Is an MBA Worth It?

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By Sophie 

We talked about CFA vs. MBA previously, but this is more fundamental. It’s one of those classic questions that always end up with “it depends”. 

I do get why we arrive at that conclusion, as the question is so broad and cannot be generalised for each candidate’s circumstances. Yet, it’ still so anti-climatic and unsatisfactory. 

So, I’m just going to (wo)man-up, apply the 80/20 rule and take a more definitive stance on this controversial subject. My take? MBAs are becoming less worth it. Here’s why.


Which MBA?
To assess this question, I focused on the top 30 MBA courses in the latest 2013 FT Global MBA Rankings. It’s a common goal for candidates to aim for the top courses anyway. 

What’s the current conditions for MBAs?

  • MBA employability continues to improve, with 92% of 2012’s global business school graduates (business masters and MBAs) finding employment within 3 months, up from 86% last year. Employers are increasingly interested to hire MBAs in 2013 too.  
  • Post MBA salary boost has declined – On average, a Harvard Business School alum’s salary 3 years after graduation (1999) represents a 209% increase from pre-school salary. Now in 2013, that number is 121%. Note that this includes the impact of current economic climate, but I’d argue that it applies to everyone in the market too, MBA or not.
  • Cost of top MBAs have been rising 7% per year for the past 15 years. MBA students who enrolled in 2012 paid 62 per cent more in fees – up 44 per cent in real terms – than those who began their programmes in 2005, even though the increases in post-MBA salaries remained in line with inflation.
  • There seems to be too many MBA graduates already.
  • On average, the total all-in costs (fees, modest living expenses, forgone salaries) of a 2 year top MBA program is around $275k to $325k

What do you aim to get out of an MBA? Are There Better Ways to Achieve These Goals?
Getting an MBA used to be a ticket to huge and sustainable salary boost. With that promise waning and the skyrocketing costs, is MBA still a worthwhile investment?

To tackle this question, a good starting point is to think about the objectives of getting an MBA and  evaluate if there are better alternatives:

#1. Credentials and credibility – with the abundance of MBAs and degree inflation, I’d argue that employers would value actual work experience more as a signal of quality. Because anyone can buy an MBA, no one can buy the work experience and knowledge from doing the job itself. This certainly applies to me when I hire a junior in my team.
  
#2. Improve skillset / knowledge – you learn best on the job. No amount of theory could prepare you for the practical skills needed. Plus it looks good on your CV too. Identify what skills or knowledge of a specific job you would like to obtain, then try to get a job in that area. Just like anything (even MBA applications), you need to be proactive to search and ask for the job you want experience in. At least you still get paid, practical work experiences and not end up with student debt.

#3. Change careers / career advancement – Why do an MBA, incur $300k for 2 years, only to change jobs? Why not do it now? Ask for the internship, work for free even for a short time to gain valuable experiences for your CV to diversify and land the job you want, now.

#4. Network – It’s true that you have more time to meet new people, attend events and meet up for coffee when not working full time. But this shouldn’t be your sole reason for taking up an MBA, as you can make time for this and start tapping and expanding your network now. Join societies, clubs or events post work or on weekends and off you go.

#5. Have a good time / find yourself – The desire of a guilt-free career break or search for new direction is a common reason (subconscious or not) for taking an MBA. Given the high cost and additional work involved in this demanding course, I’d say it’s better to take at least 6 months off to travel the world, meet people or spend time with family. Not only it gives you the battery recharge you desperately need, I’m confident that you will learn more about your true likes and dislikes during that period of idleness, to give you a better sense of direction and purpose for your next phase.

Over to you
On first glance, the average payback period for an MBA of 3.5-4 years seems short, making the investment worthwhile. But does it account for the increase risk aversion in the graduates’ job choice? Nope, they didn’t.

With a huge student debt, it’s likely that top MBA graduates would go for high-paying jobs immediately to service the debt for the next few years, and probably not get the career change they first aimed for (reason #2 above). 

I’m not against the usefulness of an MBA, I think there’s a lot to learn there. But the opportunity costs seems too high to warrant such investment, and there are just too alternatives to achieve the same outcome. This is a chronicle of my decision making on MBA back in 2009 based on my career objectives, before I decided to take the CFA instead

What do you think? Did you do (or are in the midst of) an MBA? Share your thoughts and experiences with us below!

Zee Tan
Author: Zee Tan

300Hours founder

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14 thoughts on “Is an MBA Worth It?”

  1. I have to be honest, I’ve never strived for an MBA. I can’t justify the amount of time or the ridiculous cost when I could gain experience in the working world. That’s just me, though. I’m sure there are others with more specific goals who could justify their own – and kudos for making it through!

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  2. I just saw that I have posted over and over again 😛 . The website gave me an error thrice but finally duplicated my posts. Someone please erase the extra comments 🙂

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    • Whoops. All sorted Aj Finance, no worries. You’re nearly there being a L3 candidate, just a little more hard work will pay off. I always thought a CFA is a Masters equivalent, certainly a graduate level program. Not sure about a Masters of Finance coverage area, but I believe they generally have electives that cover the specific Fixed Income areas you’re interested in. Given the specificity of that area of interest, it may be worthwhile trying to get a role in there? I know I learnt derivatives very quickly after a summer internship long long time ago… paid dividends when I took the CFA!

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      • Thanks Sophie. The masters I have looked at do seem to have those electives. But having said that, if I do get a role within that area without it, then there won’t be any point in me pursuing it.

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  3. Hi Jay, the network effects are there, true but the future impact is highly uncertain, as you said. The numbers though, are based on 2 years worth of after-tax forgone salaries of individuals who are of 3-5 years experience, of which around 50% of them come from private equity, venture capital, finance and consulting. Typical backgrounds in terms working experience and pre-MBA sectors (e.g. check out HBS’), that probably explains the differences in assumptions. Those forgone after-tax earnings are reasonable for those profiles.

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  4. I think the article is roughly spot on for the majority of MBA programs. However, if you attend a top school (top 10 roughly), I think the analysis changes a little. There are alot of other benefits to attending Harvard Business School for example that dont exist even at the number 25 business school. For people who want a career change however, business school is sometimes the only option. Take a computer engineer who wants to get into finance. A finance “internship” after work + recruiting in something relevant to his industry MAY get him into let’s say sellside equity research in an industry related to computer engineering, but that is unlikely. To the engineer, the cost may be worth the career switch. It’s often hard to quantify what that value is to that individual. For people who go to business school just to go back to their same or similar careers though, I would agree, people often waste their money. At an investment bank I interned at, for example, one guy left after being an associate to attend business school and then came right back to investment banking as an associate and was shortly promoted to vice president. I also think that the $275K is a little bit of an overestimate, but the point is still roughly correct: there is an opportunity cost financially to attending business school that may not be surmounted by some business school attendees. I actually made a spreadsheet a while back with income increase assumptions to figure out when I would break even financially from the cost of business school vs. if I never went to business school and stayed in my field. Pure NPV analysis of course. It was 8 years after business school based upon my assumptions.

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    • Jay, thanks for sharing your insightful thoughts. It’s great to hear the flip side of the story (I’m assuming you took a MBA?). I agree having the top 10 or a HBS MBA offer is tempting and prestigious, but I believe the fees are one of the highest too. Agree that a career change makes a better argument for business school, whether it’s more or less ‘worth it’ is on a case-by-case basis. I think MBA is also an easier and safer means to change career, vs. the slog and uncertainty of using that 2 years to find and get relevant work experience. Fair enough. The $275k-$325k range was an estimate that includes tuition fees, living cost and opportunity cost of forgone salary. Taking HBS as an example where its tuition fees plus reasonable living cost $180k, adding 2 years forgone salary would be on average those figures, depending on individual… Hehe, nice one on NPV analysis. Well done!

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      • I didn’t do an MBA, but my thoughts are from networking with people who have done a top 10 MBA. I’m actually only a year out of my undergrad degree. I just did the analysis around the time that I first started working full time as a part of my education of whether an MBA was in the cards in the future. I’m a CFA level II candidate. My thought process behind the top 10 MBA idea is that certain careers or goals are just much harder without a top MBA. For example, if you want to raise your own hedge fund in the future (let’s say when you’re 40 years old, 10 years removed from your MBA program) having a Stanford MBA may pay its worth with just one pension fund allocating some funding to your hedge fund because the head of the fund was a Stanford MBA too. Of course, I’m describing a very unusual position a post-MBA professional would be in. But my point is that I’m not sure that kind of a benefit would happen if you went to a lesser MBA program or even if you didn’t go to business school. These networking external effects can really compound at the top schools due to the concentration of talent and benefit business transactions and activities greatly, especially if you need to do any personal marketing or sales processes in the future. Only reason why I think the analysis was high is that the increment over the $180k cost should be the amount that an MBA candidate would have saved of his income from those two years, not his full salary even after deducting taxes. Living expenses is a sunk cost in that respect. I think that most MBA students spend roughly the same amount during those two years in living expenses regardless of whether they’re in the program or not. That’s the key assumption. So then the $275k-$325k estimate is saying they would have saved $95k-$145k in those two years if they didn’t go to business school. Not realistic when factoring taxes and the average savings rate of individuals, even at a higher pay scale. At least that was my thought process when considering NPV analysis.

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  5. Very well written. You can’t help but appreciate the introspective thought process behind it. The “Reason” behind pursuing an MBA degree is perhaps the most important of all questions to look at. It always helps to look at both the sides of a coin. In my opinion, whatever skills one tries to equip themselves with, whatever academic pursuit one might want to take up, it only works best when you actually “need” it. When you do that, more often than not, you also find reason and clarity.

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      • Well I wanted to do an MBA initially, since the time I completed my Bachelors. However, I gradually realised that my reasons for doing an MBA weren’t concrete. I decided to do CFA instead (Level 3 candidate). I still don’t have a masters though. So an MBA or Masters would definitely be on the cards for me. But my only reason for opting any masters would be to learn something that the CFA hasn’t taught me already, or deep dive into a particular area. Well, I personally like Fixed Income, but within that structured products and distressed security investing. And I quite identify with the post, given the fact that I left my job a couple of months back, and I must say that this introspective period has given me quite a few insights into what I want, what I like, or where I would like to be. It won’t make sense for me to do a 2 year MBA because of my personal situation and priorities. Also, I would not want to take a 2 year break from work. Add to that break the sky high costs and prospective student debt after the course, made me think hard if I really want to do an MBA right now. Still weighing in my options, but I must say that I have much better clarity now than ever.

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