Financial Implications of a One Year MBA

The first thing that comes to mind while understanding financial implications of studying at an IIM, is we almost always tend to overlook the opportunity costs associated with such an endeavor- and focus only on the course fees. Of course, the course fee is perhaps the biggest component out here, but opportunity costs would be a close second- particularly for courses that include students with over five years of experience. I will assume that students take a sabbatical or resign from their jobs to pursue the course- which means a year of lost salaries. Now that cost depends grossly on the career stage of the individual, so more experienced the batch is- more are lost earnings. That is kind of a paradox- as when we come to pricing of courses- we see that courses with more experienced cohorts tend to be priced more than courses targeted at freshers, or people with 1-2 years of experience.

I remember raising a question on similar lines to my strategy professor- what was the rationale behind higher course fees for one-year MBAs with more experienced peer groups? His reply was not what I had expected. It had been my thinking that the intrinsic logic behind such higher pricing would be it was assumed that after graduating, the students of such MBAs would earn substantially more than what they had been earning prior to joining the course. However, the professor thought, that by resorting to “premium pricing” the institute was sending a signal to prospective recruiters. These experienced professionals turned students had taken the huge risk of disrupting their careers almost close to reaching a zenith, and invested such a large sum to upskilling themselves would mean that

  1. Their risk appetite was great, and such decisions have been taken after careful consideration – which would again signify robust decision-making abilities
  2. These individuals considered their personal worth more than what they were presently being valued at- and they believed the institute would unlock that hidden potential

 

So, the recruiters would be made to believe that in choosing such candidates for their organizations they were

  1. Recruiting people who are adept at making strategic decisions for future growth after careful considerations of all possible risks, and would be competent at developing robust risk mitigating strategies
  2. They were picking up candidates who would be able to unlock the true potential of their organizations as well

 

Now being faced with such an answer, I had to take a deep breathe and ponder on the meaning of what had just been said. While it is true, I found the answer difficult to argue with, I could not help but think, what happens in the case where the recruiter merely thinks that the student was not satisfied with his present career status and has thus taken a risk simply to overcome his career frustrations. Value of a product (in this case an individual) is a subjective matter- and obviously cannot be perceived to be at the same level by all. Sometimes we must let a product justify its own value and then we can put a price on it- specifically for disruptive products where the consumer is not able to fathom its true value.  So, if I now consider the one year MBA grads as such disruptive products (how many of us would leave our careers mid-way to enroll in a yearlong residential course?), it would be expected that their values will not be equally perceived by everyone on the other side of the table.

 

Therein perhaps lies the root cause of unhappiness in certain sections of students, post completion of their courses. Its not only the outside world, but in some cases the students themselves- who are unable to ascertain their own true worth, and the worth of the MBA- as it is more often than not perceived to be directly related to the annual packages offered by companies at the completion of the course. Only perhaps many years down the line, when time has played the role of a great leveler, are we all in a position to reflect back on the value that we have obtained out of our one year of disruptive thinking.

 

Thus, when evaluating costs associated with pursuing the MBA, we would be well advised to factor in the course fees, the opportunity costs, and our risk-taking appetites. That coupled with our motivation to get ourselves enrolled in academic pursuits, knowing fully that the returns on such endeavors may not be immediately available, should give us a better understanding of whether to step on that boat, or give it a pass. That said, I have seldom come across candidates of top tier institutes who have rued their decisions of being a part of such cohorts. In fact they have harped on the need to be patient in realizing the benefits of belonging to a family of select individuals, where the initial returns may take considerable time and effort to be perceived, and in some cases may even be substantially delayed. And in some cases, they may not be in the form that we had expected them to be. They would most often than not advocate getting in with an open mind and take up the challenge with an aggressive zeal, provided you are yourself convinced of your decision to do so.

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