How do Appraisals help with managing People Risk?

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In this blog we talk about the key role of Appraisals and Performance Management in managing people risk. Operational Risk Software can be key to supporting this discipline.    

Taken from: Mastering Risk Management 

Appraisals and performance management  


Appraisals are a critical part of performance management, reviewing performance against agreed targets. Since risks are threats to objectives, the firm’s or unit’s objectives should form the basis of the performance targets, which should be based on both financial and non-financial behavioural factors. Feedback can help identify any deficiencies in the operating procedures at the firm and controls can be adapted or implemented in order to reduce any possible risk to the firm.


But appraisals are also the opportunity to reinforce the excellent behaviours which will increase the firm’s chances of sustained success and reduce its risks by confronting poor behaviours. We have already emphasised the importance of trust to support a culture of honesty and openness and so improve risk management.  Fair appraisals are part of that process. 

Appraisals have to be fair and based on clear criteria. Fair appraisals reduce the probability of a number of people risks occurring or, if they do occur, being resolved at an early stage and reducing their impact.


But how do we ensure that appraisals are fair? Compare them. Does the department which appears to have a remarkable cohort of A individuals actually out perform the one which seems to be dominated by down-the-middles Cs? It’s more likely that the appraisers are differently motivated than that the mix of individuals is so divergent. Appraisals are a control on behaviour and part of the process of maintaining a good risk culture. That is why they should be validated across the firm to ensure consistency of this vital control. 


Just as with selection, so often biases creep in. Do you genuinely check and analyse for gender or race bias? Once it’s known that you do, it will be surprising how quickly staff become confident in the system and maverick managers are brought into line. 


And are those above average scores really justified? Too often, when a manager comes into HR to say that, for whatever reason, an employee has to be ‘let go’ (a ghastly and dishonest euphemism!), they invariably find that the last couple of appraisals have been glowing to the point of excellent. How strange that ‘good’ people become ‘bad’ when there are problems. Dishonest appraisals disproportionately increase the cost of dismissal. If poor staff had been honestly appraised and identified sooner, when times were good, the costs of dismissal would have been lower and recruiting a replacement would have been easier than it will be in a downturn. 


Does the annual (or even semi-annual) appraisal succeed? What’s the objective? Is it simply a mechanism to work out remuneration, or is it about talent development and succession planning? Due to a perception of their frequent unfairness, inconsistency and unpopularity, and the cost, some firms have abandoned the formal annual appraisals and look to their staff – and their managers – to provide continuous feedback, so that the firm benefits from the resulting openness. Openness will improve performance and develop potential, not just for the individual, but inevitably for the firm as a whole. It should also mean that the formal appraisal, when it comes, will contain no surprises. 


Finally, appraisals point to ways in which an individual can be developed further, which may include training, to improve risk management or reduce risk exposure. Staff are like diamonds, they require constant polishing. 

In our next blog we will be discussing the impact that training and staff development have in managing people risk.   


Mastering Risk Management by Tony Blunden and John Thirlwell is published by FT International. Order your copy here:    


For more information about how Operational Risk software can help your organisation, contact us today on


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