ACCA Applied Knowledge · Business and Technology

Review and appraisal of individual performance: formula sheet

Full chapter guide

Key formulas

Two main purposes: Evaluation (pay, promotion, discipline) + Development (feedback, training, careers); Use this split to organise any 'purpose' answer. Add motivation and alignment with organisational goals.
Appraisal cycle: Set objectives → Monitor → Assess → Interview → Agree actions → Follow up and review; The cycle repeats. Wording of stages varies, but the order is logical and fixed.
Parties involved: Line manager + Employee + HR (+ peers, subordinates, customers in 360-degree feedback); The line manager usually conducts the appraisal. HR designs and administers the system.
Self-appraisal: Source = the employee themselves; Strength: reflection and ownership. Weakness: bias in self-rating.
360-degree feedback: Sources = manager + peers + subordinates (+ customers/suppliers); Strength: broad view. Weakness: time-consuming and open to bias or conflict.
Management by objectives (MBO): Agree objectives → monitor → review results against objectives; Strength: links to organisational goals and motivates. Weakness: ignores hard-to-measure behaviour.
Rating scale: Score each listed trait on a scale (e.g. 1 to 5); Quick and comparable, but subjective. Watch for halo effect and central tendency.
Critical incident method: Record specific examples of effective and ineffective behaviour; Factual and specific, but needs ongoing records and may overstate extreme events.
Tell and sell: Manager judges, then persuades the employee to accept; One-way and manager-led. Quick, but low employee commitment.
Tell and listen: Manager judges, then listens to the employee's response; Lets the employee express views and reduces resistance. The assessment usually stays the same.
Problem solving: Manager and employee jointly discuss causes and agree solutions; Two-way and development focused. Best for commitment, but slower.
Constructive feedback checklist: Specific + Balanced + Timely + Behaviour-focused + Two-way + Action-oriented; Use as a checklist for any feedback question.
Halo effect: One strong trait → all ratings too high; The opposite is the horns effect: one weak trait → all ratings too low.
Central tendency: Everyone rated near the middle of the scale; Hides real differences between strong and weak performers.
Recency effect: Recent events outweigh the whole period; Fixed by keeping records throughout the year.
Fix by cause: Bias → training and evidence; weak commitment → support and follow-up; vague criteria → clear measurable standards; Match the remedy to the stated problem.

Quick revision

Appraisal is a formal, regular review of an employee's performance against agreed objectives.
Main purposes: assess performance, identify training needs, support development, inform reward and promotion decisions, and improve motivation.
The process is usually a cycle: set objectives, monitor performance, review, give feedback, agree actions, then repeat.
Appraisal should be linked to organisational goals so individual effort supports strategy.
360-degree feedback gathers views from managers, peers, subordinates and sometimes customers.
Objectives-based appraisal reviews results against targets, and good targets are clear and measurable.
Rating scales are quick and easy to compare but can be subjective.
A good interview is planned, two-way, specific and focused on evidence rather than personality.
Feedback should be timely, balanced and lead to agreed actions.
Common biases include the halo effect, central tendency, leniency, severity and recency.
Appraisal can fail if it is rushed, seen as a ritual, or if managers lack training.
Results may feed into reward, training plans, promotion or, where needed, disciplinary action.

Common mistakes

Treating appraisal as only a pay-setting tool. Fix: Always include the development purpose: feedback, training needs and career planning. Pay is only one use.
Mixing up appraisal with training evaluation or job evaluation. Fix: Appraisal reviews the person's performance. Job evaluation assesses the worth of the job. Training evaluation assesses the training.
Confusing self-appraisal with 360-degree feedback Fix: Self-appraisal is only the employee's own view. 360-degree uses several other people as well.
Saying MBO measures behaviour and attitude Fix: MBO measures results against agreed goals. Its weakness is that behaviour and teamwork may be ignored.
Confusing tell and listen with problem solving. Fix: In tell and listen the manager still owns the assessment and the solution. In problem solving, the solutions are agreed jointly.
Saying problem solving is always the best style. Fix: State that it depends on the employee and the situation. It takes time and needs a willing employee.
Mixing up halo and horns effect. Fix: Halo is positive (a halo is good); horns is negative (devil horns). Check the direction of the rating.
Calling leniency 'central tendency'. Fix: Central tendency keeps scores in the middle. Leniency pushes scores high. Check where the scores sit.
Saying PRP always motivates staff. Fix: State that PRP motivates only when targets are fair, measurable and controllable. Mention risks such as short-termism and weak teamwork.
Treating training as a punishment. Fix: Describe training as a way to close a skills gap and develop the person, not as a penalty.

Exam tips

Split every purpose question into evaluation and development. It helps you spot partly correct options.
Know the cycle order. Questions often describe an activity and ask which stage it is.
Remember who does what: line manager appraises, HR administers, employee participates.
In multiple response questions, pick exactly the number requested. Check each option against the definition rather than guessing.
Watch for stems about fairness or two-way discussion. They test good practice, not just definitions.
Match the method from the description first. Most objective test questions are won or lost on this step.
Learn one strength and one weakness for each of the five methods.
In multiple response questions, read the number of answers required and tick exactly that many.