Study Notes On Specialist Officer HR Performance Appraisal & MBO Process



Performance Appraisal
•     Performance Appraisal
•     History & origin of Performance Appraisal
•     Objectives of Performance Appraisal
•     Benefits of Performance Appraisal
•     Performance Appraisal Process
•     Performance Appraisal Rating Factors
o    Traditional methods of Performance Appraisal
o    Modern Methods of Performance Appraisal
o    360 Degrees Performance Appraisal
•     Performance Appraisal at Pepsi-Cola International
•     Potential Appraisal
•     Performance Counseling

The performance appraisal is the process of assessing  employee performance  by way of comparing present performance with already established standards which have been already communicated to employees, subsequently providing feedback to employees about their performance level for the purpose of improving their performance as needed by the organisation.

As said above the very purpose of performance uprising is to know performance of employee, subsequently to decide whether training is needed to particular employee or to give promotion with additional pay hike. performance appraisal is the tool for determining whether employee is to be promoted, demoted or sacked ( remove ) in case of very poor performance and no scope for improvement.

Every corporate sector uses performance appraisal as a tool for knowing about the employee and take decisions about particular employee. for the purpose of performance appraisal of employees there are different methods under the category of traditional methods and modern methods which are discussed in following chapters.

What is Performance?
What does the term performance actually mean? Employees are performing well when they are productive. Productivity implies both concern for effectiveness and efficiency, effectiveness refers to goal accomplishment. However it does not speak of the costs incurred in reaching the goal. That is where efficiency comes in. Efficiency evaluates the ratio of inputs consumed to outputs achieved. The greater the output for a given input, the greater the efficiency. It is not desirable to have objective measures of productivity such as hard data on effectiveness, number of units produced, or percent of crimes solved etc and hard data on efficiency (average cost per unit or ratio of sales volume to number of calls made etc.).

In addition to productivity as measured in terms of effectiveness and efficiency, performance also includes personnel data such as measures of accidents, turnover, absences, and tardiness. That is a good employee is one who not only performs well in terms of productivity but also minimizes problems for the organisation by being to work on time, by not missing days, and by minimizing the number of work-related accidents.

What is Appraisal?

Appraisals are judgments of the characteristics, traits and performance of others. On the basis of these judgments we assess the worth or value of others and identify what is good or bad. In industry performance appraisal is a systematic evaluation of employees by supervisors. Employees also wish to know their position in the organization. Appraisals are essential for making many administrative decisions: selection, training,
promotion, transfer, wage and salary administration etc. Besides they aid in personnel research.

Performance Appraisal thus is a systematic and objective way of judging the relative worth of ability of an employee in performing his task. Performance appraisal helps to identify those who are performing their assigned tasks well and those who are not and the reasons for such performance.

Definitions:

Performance appraisal has been defined by different scholars in various ways. Some of the important definitions are as follows:

Dale S. Beach, "Performance appraisal is systematic evaluation of the individual with respect to his or her performance on the job and his or her potential for development".

Randall S. Schuler, "Performance appraisal is a formal, structured system of measuring and evaluating an employees job, related behaviour and outcomes to discover how and why the employee is presently perfuming on the job and how the employee can perform more effectively in the future so that the employee, organisation, and society all benefit."

Heyel, "It is the process of evaluating the performance and qualifications of the employees in terms of the requirements of the job for which he is employed, for purposes of administration including placement, selection for promotions, providing financial rewards and other actions which require differential treatment among the members of a group as distinguished from actions affecting all members equally."

Dale Yoder, ''Performance appraisal includes all formal procedures used to evaluated personalities and contributions and potentials of group members in a working organisation. It is a continuous process to secure information necessary for making correct and objective decisions on employees."

Performance appraisal from employee point of view - "A performance appraisal is meant to help employees realise their strengths and shortcomings and receive a compensation accordingly."

Objectives of Performance Appraisal


Performance appraisal is a method of evaluating the job performance of an employee. It is an ongoing process of obtaining, researching, analyzing and recording information about the worth of an employee.

Objectives

The main objective of performance appraisals is to measure and improve the performance of employees and increase their future potential and value to the company. Other objectives include providing feedback, improving communication, understanding training needs, clarifying roles and responsibilities and determining how to allocate rewards.

Providing Feedback.
Providing feedback is the most common justification for an organization to have a performance appraisal system. Through its performance appraisal process the individual learns exactly how well he/she did during the previous twelve months and can then use that information to improve his/her performance in the future. In this regard, performance appraisal serves another important purpose by making sure that the boss’s expectations are clearly communicated.

Facilitating Promotion Decisions.
Almost everyone in an organization wants to get ahead. How should the company decide who gets the brass rings? Performance appraisal makes it easier for the organization to make good decisions about making sure that the most important positions are filled by the most capable individuals.

Facilitating Layoff or Downsizing Decisions. If promotions are what everybody wants, layoffs are what everybody wishes to avoid. But when economic realities force an organization to downsize, performance appraisal helps make sure that the most talented individuals are retained and to identify poor performers who effects the productivity of the organisation.
INDIA: Technology firm cognizant uses annual performance appraisal system to assess its employees for the purpose of retaining talent and for Compensation management. During its annual performance appraisal of the employees, the firm has asked its employees identified as underperformers to leave the organisation. Sources said there were more than 500 'underperformers' in the list, this could not be verified.
--17 Apr, 2013, ET

Encouraging Performance Improvement.
How can anyone improve if he doesn’t know how he’s doing right now? A good performance appraisal points out areas where individuals need to improve their performance.

Motivating Superior Performance.
This is another classic reason for having a performance appraisal system. Performance appraisal helps motivate people to deliver superior performance in several ways. First, the appraisal process helps them learn just what it is that the organization considers to be ‘‘superior.’’ Second, since most people want to be seen as superior performers, a performance appraisal process provides them with a means to demonstrate that they actually are. Finally, performance appraisal encourages employees to avoid being stigmatized as inferior performers (or, often worse, as merely ‘‘average’’).

Setting and Measuring Goals.
 Goal setting has consistently been demonstrated as a management process that generates superior performance. The performance appraisal process is commonly used to make sure that every member of the organization sets and achieves effective goals.

Counseling Poor Performers.
Not everyone meets the organization’s standards. Performance appraisal forces managers to confront those whose performance is not meeting the company’s expectations.

Determining Compensation Changes.
 This is another classic use of performance appraisal. Almost every organization believes in pay for performance. But how can pay decisions be made if there is no measure of performance? Performance appraisal provides the mechanism to make sure that those who do better work receive more pay.

Encouraging Coaching and Mentoring. Managers are expected to be good coaches to their team members and mentors to their proteges. Performance appraisal identifies the areas where coaching is necessary and encourages managers to take an active coaching role.

Supporting Manpower Planning.
 Well-managed organizations regularly assess their bench strength to make sure that they have the talent in their ranks that they will need for the future. Companies need to determine who and where their most talented members are. They need to identify the departments that are rich with talent and the ones that are suffering a talent drought. Performance appraisal gives companies the tool they need to make sure they have the intellectual horsepower required for the future.

Determining Individual Training and Development Needs.

If the performance appraisal procedure includes a requirement that individual development plans be determined and discussed, individuals can then make good decisions about the skills and competencies they need to acquire to make a greater contribution to the company. As a result, they increase their chances of promotion and lower their odds of layoff.

Determining Organizational Training and Development Needs.
Would the organization be better off sending all of its managers and professionals through a customer service training program or one on effective decision making? By reviewing the data from performance appraisals, training and development professionals can make good decisions about where the organization should concentrate company-wide training efforts.

Validating Hiring Decisions.
 Is the company hiring stars, or is it filling itself with trolls? Only when the performance of newly hired individuals is assessed can the company learn whether it is hiring the right people.

Providing Legal Defensibility for Personnel Decisions.
 Almost any personnel decision—termination, denial of a promotion, transfer to another department—can be subjected to legal scrutiny. If one of these is challenged, the company must be able to demonstrate that the decision it made was not based on the individual’s race or handicap or any other protected aspect. A solid record of performance appraisals greatly facilitates legal defensibility when a complaint about discrimination is made.

Improving Overall Organizational Performance.
This is the most important reason for an organization to have a performance appraisal system. A performance appraisal procedure allows the organization to communicate performance expectations to every member of the team and assess exactly how well each person is doing. When everyone is clear on the expectations and knows exactly how he is performing against them, this will result in an overall improvement in organizational success.

Training Needed
These appraisals also identify the necessary training and development the employee needs to close the gap between current performance and desired performance.

Benefits of Performance Appraisal

Perhaps the most significant benefit of appraisal is that, in the rush and bustle of daily working life, it offers a rare chance for a supervisor and subordinate to have "time out" for a one-on-one discussion of important work issues that might not otherwise be addressed.

Almost universally, where performance appraisal is conducted properly, both supervisors and subordinates have reported the experience as beneficial and positive.

Appraisal offers a valuable opportunity to focus on work activities and goals, to identify and correct existing problems, and to encourage better future performance. Thus the performance of the whole organization is enhanced.

For many employees, an "official" appraisal interview may be the only time they get to have exclusive, uninterrupted access to their supervisor. Said one employee of a large organization after his first formal performance appraisal, "In twenty years of work, that's the first time anyone has ever bothered to sit down and tell me how I'm doing."

The value of this intense and purposeful interaction between a supervisors and subordinate should not be underestimated.

Motivation and Satisfaction
Performance appraisal can have a profound effect on levels of employee motivation and satisfaction - for better as well as for worse.

Performance appraisal provides employees with recognition for their work efforts. The power of social recognition as an incentive has been long noted. In fact, there is evidence that human beings will even prefer negative recognition in preference to no recognition at all.


If nothing else, the existence of an appraisal program indicates to an employee that the organization is genuinely interested in their individual performance and development. This alone can have a positive influence on the individual's sense of worth, commitment and belonging.

The strength and prevalence of this natural human desire for individual recognition should not be overlooked. Absenteeism and turnover rates in some organizations might be greatly reduced if more attention were paid to it. Regular performance appraisal, at least, is a good start.


Training and Development
Performance appraisal offers an excellent opportunity - perhaps the best that will ever occur - for a supervisor and subordinate to recognize and agree upon individual training and development needs.

During the discussion of an employee's work performance, the presence or absence of work skills can become very obvious - even to those who habitually reject the idea of training for them!

Performance appraisal can make the need for training more pressing and relevant by linking it clearly to performance outcomes and future career aspirations.

From the point of view of the organization as a whole, consolidated appraisal data can form a picture of the overall demand for training. This data may be analysed by variables such as sex, department, etc. In this respect, performance appraisal can provide a regular and efficient training needs audit for the entire organization.

Recruitment and Induction
Appraisal data can be used to monitor the success of the organization's recruitment and induction practices. For example, how well are the employees performing who were hired in the past two years?

Appraisal data can also be used to monitor the effectiveness of changes in recruitment strategies. By following the yearly data related to new hires (and given sufficient numbers on which to base the analysis) it is possible to assess whether the general quality of the workforce is improving, staying steady, or declining.

Employee Evaluation
Though often understated or even denied, evaluation is a legitimate and major objective of performance appraisal.

But the need to evaluate (i.e., to judge) is also an ongoing source of tension, since evaluative and developmental priorities appear to frequently clash. Yet at its most basic level, performance appraisal is the process of examining and evaluating the performance of an individual.

Though organizations have a clear right - some would say a duty - to conduct such evaluations of performance, many still recoil from the idea. To them, the explicit process of judgement can be dehumanizing and demoralizing and a source of anxiety and distress to employees.

It is been said by some that appraisal cannot serve the needs of evaluation and development at the same time; it must be one or the other.

But there may be an acceptable middle ground, where the need to evaluate employees objectively, and the need to encourage and develop them, can be balanced.

Addional objectives Performance appraisal:
•     To review the performance of the employees over a given period of time
•     To judge the gap between the actual and the desired performance.
•     To help the management in exercising organizational control.
•     Helps to strengthen the relationship and communication between superior – subordinates and management – employees.
•     To diagnose the strengths and weaknesses of the individuals so as to identify the training and development needs of the future.
•     To provide feedback to the employees regarding their past performance.
•     Provide information to assist in the other personal decisions in the organization.
•     Provide clarity of the expectations and responsibilities of the functions to be performed by the employees.
•     To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development.
•     To reduce the grievances of the employees.

Performance Appraisal Process

Establishing performance standards
The first step in the process of performance appraisal is the setting up of the standards which will be used to as the base to compare the actual performance of the employees. This step requires setting the criteria to judge the performance of the employees as successful or unsuccessful and the degrees of their contribution to the organizational goals and objectives. The standards set should be clear, easily understandable and in measurable terms. In case the performance of the employee cannot be measured, great care should be taken to describe the standards.



Communicating the standards
Once set, it is the responsibility of the management to communicate the standards to all the employees of the org anization. The employees should be informed and the standards should be clearly explained to the employees. This will help them to understand their roles and to know what exactly is expected from them. The standards should also be communicated to the appraisers or the evaluators and if required, the standards can also be modified at this stage itself according to the relevant feedback from the employees or the evaluators.

MEASURING THE ACTUAL PERFORMANCE
The most difficult part of the Performance appraisal process is measuring the actual performance of the employees that is the work done by the employees during the specified period of time.
It is a continuous process which involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement, taking care that personal bias does not affect the outcome of the process and providing assistance rather than interfering in an employees work.

Comparing actual performance with desired performance
The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance or, the actual performance being less than the desired performance depicting a negative deviation in the organizational performance. It includes recalling, evaluating and analysis of data related to the employees’ performance.

Discussing  results [Feedback]
The result of the appraisal is communicated and discussed with the employees on one-to-one basis. The focus of this discussion is on communication and listening. The results, the problems and the possible solutions are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employees’ future performance. Performance appraisal feedback by managers should be in such way helpful to correct mistakes done by the employees and help them to motivate for better performance but not to demotivate. Performance feedback task should be handled very carefully as it may leads to emotional outburst if it is not handing properly. Sometimes employees should be prepared before giving them feedback as it may be received positively or negatively depending upon the nature and attitude of employees.



________________________________________
A research conducted by TJinsite underlined that in an effective organisation, assignments and projects are monitored continually. According to 46% of surveyed organisations, ongoing monitoring - periodic reviews and managerial feedback - provides the opportunity to check how well employees are meeting pre-determined standards and to make changes in unrealistic or problematic standards.

Decision-making


The purpose of conducting employee performance appraisal is for making decisions about employees without any bias by the HR manager. Decision-making by HR managers about employees rewarding, promotions, demotions, transfers and sometimes suspensions/dismissal of employees are depended upon the employee performance appraisal. The decision taken by HR manager should match exactly with performance appraisal results of employees to avoid grievance or disturbances in between them, as they affects overall performance of the organisation.

Five ways to deal with a poor appraisal
Bad appraisals, like bad hair days (one of those days when nothing seems to be going right), happen to the best of us. Quitting is not a solution. Rather, take a good look at your performance and concentrate on the course ahead.

Look Within: The first step in dealing with a bad appraisal is to keep an honest mindset and introspect about your performance. "First ask yourself the question: 'What is wrong with me?'. Once you attack that, other things usually fall into place," says Dabur India HR head A Sudhakar.

Talk to the Boss: Speak to the boss about the performance review. "There is a good chance your boss may not have remembered critical activities and initiatives you have undertaken," says Meenakshi Roy, senior vice president, human resource, Reliance Broadcast Network.

Take it in your Stride: There is a good chance that your boss' critical evaluation is spot on. "Try never to take these critiques personally and quit. That may be your biggest mistake. Consider consulting another senior colleague or a mentor," says Roy.

Plan Ahead: "Be actively involved in setting your targets for the year ahead based on your strengths," says S Roy, a midlevel manager in an IT firm . Also, periodically review your performance with your boss. That way, there will be fewer unpleasant surprises.

Move on Gracefully: At times, reasons not connected with your performance affect the appraisal you deserve. "You can bring up the issue with your bosses. But if nothing comes of it, it's time to move on," says Sudhakar. But don't make an ugly exit. "You never know when it can come back to haunt you," he adds.

Modern Methods of Performance Appraisal

ASSESSMENT CENTRES
An assessment centre is a place to evaluate an individual potentiality and performance, so as to position he/she in the core functional areas. normally, organisations outsource assessment centres instead of making them by their own.
[This method of performance appraisal is being opted by the RBI (Reserve Bank of India) for assessment of its officers]

An assessment center typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees to assess their competencies to take higher responsibilities in the future. Generally, employees are given an assignment similar to the job they would be expected to perform if promoted. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics.

The major competencies that are judged in assessment centers are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career orientation etc. assessment centers are also an effective way to determine the training and development needs of the targeted employees.

Nearly 30% companies seek assessment center services while moving an employee from executive position to managerial position. 20% companies said they use the center's services when seeking a position on senior management level.

As per the TJinsite, the premium research website promoted by TimesJobs.com survey, more than 80% of the surveyed employers predict an increased use of assessment centres in near future because of their expertise and unbiased in assessing an individual fit and biggest limitation comes from the lack of skilled assessors to perform the assessment task effectively.

Facts [+]
________________________________________
AssessPeople Ltd. is a workforce assessment company, based at Chennai, India, and having wings at all metros across country. They are a pioneer in India to use internet as a platform to design, administer, and provide the results to organizations.

What they do?
•     Pioneer in workforce assessment services since 1999
•     Assessment services for
o    High School Students to Senior Managers
o    Individual and team assessments
•     Assessment of aptitudes, abilities, skills, behaviours, competencies, knowledge, morale, attitude and work values
•     Multilingual Assessments
•     Biometrics, Photo, Phone2web
•     End2End Assessments
•     Organisation-wide Surveys
_______________________________________

BEHAVIORALLY ANCHORED RATING SCALES

Behaviorally Anchored Rating Scales (BARS) is a relatively new technique which combines the graphic rating scale and critical incidents method. It consists of predetermined critical areas of job performance or sets of behavioral statements describing important job performance qualities as good or bad (for eg. the qualities like inter-personal relationships, adaptability and reliability, job knowledge etc). These statements are developed from critical incidents.

In this method, an employee’s actual job behaviour is judged against the desired behaviour by recording and comparing the behaviour with BARS. Developing and practicing BARS requires expert knowledge.

A behaviorally anchored rating scale is an employee appraisal system where raters distinguish between successful and unsuccessful job performance by collecting and listing critical job factors. These critical behaviors are categorized and appointed a numerical value which is used as the basis for rating performance.

An Example of Behaviorally Anchored Rating Scale (BARS)
Performance Points Behavior
Extremely good 7  Can expect trainee to make valuable suggestions for increased sales and to have positive relationships with customers all over the country.
Good   6    Can expect to initiate creative ideas for improved sales.
Above average      5    Can expect to keep in touch with the customers throughout the year.
Average     4    Can manage, with difficulty, to deliver the goods in time.
Below average      3    Can expect to unload the trucks when asked by the supervisor.
Poor    2    Can expect to inform only a part of the customers.
Extremely poor      1    Can expect to take extended coffee breaks and roam around purposelessly.



HUMAN RESOURCE ACCOUNTING METHOD

Human Resource Accounting is a method to measure the effectiveness of personnel management activities and the use of people in an organization.HRA is the process of Assigning, budgeting, and reporting the cost of human resources incurred in an organization, including wages and salaries and training expenses.

Human resources are valuable assets for every organization. Human resource accounting method tries to find the relative worth of these assets in the terms of money. In this method the Performance appraisal of the employees is judged in terms of cost and contribution of the employees. The cost of employees include all the expenses incurred on them like their compensation, recruitment and selection costs, induction and training costs etc whereas their contribution includes the total value added (in monetary terms). The difference between the cost and the contribution will be the performance of the employees. Ideally, the contribution of the employees should be greater than the cost incurred on them.


MANAGEMENT BY OBJECTIVES


The definition of MBO, as expressed by its foremost proponent, Dr. George S. Odiorne,

 “Management by objectives is a process whereby the superior and subordinate managers of an organisation jointly identify its common goals, define each individual’s major areas of  responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.”

Much of the initial impetus for MBO was provided by Peter Drucker (1954) and by Douglas McGregor (1960). Drucker first described management by objectives in 1954 in the Practice of Management. Drucker pointed the importance of managers having clear objectives that support the purposes of those in higher positions in the organisation. McGregor argues that by establishing performance goals for employees after reaching agreement with superiors, the problems of appraisal of performance are minimised. MBO in essence involves the setting out
clearly defined goals of an employee in agreement with his superior. Carroll and Tosi (1973), in an extensive account of MBO, note its following characteristics:

1.   The establishment of organisational goals.
2.   The setting of individual objectives in relation to organisational goals.
3.   A periodic review of performance as it relates to organisational goals. Effective goal-setting and planning by top management.
4.   Organisational commitment.
5.   Mutual goal-setting.
6.   Frequent individual performance reviews.
7.   Some freedom in developing means of achieving objectives.

MBO is, thus, a method of mutual goal-setting, measuring progress towards the goals, taking action to assure goal attainment, feedback, and participation. It is a resultoriented philosophy, enabling an employee to measure progress toward a goal which the employee often has helped to set. In the goal-setting phase of MBO, a superior and subordinate discuss job performance problems and a goal is agreed upon. Along with mutual goal-setting, a major component of MBO is the performance review session between the superior and subordinate, which takes place regularly to evaluate progress towards specified goals.

The key features of management by objectives are as under:
1.   Superior and subordinate get together and jointly agree upon .the list the principal duties and areas of responsibility of .the individual’s job.
2.   The subordinate sets his own short-term performance goals or .targets in cooperation with his superior.
3.   They agree upon criteria for measuring and evaluating .performance.
4.   From time to time, as decided upon, the superior and .subordinate get together to evaluate progress towards the .agreed-upon goals. At those meetings, new or modified goals .are set for the ensuing period.
5.   The superior plays a supportive role. He tries, on a day-to-.day basis, to help the subordinate achieve the agreed upon .goals. He counsels and coaches.
6.   In the appraisal process, the superior plays less of the .role of a judge and more of the role of one who helps the .subordinate attain the organisation goals or targets.

The MBO process




MBO as a mutual goal setting exercise is most appropriate for technical, professional, supervisory, and executive personnel. In these positions, there is generally enough latitude and room for discretion to make it possible for the person to participate in setting his work goals, tackle new projects, and discover new ways to solve problems. This method is generally not applied for lower categories of workers because their jobs are usually too restricted in scope. There is little discretionary opportunity for them to shape their jobs.


MBO may be viewed as a system of management rather than an appraisal method. A successful installation of MBO requires written mission statements that are prepared at the highest levels of top management. Mission statements provide the coherence in which top-down and bottom-up goal setting appear sensible and compatible. MBO can be applied successfully to an organisation that has sufficient autonomy, personnel, budget allocation, and policy integrity. Managers are expected to perform so that goals are attained by the organisation. Too often MBO is installed top-down in a dictatorial manner with a little or no accompanying training. If properly implemented, it serves as a powerful and useful tool for the success of managerial performance.

MBO is a tool that is inextricably connected with team building so that the work commitment of team members can be increased and their desire to excel in performance can be inspired. It is important to have effective team work among a group of managers or a group of subordinates. The group of employees or subordinates must be looked upon as a team that needs to be brought together. Goals should be set by manager-subordinate pairs, and also by teams. The basic superior subordinate relationship in an organisation is in no way undermined in this concept of team goal setting. Lines of responsibility, authority, and accountability remain clear.

Customer feedback method
This method is truly one of the modern methods of performance appraisal system. Customer feedback method is used, especially for sales staff who deal with sales activity in the organisation. Under this method of appraisal system, customer feedback is directly linked with employee performance. This method of assessment could be unbiased and reliable since customers who are outsiders may give correct judgement about employee performance than the insiders who are superiors.

Companies like Cognizant and Wipro software solutions are using customer feedback method to assess the performance of their sales staff in order to hike salaries.
Some industry experts say placing a higher weightage on customer feedback may fail to motivate employees because customer feedback may vary from customer to customer. Depending on the current state of mind, psychology and perception of the customers may give different feedback for same degree of sales service

Potential Appraisal


The potential appraisal refers to the appraisal i.e. identification of the hidden talents and skills of a person. The person might or might not be aware of them. Potential appraisal is a future – oriented appraisal whose main objective is to identify and evaluate the potential of the employees to assume higher positions and responsibilities in the organizational hierarchy. Many organisations consider and use potential appraisal as a part of the performance appraisal processes.


The purposes of a potential review are:

1.   to inform employees of their future prospects;
2.   to enable the organisation to draft a management succession programme;
3.   to update training and recruitment activities;
4.   to advise employees about the work to be done to enhance .their career opportunities.

Techniques of potential appraisal:

1.   Self – appraisals
2.   Peer appraisals
3.   Superior appraisals
4.   MBO
5.   Psychological and psychometric tests
6.   Management games like role playing
7.   Leadership exercises etc.
Potential appraisal helps to identify what can happen in future so that it can be guided and directed towards the achievement of individual and organizational growth and goals. Therefore, potential should be included as a part of the Performance appraisal in organisations.

Facts [+]
The Potential for Improving Performance, or PIP, measures the performance of the average worker versus the best person performing a particular task. Large differences suggest that performance can be improved by bringing average performance up closer to the best performance. Small differences suggest little potential for improvement.

The following are some of the requirements and steps to be followed when introducing a potential appraisal system:

Role Description: A good potential appraisal system would be based on clarity of roles and functions associated with the different roles in an organisation. This requires extensive job descriptions to be made available for each job. These job descriptions should spell out the various functions involved in performing the job.

Qualities Required: Besides job descriptions, it is necessary to have a detailed list of qualities required to perform each of these functions. These qualities may be broadly divided into four categories -
(1) technical knowledge and skills,
(2)managerial capabilities and qualities,
(3) behavioural capabilities, and
(4)conceptual capabilities.

Indicators of Qualities: A good potential appraisal system besides listing down the functions and qualities would also have various mechanisms for judging these qualities in a given individual. Some of the mechanisms for judging these qualities are -
(a) rating by others,
(b) psychological tests,
(c) simulation games and exercises,
(d) performance appraisal records.

Organising the System: Once the functions, the qualities required to perform these functions, indicators of these qualities, and mechanisms for generating these indicators are clear, the organisation is in a sound position to establish and operate the potential appraisal system. Such establishment requires clarity in organisational policies and systematisation of its efforts.

Feedback: If the organisation believes in the development of human resources it should attempt to generate a climate of openness. Such a climate is required for helping the employees to understand their strengths and weaknesses and to create opportunities for development. A good potential appraisal system should provide an opportunity for every employee to know the results of assessment. He should be helped to understand the qualities actually required for performing the role for which he thinks he has the potential, the mechanisms used by the organisation to appraise his potential, and the results of such an appraisal.

A good potential appraisal system provides opportunities continuously for the employee to know his strengths and weaknesses. These are done through periodic counseling and guidance sessions by either the personnel department or the managers concerned. This should enable the employee to develop realistic self-perceptions and plan his own career and development.



Potential Appraisal Vs. Performance Appraisal
Potential Appraisal is forward looking process whether performance appraisal is backward looking process. Any good or worse assessment results of performance appraisal may not be a good factor for potential appraisal. But current performance of an employee could show evidance somewhere whether he/she is flexible for new working conditions.


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