Opportunity Cost Elements Hall And Lieberman example essay topic

Abstract Opportunity cost provides a broad view of the monetary and nonmonatary factors in making a choice (Hall, 2000). This paper examines the concept of the individual opportunity cost for pursuing a Master of Business Administration (MBA) degree. It suggests that acquiring an MBA part-time while employed, as compared to a full-time student, minimizes the payback period for the cost of education at the expense of the non-monetary demands on time, energy and family. The paper specifies the common elements involved in making the choice between taking a leave of absence from work, moving out of town, and pursuing an MBA full-time, or maintaining a current job while enrolled in a local MBA program. It then compares and contrasts the options and finally concludes the paper with a suggested choice. Opportunity Cost Elements Hall and Lieberman define opportunity cost as "the value of the best alternative sacrificed when taking an action (pg. 16).

They suggest every choice is a sacrifice. Yet, to what degree must a sacrifice be made between a choice of "learning while earning" and "learning while paying?" German philosopher Friedrich Nietzsche once wrote, "When there is a choice about it, a great sacrifice is preferable to a small sacrifice, because we compensate ourselves for a great one with self-admiration, which is not possible with a small one" (Columbia World of Quotations, 1996). Acquiring an MBA, regardless of the choice of options, requires a great sacrifice. It is unavoidable. Nevertheless, a careful examination of choice elements, namely money, time, energy, and family, may minimize the degree of sacrifice (MBA. org. nz, 2002). Considering the money element, Silberman writes, "in calculating the value of an MBA, one needs to consider what economists call 'opportunity cost,' the lost wages you would be earning while in school".

He continues, "you need to count the cost of the 'next best' alternative... in this instance, the salary of your current job". The quantitative cost of acquiring an MBA includes tuition, fees, and books. Although one may believe room, board and recreation an important part of opportunity cost, it does not reflect the cost of education because there is no alternative (i.e. one must eat and sleep regardless of choosing to stay local or moving away) (Silberman, 1999). Finance is a significant monetary opportunity cost in the contrast and comparison of options.

Equally important are the non-monetary elements of time, energy and family. "Economics", states Hall and Lieberman, "takes a broader view of costs, recognizing monetary as well as non-monetary components" (pg. 16). MBA classes demand time. Time for study, time for class participation, time for writing, critical thinking, and real world application.

Balancing priorities between class time and family time presents an opportunity cost challenge. MBA classes require approximately 20 hours of study outside of the classroom (MBA. org. nz, 2002). In addition, the energy of stamina, motivation, and strict focus intensifies the competing pressures of an MBA program. With all that said, the choice remains - what opportunity cost exist between a leave of absence from work, moving out of town, and pursuing an MBA full-time ("learn and earn"), or maintaining a current job while enrolled in a local MBA program ("learn and pay")? Comparison and Contrast of MBA Options MBA opportunity cost elements apply to both learn and earn or learn and pay options. Each option deals with money, time, energy, and family.

Money Business Week's calculator estimates the return on investment (ROI) that a student might earn on the monetary cost for acquiring an MBA. The calculator provides a quantitative measurement of the costs incurred in choosing a "learn and pay" option. For example, a female, pre-MBA student earning $50,000 annually who lives in Alabama with 5 years experience working for employers with less than 5,000 employees, an undergraduate degree in business, planning a career in consulting, and choosing to attend Arizona State University, can expect the following from a two year MBA program: School Name Investment in 1,000's % Salary increase Salary increase in 1000's Breakeven in years Annual ROI 10 year basis Arizona State 110.9 63.1% 31.5 5.5 19.7% Business Week Explanation of Results Investment: An estimate of your total MBA costs, including tuition and lost income. Salary Increase: The percentage or dollar change between your pre-MBA income and predicted post-MBA income. The projected income level is for illustrative purposes only and does not include raises above inflation. Break-even: The estimated number of years, beginning from your entry into business school, that it would take at the new income level to make back the amount of money invested.

Annual ROI: Annual ROI: The annual rate of return (over a 10-year period beginning the year you enter school) on your investment in the MBA, based on the projected salary increase of a typical student with your characteristics. More importantly, unless we have corporate sponsorship, the hidden cost is the job opportunity lost. Business Week's ROI calculator reflects a $50,000 per year opportunity cost from lost earnings. In contrast, a "learn and earn" option would immediately reduce the investment by $100,000 because of the maintenance of job income.

Income savings minimizes the sacrifice of lost income and thus quickens breakeven, ROI, while preserving potential increases in salary. Time, Energy, and Family The demands of time and energy apply equally to both "learn and earn" and "learn and pay" options. Each option requires drive, persistence and self-discipline. Yet, if the student has a family and is gainfully employed, the advantage of choosing a "learn and earn" option becomes clearer. A "Learn and earn" option reduces family sacrifice and improves real-life application. Although taking a leave of absence and moving away may give focus and clearer priorities, it does not account for the loss of family support or the gain of practical business application.

Choosing a "learn and earn" option continues the thread of relationships built over time. In an article entitled "Rewards of earning master's degree vary by field", Margaret Schmitz Rizzo writes, "studying locally avoids dislocation and provides ready access to obtaining empirical data for assignments from the employer". The opportunity cost of giving up family and work, although noble in thought, does not minimize sacrifice and therefore is not the best alternative. Conclusion This paper examined the individual opportunity cost of pursuing an MBA degree when given the options of learning locally or learning off-site. It illustrates opportunity cost concepts by focusing on the choices a pre-MBA student may make when weighing the monetary and non-monetary factors of finance, time, energy, and family. The paper suggests that acquiring an MBA locally, while maintaining current employment, is the best practice to minimize opportunity sacrifice.

Its main conclusion is based upon the following premise: given the time, energy, and will, earning an MBA will HOPEFULLY command a higher wage and improve an individual's quality of life in the future.

Bibliography

Business Week (2002) ROI Calculator.
Internet. web (April 21, 2002) Columbia World of Quotations (1996).
Frederick Nietzsche. Internet web (April 21, 2002) Hall, R.
Lieberman, M. (2000) Introduction to Economics.
South-Western College Publishing MBA. org. nz (2002).
An overview to getting an MBA. Internet web Rizzo, M (1999).
Rewards of earning master's degree vary by field. Kansas City Star Internet. web (April 21, 2002) Silberman, A (2002).
MBA: Is It Worth the Time-and the Price? Kaisha Society. Internet web (April 21, 2002).