Is an MBA degree worth it? After lost wages and tuition does this opportunity payout? Would you be better off just sticking to your current position for the next decade?
The majority of us will work to earn a our living. In today's society you could be working a long time. Although I am attempting to quantify the monetary advantages of an MBA, I cannot even begin to assess the emotional, intellectual, and social rewards of an MBA. Can you really put a price on enjoying your employment? If you are like me then you had to suffer through countless student summer positions that redefined boredom and uselessness firsthand. Perhaps you had a position that tried your patience to the point of driving you to the brink of insanity? If you have, then I'm sure you can agree that finding enjoyable employment is PRICELESS. I believe an MBA will help me with this, but it may not do that for everyone.
With that stated, let's continue with the analysis of this opportunity.
To test the value of an MBA I assembled a few scenarios. All of these involve certain assumptions, which anyone can criticize, but as they were used in all cases I would argue much of the error caused by incorrect assumptions cancels out.
To provide a sufficient time scale I chose to look at 10 years. All of the scenarios started with 1 year of employment at my current position. After that they explore a variety of paths. I then compared them to the base case of staying at my current position. All cases assumed an 8% pay increase every year, but it doesn't matter as the affect is irrelevant as I explain further down.
- Scenario A: Base case. Do not return to school. Work at your current job with steady pay increases every year.
- Scenario B: Work in previous position for 1 year, return to school, enter new industry at a slightly lower salary, but receive a 50% one-time increase after 3 years in after gaining experience. (Note: This increase would either come from changing organizations or being recognized for your new expertise within your current organization)
- Scenario C: Work in previous position for 1 year, return to school, enter previous industry at same salary with potential to enter management position, but never get the chance.
- Scenario D: Work in previous position for 1 year, return to school, enter previous industry at a higher salary with potential to enter management position.
- Scenario E: Work in previous position for 1 year, return to school, enter previous industry at a higher salary with potential to enter management position and extra compensation
- Scenario F: Work in previous position for 1 year, return to school, enter previous industry with a much higher salary with potential to enter management position and extra compensation
Results:
- Scenario A: 1.00 times base case since this is the base case
- Scenario B: 1.09 times base case
- Scenario C: 0.87 times base case (the only case that was worse than not taking an MBA)
- Scenario D: 1.34 times base case
- Scenario E: 1.34 times base case
- Scenario F: 1.68 times base case
For specific values I looked at my current position and where I could reasonably be in 10 years if I didn't go back for an MBA. Fortunately for me I have my professional association's salary surveys to consult (APEGGA Salary Survey Page) (2006 Results). For post MBA positions I checked various Canadian business schools placement statistics. All the MBA information I found was similar to what is posted at Queen's. (Site with stats) (2007 Results)(2006 Results). All of the results were discounted to today's dollars. If possible, I would recommend all people contemplating an MBA to complete a similar exercise so you can really see the effect.
I ran sensitivities on the influence of discount rates and inflation rates of salary. The discount rate had no effect. The inflation rate of salary directly affected the magnitude of the difference between the cases, but the cases always ranked the same.
The only scenario that didn't workout for the better was the case where I returned to my previous employment position and nothing changed. Even taking a pay cut to switch industries was beneficial provided you are able to see a large, one-time increase in your salary after 3 years.
In other words, don't take an MBA and go back to doing the exact same thing you were doing before.
None of these scenarios considered the substantially rewarding situation of starting a business that becomes incredibly successful or catching that one-in-a-million opportunity that is out there if people are really willing to dig for it. Those opportunities would be much more rewarding. Perhaps a senior management position?
In conclusion, financially an MBA is worth it. You should easily be able to get the MBA to payout. The magnitude of financial benefit is a directly proportional to what you do afterwards. How much and when? Well, that lies squarely on your shoulders.
Other related links with in my blog:
