A PRESCRIPTIVE COST MODEL FOR DEMAND SHAPING: AN APPLICATION FOR TARGET COSTING

Costing tools and traditional cost models are used primarily to calculate costs. However, these models would be more relevant if used as decision-making support tools. That is, they should allow ex-ante rather than ex-post analyses. Nevertheless, cost models tend to follow a linear logic of resources-activities-products (e.g. as it is the case of Activity Based Costing) when uncertainty, variability and dynamics of the current market demand cost models that help decision makers to define which resources are needed to satisfy market needs (e.g. as it is the case of Target Costing), i.e. in a reverse logic. Such models can be designated prescriptive cost models and require significant computational resources to attend the complexity of the problems for which they can be applied. The prescriptive analysis intends to recommend actions based on specified or desired results and it is the most evolved stage of business analytics, far beyond descriptive and predictive approaches. This paper presents and discusses a prescriptive cost model applied in the context of Target Costing. The relevance and validity of this approach are discussed and several opportunities for further work are presented.