Can target costing be applied to the banking industry in Ghana

The banking industry in Ghana can introduce target costing.  However, its application is much more difficult due to the nature of banking services.

Introducing target costing in the banking industry in Ghana will eliminate non-value adding activities that increase the cost of banking in Ghana.  It will enable Ghanaian customers to be charged competitive prices for the banking services that are rendered to them, with no more room for process wastages.  The quality of services will increase coupled with lowered costs.  The service processes will be improved as they will be more focused on the customers, and less on the staff, as it currently obtains in Ghana.

However, the nature of banking services makes introduction of target costing somehow difficult.  These characteristics of banking services include: a) the production and consumption of banking services are coincidental, as the services are consumed when they are being produced; b) banking services are not storable like goods; c) banking services are not comparable, one unit to another; d) banking services are not tangible; e) ownership of banking services is not transferable; and f) there is not market price for banking services, except the price limits imposed by regulatory bodies.

Explanation:

Target costing in the banking industry in Ghana will take the form of first determining the market price for services that are acceptable to customers, establishing a target profit, and then designing banking services in such a manner that the costs do not exceed the target costs.  The target cost will be the variance between the market price of a banking service and the target profit.

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