The MBA Dilemma

A Career Boost or a Debt Trap?

April 1st, 2014

The MBA is an investment and there are some odds that need to be weighed before you undertake this qualification boost. Embarking on a Master’s of business administration is a long-term endeavour that entails more than just making the time for it – it takes effort and may even require leaving a solid job and losing one or two years of salary. So does it pay off?

The cost/profit correlation

Whether you opt for the full two-year degree or decide to enrol in a one-year programme, financing your degree is a part of the MBA process that requires careful planning and thorough research of your options. It has been estimated that it would take you approximately 3.93 years to earn back what you paid for your degree and only after that period will you start reaping the benefits of your investment (the ROI).

Also, the return on investment can be quite arbitrary, as it varies from school to school. For example, the University of Chicago’s MBA programme costs over $150,000 USD (not including accommodation and other living costs) but, according to Bloomberg’s most recent roundup, graduates make an average of $102,000 USD per year when they get out. At Harvard, tuition and fees come to about $112,000 USD and graduates end up making $110,000 USD on average. Whatever the costs incurred, however, the remuneration statistics for MBA graduates show that investing in the degree is a lucrative investment.

According to the GMAC 2013 survey, the newest class of MBA degree-holders posted very robust employment rates in 2013. Overall, 90% of the class of 2013 alumni were employed, down slightly from the 92% for the class of 2012 alumni. Salaries are also quite competitive – for example, the median starting annual salary offered to US citizens who graduated from a full-time two-year MBA in 2013 is US $90,000 USD, with bonuses and additional compensation of $10,000 USD. European citizens who graduated from full-time one-year MBA programmes reported the greatest median starting salary at $101,093 USD.

So, in the long run, numbers work in your favour and the investment pays off. But how about your career? Will this break from the real-life business world affect your professional growth? Not for the majority of MBA-holders – stats show that their careers take off after graduation. The non-monetary rewards Results from the September 2013 GMAC alumni poll show that the class of 2013 MBA and other specialised business master’s alumni remain successful in finding employment opportunities across job sectors and value the rewards they’ve received from their graduate business degree. Most importantly, despite lingering economic uncertainty, nearly all new business school alumni of the class of 2013 attribute their career preparedness to their graduate management education.

The MBA gives you strong foundations in up-to-date academic knowledge and helps you acquire crucial practical skills through various projects and communication with your fellow students. Additionally, the degree gives you the knowhow and the contacts to make a name for yourself in the business world and move up in your chosen professional field. If you are in a top managerial position but still want to grow in the industry and start your own business, the MBA can be a useful tool for setting up a network of business friendships and gaining entrepreneurial expertise. The GMAC poll indicates that 5% of 2013 alumni became entrepreneurs or self-employed. The reported median salary on a global scale is $128,569 USD, while the most preferred industries are consulting, technology and products and services. Apart from added value in terms of professional competencies and a network of useful business contacts, the MBA also gives you market flexibility. It allows you to change industries and completely shift your career track.

Indeed, according to the GMAC 2013 survey, alumni more often reported the professional and personal rewards gained from their education, rather than the financial ones.

Jordan Cash is an MBA graduate of the University of British Columbia, Sauder School of Business. After graduation he set out to establish a business of his own and became the owner of Cartems Donuterie in Vancouver, Canada. Cash not only became self-employed but he also made a leap from one field to another. A former equities trader and recruiter, he established a premier gourmet donut shop.

“I was not in the donut world before my MBA. So, my career changed very much in the sense that suddenly I became a business owner. I was an entrepreneur in every sense of the word: leading a team, starting something from scratch – pretty much everything changed. I was basically getting a paycheck for myself and was building a company with other people and that was something that I had never done before.”

Cash is pleased with what he has managed to achieve during the three years after his graduation. And he is more the rule rather than the exception, as research shows that 9 out of 10 recent MBA graduates who became entrepreneurs are satisfied with the experience of being self-employed and 87% reported that their education provided them with the essential knowledge, skills and abilities to develop their business. For Cash, the networking was pivotal. “During the programme, I talked a lot about this ‘donut idea’ that I had and I was able to share it with my classmates in a comfortable atmosphere. I got so much feedback and lots of ideas from them and now, as the business is growing, I’ve been leveraging their contacts and their employers to get our product into the right hands. That has been very beneficial in terms of what it is that we want to do here and what our business model is based around.”

Switching careers is common for MBA students, says Murali Chandrashekaran, associate dean of professional graduate programmes at Sauder in Vancouver. “If students are not ready for a transformative experience, then they need to think twice about it [an MBA].” He adds, “It is not just about the pocketbook, it is about the heart.”

All in all, regardless of whether they’ve set up a business of their own, been promoted within their companies or moved to a company from an entirely different industry, MBA alumni report that they do not regret the choice they’ve made. The vast majority of the class of 2013 (96%) would recommend their programme, regardless of employment status, programme type attended, or citizenship. Retrospectively, more than 9 out of 10 alumni reported they would still have pursued their degree knowing what they know now. Even though financing an MBA degree is a step that should be carefully planned, the statistics all point to the conclusion that the MBA diploma does pay off and the ROI makes this a worthwhile investment.

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