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Opportunity Cost and the MBA


Opportunity cost, it’s a term that was thrown around a lot when I was searching for the right program, and it was a major factor in my decision to apply for the IBEAR MBA. As a 20 year veteran of the US Marines, I wasn’t really in the habit of using the term, but I conceptually wrapped my head around it. Over the last year I’ve had a lot more time to think about it; it’s a powerful concept.

In the text Microeconomics, Bernheim and Whinston tell us:

“An opportunity cost is the cost associated with forgoing the opportunity to employ a resource in its best alternative use”

Wikipedia tells us:

Marshall MBA Candidates Networking at the Annual Consulting Institute Panel

Marshall MBA Candidates Networking at the Annual Consulting Institute Panel

“The opportunity cost of a choice is the value of the best alternative foregone, where a choice needs to be made between several mutually exclusive alternatives given limited resources.”

Let’s break down this concept of opportunity cost as it relates to the MBA applicant in search of answers.

Of great importance is the term “cost of a choice,” and I would argue that there will be a cost associated with every choice before you. With cost comes risk, and with risk comes the distinct possibility that you will make the wrong choice. Whether you go to USC, Harvard, or anywhere else, you will expend resources that may not result in an equitable return—you may lose. So it’s important to determine why you’re doing this in the first place.

For now we’ll let this question soak. If we’re going to get the bottom of the opportunity cost of an MBA, you have to ask yourself what you hope to achieve. I would submit that many MBA applicants hope to achieve one of the following:

  1. You want to shift your career function
  2. You want to shift your career industry
  3. You want to accelerate your advancement because you’re in a dead end job, a rut, or just can’t advance in your function or industry without an advanced degree
  4. A combination of the three

Depending on the nature of your post MBA desires, you have different opportunity costs to consider. In my next post we’ll break these down in more detail. I’ll also give my opinion (and believe me, there are a lot of varying opinions about all of this) about how different MBA options (Traditional full-time, part-time, executive, accelerated, online) can address different risks and reduce different opportunity costs. Because, of course, the goal here is to find the least costly alternative that provides the most utility of your resources.