Opportunity Cost of an MBA

 

Opportunity Cost of an MBAOne of the key questions you should ask yourself before you chose to do an MBA is whether it is really financially worth it for you. While this is not the only consideration, it is still an important one. ‘What is the opportunity cost for you to do an MBA?’ is also a question commonly asked in MBA interviews.

To evaluate how much an MBA will cost you, we use the opportunity cost method. Opportunity cost is the cost of ‘not taking the next best alternative’. In case of most MBA applicants, the next best option is doing a full time job.

A key question to ask before thinking about an MBA is 'whether it is really financially worth it'. Click To Tweet

Calculation of Opportunity Costs of a Business Degree

Case 1: If you have 1-3 years of work experience and are working in the big Indian IT firms like TCS, Wipro or Infosys

ItemAmountNotes
Your current Salary5 lakh rupees per year
Salary for the next year5.75 lakh rupees per yearAssuming 15% increment
Salary opportunity lost out over 2 years10.75 lakhsMBA Opportunity Cost
Total cost of MBA fees15 lakhsAssuming IIM A,B,C,L
Total cost of an MBA25.75 lakhsOver 2 years

Note: This does not factor in costs of living since you would be in incurring these in both scenarios (job or MBA)

Case 2: If you have 1-3 years of work experience and are working in a product based MNC like Adobe, Cisco, Microsoft etc.

ItemAmountNotes
Your current Salary12 lakh rupees per year
Salary for the next year13 lakh rupees per yearAssuming 10% increment
Salary opportunity lost out over 2 years25 lakhsMBA Opportunity Cost
Total cost of MBA fees15 lakhsAssuming IIM A,B,C,L
Total cost of an MBA40 lakhsOver 2 years

In general, the opportunity cost of an MBA can be calculated by simply adding your salaries for two years. You can then get the total cost of your MBA by adding the opportunity cost to the MBA programme’s fees.

Note: This calculation is a simple one. It does not include the intangible opportunity costs like losing out on promotions or 2 years of work-experience or for that matter even a personal opportunity cost like not being able to get married in that duration.

In summary, and no surprises here, the opportunity costs as well as total costs for doing an MBA are high. For people with 1-3 years of experience, the total cost of an MBA can be from 25 to 40 lakhs. If you have more experience, the opportunity cost goes higher and the total cost can cross 50 lakhs. So before you chose to do an MBA, make sure you evaluate the opportunity costs associated with your decision. What is the opportunity cost for you to do an MBA? Let us know in the comments section below.

Additional Reading: Browse more MBA related articles like why you should do an MBA, should you choose an Indian MBA or a Foreign MBA? and choosing between an Executive MBA or a Full 2 year course.

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Rakesh
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This is an amazing view – I didn’t ever imagine that an MBA would cost me 40 lakhs! I am rethinking whether it is worth it to do an MBA or continue with my 12 lpa job..

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