Crowdsourcing Solutions

Potential Appraisal: Objectives, Purpose and Advantages


It is unlikely or unusual for an employee not to desire to improve his performance or abilities. Everyone wants to know how they are doing and what they can do to improve themselves. And this may be due to human’s innate longing to be productive and do meaningful work.

The employees desire to be recognized is usually a given. But their ambition to be promoted to a higher position or to develop is sometimes being missed by the company.

Potential AppraisalWithout the proper management, monitoring, analyzing, and evaluation of their performance, skills, and potentials—the company suffers wasted opportunity to nurture a suitable employee, while the employee itself suffers the loss of opportunity to develop his full potential.

This is the reason why more and more companies are now paying attention to carefully include and execute potential appraisal as part of their performance appraisal processes.

The use of a potential appraisal is very significant to promote employee development. It also encourages a culture of better accountability and higher productivity. It assists the employee on how to better do his job, and how to do it such that he’ll be considered for a possible promotion or be given an added responsibility.

Potential appraisal allows both the employee and the company to identify areas for improvement. And then develop materials and come up with training to enhance performance. Thus, incorporating this appraisal may significantly open real opportunities for employees to demonstrate their abilities, or for the management to pinpoint which particular skills to nurture.

With the aid of potential appraisal, the management can effectively and fairly evaluate whether the employee is suitable to be given added responsibilities or promotion. It can also assess if added training is necessary, or if its time to move the employee to do work that’s more fitting for his skills. And if the employee shows no improvement at all, the potential appraisal can help managers to decide when an employee needs to be let go.

Potential Appraisal Defined:

To better understand potential appraisal, its purpose, objectives, advantages, its steps, and characteristics—let us first define the term.

A potential appraisal is a part of the performance appraisal process. It is a future-oriented appraisal in which the term implies the identification and evaluation of the employee’s untapped talents or undeveloped skills. It aims to identify and evaluate these potentials to determine if the employee is fit to accept a higher position or added responsibilities.

It is possible that the employee is not fully aware of his potential—his existing yet dormant abilities. Hence, a potential appraisal is the tool being used to track hidden talents, skills and abilities of an employee. This is a holistic approach in which in the process, the employee’s strengths and weaknesses are deeply identified.

Consequently, this helps the management provide more succinct feedback to their employees which may help improve their performance and shape them to be better equipped for future positions.

Potential Appraisal Vs. Performance Appraisal:

Potential appraisal should not be confused with performance appraisal as the former is a part of the latter.

Performance appraisal:

A performance appraisal is a method used to document and evaluate the job performance of an employee. It is a systematic process and usually done periodically. It is also known as a performance review, performance evaluation, or employee appraisal.

This process includes an assessment of an employee’s periodic job performance and productivity to pre-established criteria and objectives set by the company. It also includes an assessment of the employee’s overall behavior, accomplishments, areas for improvement, and among others.

The process also includes providing feedback to employees, and one-on-one coaching or career development plan to further enhance performance. It may also entail discussion about a possible salary increase (should the performance be highly satisfactory), a possible promotion, or feedback about job status.

However, it could also become a venue for laying down disciplinary actions or warning to move the employee to better perform otherwise it may result to force resignation or possible termination.

Performance appraisal is needed for the employee to know what is expected from him, and what he can do to meet those expectations. This method helps better manage and align all the company’s efforts and resources to reach the most effective and efficient performance from their employees.

Potential appraisal:

While on the other hand, as mentioned above, a potential appraisal is a part of performance appraisal. This method is used to identify and evaluate the “potential” of an employee. Potential appraisal searches for latent abilities of the employee that are, during the appraisal, are not being used.

It aims to reveal the dormant abilities of an employee in the hope of career advancement in the future. It identifies the employee’s possible position or suitable roles in the future within the organization. While at the same time, during the evaluation, it also helps carve paths to guide the employee or develop ways to prepare him for higher responsibilities in the future.

A potential appraisal is a forward-looking process to see whether an employee will be suitable or flexible for new working conditions and challenges. Simply, it is a process in which the main objective is to assess the employee in his present role, drafting ways to improve his performance, and then ultimately move to evaluate to see his suitability for higher responsibility.

Purpose and Objectives of the Potential Appraisal:

Since a potential appraisal aims in identifying future possibilities, it can help in such a way as to guide the employee to grow professionally. It also allows the company to better achieve its goals.

The prime objective of a potential appraisal, therefore, is to help employees move upwards in the organization. It positions the employee to see its future prospectus, while it also helps the company draft a suitable succession plan.

To sum up, the main purposes of a potential appraisal are:

  • to inform employees about their possible career path or future prospects
  • to help the company chalk out succession program
  • to regularly update the training efforts and enhance recruitment
  • to motivate employees to further develop their skills and competencies or overall performance

Advantages of performance appraisal as a whole:

Majority of employees wants to advance their career. Understandably, every employee would like to be allowed to work at a higher level of competence either in their current position or other types of work they particularly excel in. So, a good performance appraisal system, which ideally should include a potential appraisal, will help point out areas where an employee needs to improve.

Although there are some minor drawbacks, there are undeniably many advantages of a good performance appraisal system. The following are some of its well-known benefits:

1) It encourages superior performance:

It helps guide the employee since a regular performance appraisal lets the employee know what is expected from him and what he can do to meet those expectations. Thus, it motivates him why he should perform better and what he should do to deliver superior performance.

2) It helps the management to decide if a salary raise is deserved by an employee:

Most organizations believe in pay for performance, and employees also do expect to be well compensated for doing a good job. A periodic performance assists the management to better decide whether such an employee deserve a raise based on the set performance criteria.

3) It helps support manpower planning:

By regularly conducting performance reviews, the management can better assess who can be given future assignments or a higher position.

4) It allows room for better communication and an enhanced relationship with the management and the employee:

It allows the employee and his immediate supervisor time for a focused one-on-one discussion of work activities, goals, and issues. The appraisal interview, when done properly, allows better communication or identification of existing problems and how to address it.

5) It encourages accountability, as well as adds motivation and satisfaction:

Performance appraisal empowers employees because it provides recognition for their work efforts. It reminds employees that the company is interested in their performance and career development. With this appraisal, the employee may be influenced to be more accountable, genuinely interested to perform better.

6) It helps identify training and development needs:

Performance appraisal provides an avenue for the management to recognize relevant training and development needs.

7) It helps monitor and enhances recruitment and induction practices:

The data from performance appraisal can guide Human Resources and the management to see the effectiveness or what needs to improve in their recruitment process.

Additionally, specific to a good potential appraisal, it’s known benefits are:

  • it helps identify employees who can take higher responsibilities
  • it helps employees know that they are not working on dead-end jobs
  • it identifies employee potential to ensure manpower availability

Characteristics and techniques of potential appraisal

Reviewing the performance of the employee forms the basis of potential appraisal since he is assessed based on the targets he accomplished and the skills he possesses and uses.

The results of the performance review act as indicators on the employee’s aptitude to handle extra responsibilities. Nonetheless, it’s important to note that this is not a fool-proof way to know whether the employee will be successful in managing higher responsibilities in the future.

It’s also good to remember that a potential appraisal cannot be applied to all—at the same level. This is because there will be employees who may have potential but do not perform well due to behavioral problems. Also, there are chances that some employees may be productive doing routine tasks but cannot perform on higher-level jobs.

Although it is recommended to take place within six months, potential appraisal time isn’t fixed. The reason being is that it should be under the discretion of the management to hold the assessment. A certain milestone achieved by an employee like seniority, or other reasons and factors should be considered before exercising such activity.

A potential appraisal also should start and end with a meeting between the employee and the management. The first meeting should consist of the listing of abilities required for additional assignments or higher position, as well as development plan to attain them. The next meeting should then include the assessment results—whether the necessary skills have been acquired or not, as well as feedback and an action plan.

Additionally, the following are the common techniques of a potential appraisal:

  • Self–appraisals
  • Peer appraisals
  • Superior appraisals
  • MBO
  • Psychological tests
  • Psychometric tests
  • Management games
  • Leadership exercises, and etc.

Steps of Potential Appraisal System:

While the following are some of the general requirements and steps when introducing a potential appraisal system:

1) Role Description:

A clear role description is required to have a good potential appraisal system. There should be clarity of roles and functions—which means extensive job descriptions and various functions involved to perform the job.

2) Smart time management:

The perfection of the performance evaluation system also requires smart time management. Proper time management skills are crucial in keeping employees focused on their assigned tasks.

Using a productivity tracker like integrating a free time clock software to track employees working hours have been proven effective in boosting performance.

3) Qualities Required:

Besides clear descriptions of roles and functions, it is also important to have a detailed list of qualities required for the employee to perform and deliver. These qualities are usually broadly divided into four categories, which are listed below:

  • technical knowledge and skills
  • managerial capabilities and qualities
  • behavioral capabilities
  • conceptual capabilities

4) Indicators of Quality:

A potential appraisal system should also include the various mechanisms for judging these qualities in an employee. These mechanisms for judging these qualities are:

  • Rating by others
  • Psychological tests
  • Simulation games and exercises
  • Performance appraisal records

Other indicators of potential are:

  • A sense of reality: The employee thinks and acts objectively, and resist purely emotional pressures.
  • Imagination: The employee uses his imagination to pursue objectives, and go beyond the conventional approach to certain situations.
  • Power of analysis: The employee can break down facts, reformulate or transform crisis into manageable terms.
  • The span of vision: The employee can examine a problem in the context of a broader framework of reference.
  • Persuasiveness: The employee can sell his ideas to people and uses personal influence to gain a continuing commitment.

5) Organizing the System:

Once the roles, the qualities required, and the indicators of quality are listed down, then the system should be established. The potential appraisal system should be organized in such a way that there is clarity in the organizational policies and systematization of efforts.

6) Feedback:

Finally, the last step should be the inclusion of the climate of transparency and openness. This will help employees to understand and gauge their abilities—and their strengths and weaknesses.

Providing feedback allows them to better perform their jobs and develop their skills and abilities. Moreover, the company’s management should incorporate regular one-on-one coaching or periodic counseling.


Employees want to be recognized. It motivates them as well as encourage them to perform better, be productive, and be more committed.

Conducting regular performance appraisal helps to have higher overall performance and productivity. It also helps the company to achieve its goals and objectives.

A potential appraisal is a part of the performance appraisal. It helps identify and evaluate the latent abilities of an employee which is not currently being utilized. Conducting a potential appraisal also have various advantages for the company like supporting manpower planning. In its entirety, a potential appraisal is beneficial for both the employee and the company.