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Thursday, April 28, 2011

Cost effectiveness of an MBA degree

A Master's Degree in Business Administration (MBA) can be worth a lot or a little depending on several factors. When MBA's were in their highest demand the degree was almost a ticket to well paying business jobs. Since the 1980's MBA programs are standard in many Universities and consequently the supply has increased. This does not mean a MBA is useless however; what it does mean is that as a prospective MBA candidate one has to be a little prudent.

With a MBA one can broaden one's horizons significantly. A Doctor might pursue a MBA's to better understand the administrative end of their field; Engineers and Computer Scientists may earn MBA's when considering branching out into small Businesses, Corporate employees possibly seek MBA's to assist in promotion etc. In addition to the career implications of MBA's is the knowledge of the world of Business which is pretty much unavoidable in a MBA program. For anyone who didn't know, Business is a big factor in what makes the World go round these days, so having knowledge of this is useful in and of itself.

In a MBA program one learns things like the time value of money, asset management, strategic marketing, brand value, organizational behavior, financial statement analysis, statistical analysis, entrepreneurship etc. The list is quite extensive as the degree programs can average about 60 credits which is double the course work of some degrees and about one third less than law degrees.

The value of these courses also depends on how one applies the knowledge one learns in the degree. For example, if one invests time and money to learn how to build a car, but never actually builds a car why learn to build a car? A non-MBA student might say, "why not if it's interesting"; an MBA student who has learned his or her coursework would say that is a wasted investment or net loss scenario. One thing that a MBA will teach is how to value money and that is valuable too.

Before delving into some of the costs and valuation of an MBA degree, the following video raises some useful tips about calculating return on investment or ROI for an MBA program and some of the key considerations to take in to account:

The value of the school and the value of the individual

How one is situated and which school one attends can also influence the value of a MBA. A MBA from Wharton is prized but not necessarily valuable depending on how it's used, while a degree from an accredited 3rd tier school will teach essentially the same information, it may take someone quite high and therefore be quite valuable if the individual knows how to use it. Thus, although all MBA's are not always considered equal in rank and therefore 'value', neither are all recipients of MBA's. In other words value can be found in many degrees, if it is turned into something of greater value.

Short run versus long run value

In the long run, a MBA has more potential value than in the short term, as MBA's do incur opportunity cost and expense when pursued. Then, after graduating one has to generally either get a promotion, increased in income, find a career or start a business for the degree to pay off. That takes more time, energy and investment. So naturally, the short term implications are less favorable than the long term.

Face value

Lastly, a MBA may be free if one has an employer, scholarship or college fund pay for it. In this case, the value of the degree is either $0.00 or any positive dollar value above that as no money from the candidates personal funds are used in paying for the degree. In this instance, the real tangible book value of the degree is good, but sometimes it may be negative depending on the cost of the tuition and the financial situation of the individual pursuing the degree. What's more, if student loans are used to pay for the degree they could negatively amortize if the student is unable to make interest payments on the loans after graduation.

So what we have seen here is that MBA's have a lot of potential value and sometimes immediate value depending on how they're financed. Since the 1980's MBA's have become more popular and less in demand thereby reducing their cultural value or value to the workforce however many opportunities still exist for MBA students for the simple reason the World is comprised of so many business'. A MBA can equip an individual with highly useful information that is not unnecessary in any commercial environment and part of the value of that knowledge is multiplied by the value of the individuals ability to use that know how.