NPV vs. Payback: Shaping MBA Career Decisions

“My offer, it’s only $5,000 more than my pre-business school salary and that no way justifies the cost of tuition and two years of lost income!”

This was the start of my appointment with a second-year MBA student about his full-time offer. At the time, I was associate director of career management at The University of Chicago’s Booth School of Business. These coaching conversations are often difficult. The reality is, I wanted to shout, “Why is this a surprise? Didn’t you research this before now?” Of course, I didn’t say that. Instead, we focused on the bigger picture and the long-term view of the opportunity.

The lingering issue for this student and many others is the value of the MBA – in fact, the return on investment. The economy of the last few years has not made the equation easy. More and more young professionals are deciding whether the price tag for the degree is still worth it. The answer is yes, but I look at the question differently: “When will I realize the value of the MBA?”

Reena Bajwa, Wharton Class of 2008 and currently an associate investment analyst with UBS, had clear expectations about her returns post-business school. She told me, “I knew I wanted an MBA to switch my career path to the financial sector and believed a top-tier MBA could open those doors for me. I went to business school knowing that if I were successful in that transition, I would comfortably gain a return on my educational investment in 2-5 years. As an investor focused on long-term returns, I anticipated the MBA curriculum, experience, and friends I’ve made will continue to increase the return well above the initial costs.”

The concerns today for students and MBA applicants align with Bajwa’s – seeing the value in the short-term is the priority, while the benefits “down the road” are upside.  Here are ways to evaluate the decision:

MBA Value

Compensation. Every business school ranking includes information about MBA salaries and schools annually publish employment reports (or some form of job statistics). Both provide a wealth of information, including salaries by industry, function, geography, pre-MBA education, and more. Search for this on the school career pages. Let me also offer this guidance:  Research your career interest and look at the median salaries and signing bonuses. Most likely you will be closer to the median than the high-end of the ranges that you might naturally take in.

What are MBAs making in the current climate? The Graduate Management Admission Council surveys MBA students a few months before graduation. For the Class of 2010, the data shows MBAs earn 64% more than salaries before business school – that averages to a post-graduation salary of $112,000. It is estimated that MBA earnings from a top-tier degree rise to $200,000 five years after graduation.

Access and Knowledge. There are longer-term, harder-to-quantify benefits of the MBA.  If you have done your research, you probably know these. In fact, the Economist recently summarized the common reasons why students pursue an MBA in addition to expected increases in pay: 1) the opening of new career opportunities and/or furthering of a current career, 2) the personal development and educational experience, and 3) the potential to network.

Package these together with the asset of the MBA “name brand” from the program that you attend and over the long run, you gain career growth, longevity, adaptability, and mobility. I have a client with a top MBA who, after two years out of the market, just took a great job at a leading technology company – he can attest to these parts of the value equation.

Contrary to what some believe, the degree’s worth is not perishable. “I view the MBA skill set as lasting into perpetuity,” says Al Kamienski, who earned an MBA from Kellogg in 2000 and is now an associate professor of finance and economics at North Park University. “ I valued the education because I knew I wanted my choice of jobs for as long as I wanted to work. I knew the breadth of experience of an MBA education would serve me in any setting or situation.”

NPV vs. Payback. If I go back to the student lamenting the $5,000 pay increase, what I see is a struggle between valuing the MBA’s “Net Present Value” vs. “Long-Term Payback” and the criteria driving career decision making. Payback looks at how rapidly it takes to recover an investment, whereas NPV considers the long-run cash flows compared to an investment. In essence, they stand apart based on short-term vs. long-term returns. It’s harder to add in “access and knowledge” into the NPV formula, especially when you receive that first full-time job offer. Many MBA benefits are cumulative, realized over a course of a career so they may seem ambiguous today.

So, how do we build this into our thinking?

Advance Career Planning

Knowing this struggle, when I talk to MBA applicants, I suggest some thinking to do now, before making your school decision and deposit. Along with the usual reasons why you want to go to business school, add to your preparation these elements that will proactively shape your long-run career management and short-term job search.

  • Reflect on your decision-making criteria – Will you weigh Payback or NPV more?  This becomes a question of short-term choices. I worked with a student last year to help negotiate an offer with a clean-tech energy company. The salary offer began below the low end of the MBA salary range for the industry and function. However, it was his dream job – right role, team, industry niche, and company.  He was committed to the opportunity because in the long run it was going to position him perfectly. Decision criteria:  NPV.
  • Determine your view of risk – Are you a risk-taker or are you risk-averse? What corresponds to risk is confidence and doing appropriate due diligence. For the student pursuing clean-tech, his approach to risk taking was critical. We discussed the confidence he held in himself and the organization to give him progressive responsibility and chances to grow (in role and financially). This is a particular consideration for those with less-traditional career interests. Do you stay the course or take the more typical MBA route? Know your commitment and willingness to take leaps of faith.

Kamienski shared his criteria and view of risk while at Kellogg: “I wanted to generate enough wealth right away so I could make a decision to take a career path focused on my passion, education, early in my career. My choice right after business school was a non-traditional MBA role in a traditional MBA consulting firm. A year later, I pursued my PhD part-time along with adjunct teaching. Two years later, my Kellogg MBA and professional experience helped me to land a full-time faculty position.”

  • Map out the path to achieving career goals and passion – What does that path look like? There are many ways to progress towards a career goal, with direct and indirect routes. The future entrepreneur is a great example. Consider alternatives for your internship and post-MBA job. You can a) work on your own business idea, b) join an early stage start-up, c) take a venture capital role to see funding and growth of new businesses, d) join a mature firm that drives innovation and has a culture of entrepreneurship. Anticipate the various options and be comfortable that there is no perfect answer. Know where you are headed and make decisions to keep you progressing toward your goals.

“I knew what I wanted out of business school and I was clear on my career path,” noted Bajwa.  “I got what I wanted out of business school, my top choice firm, because I was focused and true to my passion. Do this thinking early and begin to narrow; as the fall progresses you avoid being spread too thin which makes it difficult to do the depth of preparation for interviews needed at this level.”

MBA applications to the top business schools continue to be robust, so I don’t need to sell the value of the MBA. My greater interest is getting MBA applicants to think about the short-term and long run of your career, and the path(s) to set you on course for your goals. Also, if you think about your career proactively, you’ll be better prepared to conduct research, evaluate options, and make decisions. You don’t want to be the soon-to-graduate MBA lamenting a job offer in a career services office.

Pam Schilling is an executive and career coach, and founder of the Career Advisory Services practice with The MBA Exchange, which serves pre-MBAs through MBA graduates, particularly those focused on career change and pursuing career passions. Formerly, as associate director of career management at The University of Chicago Booth School of Business, Pam guided hundreds of students and alumni on their job searches. She holds an MBA from Chicago Booth and has 17 years experience in management consulting and financial management. She also serves as a faculty member at North Park University’s School of Business and Non-Profit Management in Chicago.

About the Author...

Pam Schilling

Pam Schilling is an Executive and Career Coach, and Founder of the Career Advisory Services practice with The MBA Exchange, which serves pre-MBAs through MBA graduates, particularly those focused on career change and pursuing career passions. Formerly, as Associate Director of Career Management at The University of Chicago Booth School of Business, Pam guided hundreds of students and alumni on their job search. She holds an MBA from Chicago Booth and has 17 years experience in management consulting and financial management. She also serves as a faculty member at North Park University’s School of Business and Non-Profit Management in Chicago.

  • Bo

    Pam is correct. It is hard to break in via an EMBA program… if that were the only criteria alone. She is also correct in stating that you need to do a LOT to position yourself; and that is more about the person, not the degree, career services, how much you spent on school, your sector, and any other excuse we all use as crutches. You asked the question, “do you think that it would be worth it in terms of my career prospects to do an EMBA?”

    My advice is that your career prospects are entirely up to you. In robust hiring markets, and in downturns, your success depends on the person you are, the internal “guts” that comprise the whole of the candidate. Are you willing to sit in a room for 13 hours a day pouring over minutiae data for three years, learning everything you can about a company so that you can answer every question that ever comes up about the company or firm? I can guarantee you someone has. I would say that anything worth doing is going to take a long time and takes alot of hard work. It’s going to be very hard — whether you open up your own enterprise or go to work for a consulting company. It will take commitment and perseverance and hustle and energy and the willingness to outwork your competition. The degree gets you nothing. It’s an opener. I chased the EMBA dream because I wanted it as my “calling card.” That’s all it is. Generally, your reputation in the industry precedes you. The degree is just a stamp of approval — experience is what keeps you around. So for me, it was worth it (because I generally viewed it as pro forma, and not a necessity — because, generally, a successful person will be successful with or without the degree).

  • Arthurdullsworthy

    Ms Schilling gives useful advice when she recommends use of information about median outcomes. In fact, a more candid recognition of the “median effect” would do much to mitigate hysteria for Harvard and Standord. The median graduate from those places ain’t going where the median graduate from Chicago, MIT or Columbia can’t go. However, Ms Schilling draws a financially illiterate distinction between NPV and payback. Neither is more long-term or short-term than the other. In fact, the mathematics of NPV (lower discount coefficients for future cash flows) imply a strong bias in favor of near term cash flows.

  • patrinos

    Hi Pam,

    Many thanks for all the useful and insightful feedback.


  • Patrinos, Poets&Quants just linked to a great article about EMBA programs and I think the comments from John ring true. With an EMBA, you are in a more seasoned peer group and there is a good deal of emphasis on relationship building and the skills needed by executives, along with the foundational skills of a traditional full-time program. As an example, if you are in the business of selling Risk Management services/solutions, you could have classmates who are in Treasury or senior finance/CFO roles (who maybe are CPAs, now pursuing an MBA). Those individuals – your classmates – are potential buyers or advisors or a source of referrals. As always, I suggest: Do your homework about programs and know your focus and goals going into the experience – before your sign the dotted line. Good luck! Cheers, Pam

  • patrinos

    Hi Pam,

    Thank you very much for your response and insight. What you say seems to concur with what I have read from other blogs and websites. It is not an easy switch at all.

    However, do you think that it would open up a lot of doors and greater career opportunities into my current sector and/or into the Big 4?


  • Shrika, Dr. Kamienski’s route and other non-traditional MBA roles may have a slight discount to the typical MBA salary – but, it all depends on role, your background, and what you negotiate with the firm. Cheers, Pam

  • Patrinos,
    You ask a great question about the EMBA and career opportunities. Let me see if I can address directly, with some of the key considerations. First, as you know, Executive MBA programs are intended for more seasoned professionals – 10+ years of business experience. So, for most of those programs, the career pursuits are for experienced professionals – it is generally more challenging to be a “career changer” at that level. It’s not out of the question (e.g., impossible), but, there are a number of hurdles.

    Firms like McKinsey and the Investment Banks hire “career changers” – but, mostly, from full-time MBA programs. Remember, most full-time MBAs have 4-5 years of experience. They train you and don’t expect industry or functional experience per se, they expect rapid progression up a steep learning curve.

    With that, I will say, it is hard to break in via an EMBA program. I spoke to a friend of mine who is ex-McKinsey. It’s not completely impossible, but, you need to do a LOT to position yourself. His advice, network with the firms PRIOR to signing up for a program. See what they think about your background. Also, from my knowledge, talk to the schools (Career Services) and determine what support you have and if you have access to the on-campus recruiting processes.

    In robust hiring markets, you might get a shot to interview. Then, you need to prove the capabilities. But, it’s definitely the road less traveled.

    Cheers, Pam

  • patrinos

    Hi all,

    I was looking for perspectives on my prospects if I were to do an EMBA. I am 41 years old with extensive experience in pre-sales consulting (have specialised in Risk Management solutions) for a software vendor;indeed very prominent in the area of Risk Management software. Now, If I may ask you, do you think that it would be worth it in terms of my career prospects to do an EMBA? Or perhaps my career would be better served by doing a more focused degree such as a Master in Fin Engr/Finance? For example, would an EMBA open the doors for me to a firm like McKinsey or to an IB? Or at least could I expect many more opportunities within the realm of the Big4 full-service consultancies?

    If you have the time to respond please be as honest as you feel you need to be. An EMBA is a huge investment and I am trying to ascertain what is the potential risk-return profile of this endeavor. My utility function is not that of a highy risk adverse person but I believe in taking carefully calculated risks.


  • Thank you John and Pam….Pam especially-looking forward to more such lateral articles!

  • Thanks Srikar. This is the first in a series of columns by Pam who has some terrific ideas to explore on the site. Stay tuned.

  • Great inputs….As a serious-applicant I read the placement brochures ‘minutely’ i.e. my (likely-post MBA) sector-median pay packet- my dream company and corresponding location where I would like to work. I then contact the alumni/current students who have done internships or have previously worked or are currently working-been there…gone through the grind & done that guys! Must point out some of them have been incredibly helpful. (Yes-I have already started networking:)) Overall it gives me what I think is the ‘true’ picture….but my outlook and expectation from a top – international B-School is different. It’s exactly as what is said by the Economist: 1) the opening of new career opportunities and/or furthering of a current career, 2) the personal development and educational experience, and 3) the potential to network. My question to Mr. Al ‘Dear Sir, is the remuneration for a non-traditional MBA role in a traditional MBA consulting firm the same as for traditional MBA roles?’ Just F.Y.I. I hail from a non traditional background and some of the consulting firms like Parthenon and McKinsey are doing some amazing work in ‘my’ domain. Thank you again for coming up with an interesting article. Kudos!