Business and Technology · Review and appraisal of individual performance

Purpose and Process of Performance Appraisal for ACCA BT

Updated 11 October 2026 · Fact-checked

Performance appraisal is a formal, periodic review of how well an employee has performed against agreed objectives. Organisations use it to assess results, give feedback, identify training needs, support pay and promotion decisions, and plan development. The cycle is: set objectives, monitor performance, assess, hold an appraisal interview, agree actions, then follow up.

Understand Purpose and Process of Performance Appraisal

Performance appraisal is a formal process where an employee's work over a period is reviewed and assessed against agreed standards or objectives. It is usually done once or twice a year, though many firms add informal check-ins.

Why do organisations do it? There are two broad groups of purposes. The first is evaluation: judging performance to support decisions on pay, bonuses, promotion, transfer or, if needed, discipline. The second is development: giving feedback, spotting strengths and weaknesses, identifying training needs and planning careers. Appraisal also helps motivation, because people like to know how they are doing, and helps the organisation check that individual effort supports its goals.

The process works as a cycle. First, objectives and standards are agreed at the start of the period. Next, performance is monitored through the period, using work output, observation and feedback. Then performance is assessed against the standards. An appraisal interview follows, where manager and employee discuss results. They agree actions, such as training or new objectives, and these are then followed up and reviewed. The next cycle starts from those new objectives.

Several people can be involved. The line manager (immediate superior) normally leads. The employee takes part through self-appraisal and discussion. The HR department designs the system, keeps it consistent and keeps records. Other possible contributors are the manager's own superior, peers, subordinates and customers, as in 360-degree feedback. Each party has a different interest: the organisation wants results, the manager wants a fair judgement, and the employee wants recognition and development.

For the exam, remember that a good appraisal is fair, based on agreed and measurable criteria, regular, and two-way. A one-sided annual event that surprises the employee is poor practice.

Key formulas to remember

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.

How to solve Purpose and Process of Performance Appraisal questions

Use this method for any objective test question on the purpose, stages or participants of appraisal.

1Read the question stem and decide what is being tested: purpose, a stage of the cycle, or who is involved.
2If it is about purpose, classify each option as evaluation or development, and check which one the stem describes.
3If it is about stages, place the described activity in the cycle: objectives, monitoring, assessment, interview, actions, follow-up.
4If it is about people, match the role to the party: line manager leads, HR administers, employee participates.
5Look for key words such as 'agreed', 'formal', 'feedback', 'training need' or 'pay review' that point to one answer.
6Eliminate options that describe a different stage or a different purpose, then choose the best fit.
7For multiple response questions, select exactly the stated number of options and check each against the definition.

Quickest way: Purpose or stage? Two-second sort

When to use it: Use this on one- and two-mark objective test questions when time is tight.

Ask: is this about judging (evaluation) or improving (development)? Pay, promotion and discipline are judging. Training, feedback and career planning are improving.
If it is a stage, ask: does it happen before, during or after the interview?
Before the interview: objectives, monitoring, assessment. The interview itself: discussion and agreement. After: actions and follow-up.
Pick the option that matches, and move on.

Common mistakes in Purpose and Process of Performance Appraisal

Treating appraisal as only a pay-setting tool.
Students link appraisal with bonuses and salary reviews.
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.
The terms sound similar.
Fix: Appraisal reviews the person's performance. Job evaluation assesses the worth of the job. Training evaluation assesses the training.
Putting the stages in the wrong order, for example holding the interview before assessing performance.
Students remember the interview as the whole process.
Fix: Learn the cycle as a chain: objectives, monitor, assess, interview, actions, follow-up.
Saying HR carries out the appraisal.
HR is associated with people matters.
Fix: The line manager normally appraises. HR designs the system, gives guidance and keeps records.
Ignoring the employee's role.
Appraisal is seen as something done to the employee.
Fix: Remember that good appraisal is two-way, with self-appraisal and agreed objectives. This also helps motivation.

Worked examples

Example 1

Which TWO of the following are purposes of performance appraisal? (Select two.) A. Identifying training needs B. Calculating the cost of a job C. Informing decisions on promotion D. Setting the organisation's mission statement

Show the solution

Appraisal reviews individual performance, so look for options about individuals.
A: training needs arise from gaps found in appraisal. This is a development purpose, so it fits.
B: the cost of a job is not an appraisal output. It relates to costing and job evaluation. Reject.
C: promotion decisions use appraisal results. This is an evaluation purpose, so it fits.
D: the mission statement is set by senior management and is not an appraisal purpose. Reject.

Answer: A and C

Example 2

A manager meets an employee to discuss results for the past year, listen to the employee's views and agree a development plan. Which stage of the appraisal cycle is this?

Show the solution

The meeting is a face-to-face discussion of past results.
The manager and employee both contribute and agree a plan.
This is the appraisal interview, where assessment is shared and actions are agreed.
It is not objective setting, which happens at the start of the period, nor follow-up, which comes after the plan is made.

Answer: The appraisal interview stage, where results are discussed and actions are agreed.

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.

Practice questions from Review and appraisal of individual performance

Purpose and Process of Performance Appraisal in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Purpose and Process of Performance Appraisal: frequently asked questions

Why do organisations carry out performance appraisals?

They want to assess how well employees perform, give feedback, and find training needs. They also use results for pay, promotion and discipline decisions, and to link individual effort to organisational goals.

What are the stages of the performance appraisal process?

A common sequence is: set objectives, monitor performance, assess it, hold an appraisal interview, agree actions, then follow up and review. The cycle then repeats with new objectives.

Who is involved in performance appraisal?

The line manager normally leads and the employee takes part. HR designs and administers the system. In 360-degree feedback, peers, subordinates and customers also give views.

Is performance appraisal tested in the BT objective test?

Yes, it sits within the individual performance part of the syllabus and can appear in Section A questions. Expect short questions on purpose, stages and participants.