non-financial benefits included the expanded community of friends that I could hope to meet on the MBA and the unquantifiable benefit they could bring. In my original model, I had assumed an approximate £20k sign-on bonus – which is product of the average bonus reported by MBA students and the probability of receiving one. I had also assumed a £33k increase in annual compensation, adjusted annually by a wage growth of 3.3% reported by the Office for National Statistics (ONS) in the years prior to the pandemic. The horizon for the analysis was limited to tenyears even though the real payout of the MBA flows into perpetuity.
Model output and sensitivity analysis
Drum roll… per my model, the MBA should deliver an Internal Rate of Returns (IRR) of 25.6% and a Multiple of Invested Capital (MOIC) of 2.60x over a ten-year period. Well, that didn’t sound bad, even KKR, the private equity giant, will take a serious look at the proposition. Admittedly, it is difficult to exclude optimism or caution from financial models. I envisage that this model will look very different in a few months’ time when subjected to market realities. I therefore continue to recalibrate the model in the face of new information.
For instance, my model did not capture the value of the free financial model training sessions on renewable energy projects, discussed by fellow student Daniel Arrazola, or the consultancy tricks (and free lunch) shared by my friend, Otniel Sovessi. How do I value the phenomenal increase in my knowledge of sustainable finance gained just by chatting to PhD candidate Jimmy Jia while attending a free field trip to Arabesque and Guidehouse? How about the business leaders I met and deal nuances I learnt about in the finance lab? The free subscriptions to award winning business books, world leading journals and data platforms all well-stacked in the Sainsbury’s Library? Free five-star dinner at Balliol College? I even got a free bike helmet from my MBA administrators.
Clearly, the non-financial benefits of the MBA seem to be in equal balance, if not in excess of, the financial benefits and I could easily see a path to an Internal Rate of Returns greater than 30% and a Money On Invested Capital multiple of +10x. My last employer before the MBA, The Tengen Family Office, where we have delivered returns in excess of 10x invested capital – will be proud of this last point. You should consider taking an MBA in Oxford.
