The present downturn has highlighted flaws in traditional accounting-based performance metrics. In response, leading organizations are implementing corporate risk-adjusted return on capital (RAROC) frameworks. Corporate RAROC is a measure that reflects both profits, and the costs imposed by the risks undertaken to achieve them. It allows firms to accurately compare the performance of very different business lines or units on a consistent basis. As a result, using corporate RAROC helps organizations, improve capital allocation, align expectations regarding the risk/return trade-offs, and create consistent incentives at all levels
