11.financial evaluation of management post graduate programs in indian average business schools

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    • 1. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012Financial Evaluation of Management Post Graduate Programs in Indian Average Business Schools: A Case of Uttarakhand – India Narendra Singh Bohra* Faculty of Management Graphic Era University Dehradun – Uttrakhand (India) * Email: nsbohra7@gmail.comAbstractManagement Institutions in India are considered as a placement agency, because the course like M.B.APGDM are considered as a course which would result into a lucrative pay package, fast track career, arespectable job and a lot many things which an achievement oriented student would ever desire. But thecourse like M.B.A or PGDM from average institutions in India has got a totally different meaning; in termsof cost and return this is the reason for the declining demand of management education in averageB-Schools in India. This research is focusing on the financial evaluation of this course on the basis of costand placement packages offered by the B- institution in Uttarakhand (India.Key words: Cost, Return, Cash flow, NPV, Pay - Back Period.1. Introduction1.1 Uttarakhand an IntroductionUttarakhand, after bifurcation from Uttar Pradesh, was formed as the 27th state of India on 9th November2000. It is divided into two broad regions - .Garhwal and Kumaon. The state has 13 districts, 49sub-divisions, 95 development blocks, 15,638 villages and 86 urban settlements. Uttarakhand is primarily amountainous state, as the plains constitute only about 10% of its total geographical area. Out of thirteendistricts, only Haridwar, Udham Singh Nagar and some parts of Dehradun and Nainital districts are in theplains. The state is part of the central Himalayas and most of the northern area comprises of high rangesand glaciers and the lower reaches are covered by dense forests. Higher, or post-secondary, education hasseen major expansion in Uttarakhand during the last few years, especially after the formation of the state.At the time of the formation of the state there were 64 higher education institutions viz., universities,post-graduate and under-graduate colleges, engineering, management education, medical, and dental andayurvedic colleges. Their number has gone up to about 248 – an increase of 287.5 percent in less than 9years. By any standard this is a remarkable growth. Predictably, a growth of this magnitude has thrown upformidable problems that need to be addressed on a priority basis.1.2 Management Institutions in UttarakhandThe structure of management institution in Uttarakhand is very interesting, if we compare the size and 89
    • 2. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012population of this state with the number of management institutions then we can easily analyze that themanagement institutions of this state are able to attracted the students of other state in good number for thisnumber, the quality of study is a major contributor but some other factors like geographicaluniqueness study environment, nearness of Jammu and Kashmir, institutions centralized in some commoncities ext which are also contributing substantially for increased number of students in these institutions.There are two high quality management institutions the Department of Management IIT – R and IIM –Kashipur (these two institutions are excluded from this study) in uttarakhant, apart form these two, eightother university (out of total 14 universities in the state) providing management educational programs(MBA/PGDM), these include (one central university, two deemed university and five sate university) (Figure: 1)Dehradun is the topmost center of higher Education in Uttarakhand. The city has the prestigious institutionslike the Forest Research Institute, Himalayas Institute of Medical Sciences,and Indian Military Academy etc. As far as the management education is concern this there some deemedand state universities as well as some prestigious institutions and this city is central hub for highereducation in Uttarakhand. Apart from Dehradun Mussoorie is the place where Lal Bahadur Shastri NationalAcademy of Administration is placed, whereas Roorkee has the famous Indian Institute of Technology (IIT)renown worldwide for its quality education and Kashipur is now recognized for IIM.1.3 Objectives of this study: To analyze the detail structure of cost charged by these institutions. To analyze the return (benefit) of management post graduate course and estimate the pay back period of such investment.1.3 Data Source & Research Methodology:This study is based on secondary data which has been collected through the Institute websites and the jobportal “naukri.com”. The data collected from Institute websites has been utilized to understand the costswhereas the data collected from Naukri.com is used to analyze the pay packages and the designations thatMBA fresher from Uttarakhand are getting in the job market.This study will be divided into three sections: Section – 01: This section is analyzing the detail cost structure of management post graduate program in Uttarakhand. Section – 02: This section is an exploring the payback periods of ROI with the by applying NPV method of appraising investment proposal.1.4 Review of Literature:Management post graduate degree in India is considered as a passport for the high perk job, this perceptionleads the cost of program very high in past few years. Their is a lot of literature available for estimating thereturns from MBA program in Indian top B- School but in case of average B-School there is a . In presentscenario management post graduate aspirant are keenly analyzing the cost and return. Pfeffer & Fong 90
    • 3. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012(2002) argued that with the commercialization of education the quality of education has declined. Theinstitutes which are running management education, pretend as if they are more concerned with the qualitydelivery of education, but actually it is not and the institute’ focus remains on filling of the seats only. Also,the faculty is not taken care by the management institutes in terms of regular pay scales and workenvironment which ultimately affects the performance and desired output of any B-School. Manimala J.Mathew (2006) reviewed the status of management education in India and conclude that B schools inIndia are trapped in a cost-quality vicious cycle even though there are few institutions of excellence thatare comparable to the best in the class. Prof Himadri Das (2011) He suggests a more sound method tocalculate the ROI and demonstrates how it is linked to the quality of the B-school’s professors. TimWesterbeck (2010), Highlighted some issue in Indian management education system like Skipping theacademic silos phase, Serving locally but train globally, Establishing deep partnership with business allsuch type of issue can enhance the quality of management education in average B-Schools in India but itleads the cost of the education in these schools also.All the studies which evaluated MBA/PGDM programs represent the overall Indian B- Schoolsperspectives especially top B – Schools in India and the prime focus of those study was the evaluation andcomparison of placement packages offered by Indian top B – schools. In last few years the enrolment ofstudents in MBA/PGDM seems to be decline. So there is some literature available which highlighted thereasons of such decline, it has been found in this study that there is substantial shortage of literature on thetheme of this research.2. Cost of MBA/ PGDM in UttarakhandThe cost of MBA/PGDM varies according to the institution attended and the format of study like full time,part time or online, full time residential program are costly than part time MBA program. For mostprospective students, the cost of the program is the significant factor when selecting a course. The primarycosts are the tuition fees charged by the business school, and secondary costs are hostel charges, messcharges, student exchange program and any other paid optional service provided by the Institute2.1 Cost AnalysisThe nature of expenses in management program can be classified in to two bases one, on the basis ofassociation and other is occurrence. Further the cost which is calculated on the basis of association is againdivided in to two heads; 2.1.1 Institutional expenditure 2.1.2 Personal expenditure (Figure: 2) (Figure: 3)As per this study there is a minor different between these two heads, institutional expenditure cover 55% oftotal cost and personal expenditure cover 45% (Figure:), one interesting conclusion can drawn with thisfacts if students are able to control their unnecessary personal expenses, the overall cost of the program canbe minimized. 91
    • 4. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012The other criteria of expenses classification is occurrence, means the frequency on which expenses areoccurring, this head is important consideration for calculation of return because it directly associated withtime value of money. This is again divided it to two heads 2.1.3 Non – Reoccurring Cost 2.1.4 Reoccurring Cost (Table: 1)Non – Reoccurring cost which is paid at the time of admission, it occur only once in the entire tenure of theprogram like fee of securities, registration, lap – top and calculator fee. These costs contribute asignificance part of Rs 60 000 – 75 000 in average B- schools in Uttarakhand, this is a significant share oftotal cost.The second type of cost is reoccurring cost those expenditure which are occurring in regular or specifictime interval, these expenditures again divided in two three category like. Reoccurring Monthly Reoccurring Half Yearly2.2 Opportunity Cost: It Includes: 2.2.1 Opportunity cost (Interest (A+B)): It is the amount that one could have earned while investing in alternate source. The alternate source of investment considered is fixed deposit. 2.2.2 Opportunity cost (Salary): It includes the cost of salary one could have earned It is calculated on the basis of opportunities available for the fresh graduates in Delhi/NCR region. The data is collected from a job portal Naukri.com.3. Estimation of ReturnsLike any other investment, one should calculate the possible returns before investing on an MBA degree. Insimple terms, the return on investment (ROI) of an MBA can be calculated, different MBAs have differentROIs and returns vary from student to students and institute to institute [1], Rationally significant investmentdemands substantial return – an MBA degree is both an investment of time and money. Global statisticsindicate that the MBA graduate can expect their earnings to increase by 130% over a three-year period aftertheir completion of an MBA degree[2]. These statistics are of course subject to many variables, but the factremains that, almost universally, MBA graduates increase their earning potential as well as their potentialfor career advancement 92
    • 5. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 20123.1 Return from MBA/PGDM in UttarakhandEstimating the returns to education is difficult in part but every student want to make sure that the return onhis or her investment makes sense and that he/ she will recoup his or her investment in a reasonable timeperiod. While it is generally accepted that more education leads to an increase in wages, an extensiveliterature attempts to quantify this effect. The difficulty lies in wages from the unobservable personal traitsthat are correlated with schooling, because schooling is usually completed before entrance into the labormarket. (Table: 2)In this research the NPV method is applied for calculation of Pay – Back Period (recovery of initialinvestment). The cash inflow data (taken as a return) is obtained from the average placement packagesoffered by the companies to the B-School’s students in Uttarakhand. The data of further cash inflow(average increment for one to five year) is obtained from the different job portals like Naukri.com andTimesjobs.com.This opportunity cost of the investment is assumed as 7.5% (average risk free return onsuch type of investment). On calculation it has been found the initial investment of Rs182707.654(discounted vale of Rs 755866.14 @7.5 % per year) will be recovered in four years two months.4. Findings and ConclusionManagement education in Uttarakhand is developing as over the years quite a good number of managementinstitutes have come up with innumerous management programs in Uttarakhand to cater to the risingdemands of management education in India. The emerging trends and challenges in management educationin India especially from average business school are raising cost and declining return, potential students ofthis course are investing money with the hope of lucrative returns not only to educate, but the result of thisresearch shows that the pay back span is not very convincing. There is some elements of expenses can becontrolled which will minimize total cost of the programs.References:Joshi B. K., (2009) “Reflections on Reform of Higher Education in Uttarakhand” Occasional paper, (onlineat http://www.doonlibrary.org/download/occasional_paper_1.pdf)Mathew J. Manimala, (2006) “Management Education in India: A Perspective on QualityImprovement” Journal of Management and Entrepreneurship, Vol. 1, No. 3, pp. 28-46, September 2006.Altbach, Philip G., (2009), “The Giants Awake: Higher Education Systems in China and India”, Economicand Political Weekly, Vol.44, No. 23.Bohra S Narendra., (2010) “Quality of Management Education in Average Business Institutions (Withspecial reference of institutions affiliated to UP Technical University Lucknow)” paper presented inInternational Conference & Colloquium on “Excellence in Research and Education” organized by IndianInstitute of Management Indore (IIMI) India , on September 25 – 28, 2010.Bohra S. Narendra., Khati S. Dependra., (2011). “Reclaiming Management Education in Average B –Schools in India” paper presented in the National Research Conference “Globalizing India: Role of IndianB – Schools” Organized by All India Management Association (AIMA) on January 12 – 13, 2011 in New 93
    • 6. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012Delhi, India.Arcidiacono P., (2004)., “Ability sorting and the returns to college major”, Journal ofEconometrics. 121(1–2), 343–375.Loewenstein A, Spletzer, J., (1998), “Dividing the costs and returns to general training”, Journal of LaborEconomics 16(1), 142–71.Dale, S, Krueger, A. (2002), “Estimating the payoff to attending a more selective college: An application ofselection on observables and unobservable”, Quarterly Journal of Economics 117(4).Narendran, R, Narendran,V., (2000)., “Changing Scenario of Management Education in India”. UniversityNews, 38(50); December 11; 4-5.Bandyopadhyay M, Jain, B.K., (2001) “Emerging Challenges before Higher Educational Institutions –Need for Reorientation of Activities”, The Journal of Business perspective, 43 – 48.National Knowledge Commission, Report to the Nation: 2006. (onlineat www.knowledgecommission.gov.in/reports/report06)Planning Commission, Government of India (2008), Eleventh Five Year Plan: 2007- 2012 (New Delhi:Oxford University Press).Report of the Committee to Advise on Renovation and Rejuvenation of Higher Education (YashpalCommittee) (2009). (Online at http://education.nic.in/HigherEdu/YPCReport). 94
    • 7. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012 (Figure – 1) Structure of Management Institutions in Uttrakhand (India) 95
    • 8. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012 (Figure: 2) (Figure: 3) 96
    • 9. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012 (Table: 1) Cost Structure of MBA/PGDM Program Classification of Expenditures Span of Time Sem 1 Sem 2 Sem 3 Sem 4 Total Amount Institutional Expenditure (Rs)Non Recurring Security Fees 5000 Registration 1000 Uniform 4500Recurring (Half Yearly) Tuition Fees 60000 60000 60000 60000 Sports Fees 500 500 500 500 Examination Fees 1500 1500 1500 1500 Books 3500 3500 3500 3500 Stationary 500 500 500 500Recurring (Yearly) Library Fees 2500 2500Total Program Cost (A) 75000 62000 64500 62000 263500 Personal ExpenditureNon Recurring Laptop 45000Recurring (Monthly) Room Rent 9000 9000 9000 9000 Food 15000 15000 15000 15000 Internet Charges 2400 2400 2400 2400 Mobile 1800 1800 1800 1800 Newspaper & Magazines 600 600 600 600 Entertainment 3000 3000 3000 3000 Local Transport 3000 3000 3000 3000 Miscellaneous 3000 3000 3000 3000 Clothes 1000 1000 1000 1000Total Personal Cost (B) 87900 42800 42800 42800 216300Total Cost (A+B) 162900 104800 107300 104800 479800Opportunity Cost (Interest (A+B)) 25351.3 12008.4 8047.5 3858.95Opportunity Cost (Salary (Annually)) 108000 118800Total Cost of MBA 755866.14 97
    • 10. European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Vol 4, No.4, 2012 (Table: 2) Calculation of Pay – Back Period without Considering Operating Expenses Discounted Rate : 7.5% NPV : 182707.654 Period (Years) : 5 Discounted Discounted Cumulative Cash Flow Payback NCF NCF Period 0 -755866.1393 -755866.14 N/A 1 160000 148837.21 -607028.93 N/A Year 2 192000 166143.86 -440885.07 N/A 3 230400 185462.92 -255422.15 N/A 4 276480 207028.37 -48393.78 N/A 5 331776 231101.44 182707.65 4.2 6 398131 257973.70 440681.35[1] Times Of India Mumbai; Date: Apr 18 2005 Section: Education Times (Cover Story)[2] Financial Times Survey – September 6, 2004 98
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