BRAC Bank Third Generation Facilities

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ORGANIZATION PART

Background of BBL:

BRAC Bank Ltd is a creation of BRAC. BRAC Bank Limited, a scheduled commercial bank established under the Banking Company Act, 1991 and incorporated as a public company limited by shares on May 20, 1999 under the Companies Act 1994 in Bangladesh. The banks has started its operation on 4^th of July 2001 with a vision to be the market leader through providing all kinds of banking services suitable to the dynamic demands of both business and individual in the competitive market.

BRAC Bank has embarked with an avowed policy to provide “best-in-the-class” services to its diverse range of customers spread across the country based on latest information technology. To keep in tied with its sponsor, BRAC’s goals, the bank endeavors to provide mass financing especially to focus on under-served enterprises across the rural – urban area. The bank focused on relationship based Banking, as it believes that the pursuit of profit and developmental goals are mutually reinforcing. This focus makes the bank to emphasize more on to explore and access market opportunities as well as build asset base to its clients conforming significant contribution to the profitability of the Bank.

Vision

BBL’s vision is “Building a profitable and socially responsible financial institution focused on Markets and Businesses with growth potential, thereby assisting BRAC and stakeholders build a just, enlightened, healthy, democratic and poverty free Bangladesh.”

BRAC Bank will be a unique organization in Bangladesh. It will be a knowledge-based organization where the BRAC Bank professionals will learn continuously from their customers and colleagues worldwide to add value. They will work as a team, stretch themselves, innovate and break barriers to serve customers and create customer loyalty through a value chain of responsive and professional service delivery. Continuous improvement, problem solution, excellence in service, business prudence, efficiency and adding value will be the operative words of the organization.

Mission

BRAC Bank will adhere to highly professional and ethical business principles and internationally acceptable banking and accounting standards. Every BRAC Bank professional will need first of all a commitment to excellence in all that he/she does, a keen desire for success, a determination to excel and a drive to be the best. We will individually and jointly learn continuously from customers and professional colleagues around the globe to improve the way we do business so that we are the best. We will walk that extra mile with enthusiasm and empathy to serve our customers and to solve problems together so that our customers succeed in their business and remain loyal to our Bank. We will set up goals for ourselves and then exceed the goals that we set up. We shall not accept failure.

Goals

BRAC Bank will be the absolute market leader in the number of loans given to small and medium sized enterprises through out Bangladesh. It will be a world – class organization in terms of service quality and establishing relationships that help its customers to develop and grow successfully. It will be the Bank of choice both for its employees and its customers, the model bank in this part of the world.

Capital Structure and Equity Partners

BRAC Bank has started with an initial capital of amount BDT 250 million, while the authorized capital is BDT 1,000 million. Over time the bank has increased it capital base because of its steady growth and within three years of operations, it has doubled its capital base to BDT 500 million. The Bank has planned to go public by the last quarter of this year (2005) and raise it’s paid up capital to BDT 1000 million. BRAC Bank originated with Local and International Institutional shareholding including BRAC as promoter with IFC and Shore Cap International, UK. Here is the break-up of BRAC Bank’s shareholdings positions.

Table: 01 Share Distribution

Name of Shareholders	No.of Shares	Amount (Tk.)	(%) of Shareholding
BRAC	3,173,900	317,390,000	63.48%
Shore Cap	875,700	87,570,000	17.51%
IFC	949,800	94,980,000	19.00%
Others	600	60,000	0.01%
Total	5,000,000	500,000,000	100.00%

Source: BBL head office

A short description of its shareholders is given below.

BRAC, The main sponsor of BRAC Bank Limited, a well-established and prominent NGO with a large presence in the rural and urban areas of Bangladesh. The current activities of BRAC are particularly focused in three areas: education, health care, and micro-finance. BRAC already has extensive experience in the micro-credit market with 2.4 million customers, and a substantial portfolio of approximately US$270 million of performing loan assets. BRAC’s experience dates back over 25 years during which it has achieved excellence in most of its targeted activities.

The International Finance Corporation (IFC) is a member of the World Bank Group, is the largest

multilateral source of loan and equity financing for private sector projects in the developing countries as a way to reduce poverty and improve people’s lives.

Shore Cap International an affiliated non-profit organization, Shore Cap International, will provide technical assistance to help investor institutions establish profitable and effective small business and micro-lending programs. It will invest capital in and advise local regulated financial institutions that make small and micro-business loans in developing and transitional economies.

Board of Directors

Following is the board of directors of BRAC Bank Ltd.

Mr. Fazle Hasan Abed, Chairman

Mr. Syed Humayun Kabir, Member/Director

Mr. Faruque A. Choudhury, Member/Director

Mr. Quazi Shariful Ala, Member/Director

Mr. Md. Aminul Alam, Member/Director

Mr. Paul D Christensen (Shore cap), Director

Mr. Mohammad Ehsanul Haque, Managing Director

Infrastructure

Since its inception, BRAC bank has been expanding its Branch network across the country. Currently, the total number of branches is 14 including 8 branches in the prime locations of Dhaka City, 1 (One) in Savar, 3 (Two) in Sylhet and 1 (One) in Chittagong. All these branches are providing Real Time On-line (RTOL) banking services to its customers. Parallel to the branch expansion policy, BRAC Bank has also approximately 300 unit offices dispersed throughout the country. These unit offices are engaged in lending to ‘Small & Medium Enterprises’ (SME) – the thrust-lending sector of the bank. BBL is one of the most IT enabled banks in Bangladesh. From its inception the bank has particularly emphasized on IT as a cutting edge advantage over competitors and also plans to continue as a major IT driven bank in the years to come. As off today BBL has more than 1200 employees.

Functional Division

BRAC Bank has a centralized banking structure through online banking system that resembles the ABN?AMRO Model. BBL consisted of four major divisions namely Small and Medium Enterprise (SME) Division, Retail Banking, Corporate Banking and Treasury division. Other important division are Credit Administration, Loan Administration, Trade Fin, IT, HRM, CCU, Internal Control etc, whose works as a back office to support its major four divisions.

SME

BRAC Bank heavily depends on SME for its asset growth. The basic model of the bank is to grow its liability book (Deposit) from diversified sources and channel the same across the country through SME asset (Loans) booking. But, in order to diversify the asset portfolio, the bank also relies on both Retail & Corporate assets.

Figure: 01 Advance portfolio

Source: Annual Report 2004

SME division at BBL comprises of about 300 unit small offices across the country. The unit officers are basically working at filed level. Their main job is to identify potential customer and maintain relationship with the existing customer. As BBL has no branches to the urban level, their customers transact with a local bank affiliated by BBL. At present BBL is offering three different types of SME loan studying with the dynamic demand of current market.

Retail Banking

BRAC Bank is also trying to be leader in retail banking in Bangladesh. The division targeted middle to top class citizens as their customer. The main activities of this department are to find out new channel for increasing both of its assets and liabilities simultaneously maintaining relationship with the existing clients. At present this division offers full fledge of services including different types of personal loans to deposit schemes along with value added services like ATM and Credit Card (introducing soon).

Figure: 02 Deposit portfolio mix

Source: BBL database

Corporate

Like Retail, corporate department has also two different wings. First wing called TRS and other is Corporate Banking division.

TRS

TRS & SRS is basically deals with corporate deposits. They collect deposits from various corporate houses across the country. This department contributes almost 41% of BBL’s total deposit mix.

Corporate Banking Division

Corporate Banking is a specialized area of BRAC Bank, which addresses the diverse financial needs

of Corporate Clients.

Figure: 3 Corporate Assets

Source: Annual report 2005

This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies), NGO’s, trading houses, joint ventures and various government bodies/corporations etc. As the financial partner of choice for the corporate sector, BRAC Bank is distinguished by its:

· Quality of service

· Value of innovative solutions

· Level of trust with our clients

· Customer knowledge

Corporate clients can access a wide range of financial services offered by corporate banking division including:

· Debt Capital

· Equity Capital

· Ongoing relation support

· Financial Markets

Products

BRAC Bank provides a comprehensive range of innovative corporate financial solutions tailored to suit each company’s needs. This range includes both funded and non-funded facilities. Following are some of the products that BBL offers to its clients:

· Corporate Finance

· Loan Syndication

· Project Finance: Short and Medium term

· Finance/Credit Extension

· Overdrafts

· Demand Finance

· Working Capital Finance

· Receivable Discounting

· Pre and Post Export Financing

· Short-term loan: revolving loans, LATR etc.

· Trade

· Letter of credit: Sight, Unsance etc.

· Guarantee: Performance, Security, Advance Payment etc.

Corporate Portfolio

Corporate holds 24% of BBL’s total assets portfolio. Up to the financial year 2004 this division distributes BDT 1375m, which enjoys almost 120.71% growth compare to previous year. Its assets portfolio covers almost all the major industrial areas. NBFI (19.15%), Textile (17.88%), Food and Agro (10.21%) and Steel (9.87%) are the major areas of its portfolio. Noticeably Corporate does not have any presence in RMG sector, the biggest industrial sector in Bangladesh.

Figure: 04 Sector wise portfolio mix

Source: BBL HO, Fin Admin division

Treasury

Treasury division at BBL deals with the fund position. This division calculates and projects the fund requirement to meet day-to-day operation. It has also two wings, one is front office and the other is back office. Front office deals with directly to the money market of the country. Their main job is to lend money to other financial institution on call or short-term basis, if the bank has additional money idle.

Financial Performance Analysis

BRAC Bank is seen the fast growing private commercial bank across the country. It has earned an incredible growth of 130% in the year 2004 over previous year’s (2003) performance. It has excelled almost over all the area in this period. Here is some of its outperforming analysis.

Table: 02 Performances at a glance (old)

Particulars	2004	2003	Growth
Paid up capital	500,000	405,020	23.45%
Total Capital including general provisions	650,294	424,327	53.25%
Capital Surplus/deficit	73,684	157,178	-53.12%
Total Assets	10,015,936	4,542,043	120.52%
Total Deposits	8,168,979	3,497,303	133.58%
Total Loan & Advances	5,819,792	2,870,107	102.77%
Total contingent liabilities & Commitments	292,056	34,352	750.19%
Credit Deposit Ratio	71.24%	82.07%
Classified loans against total loans and advances (%)	1.97%	1.06%	85.85%
Profit after taxes & provisions	99,303	30,281	227.94%
Amount of classified loans during the current year	114,414	30,542	274.61%
Provision kept against classified loans	84,432	8,183	931.80%
Provisions surplus/deficit	40,841	173	23507.51%
Cost of fund	7.23%	7.50%	-0.27%
Interest earning assets	9,735,349	4,475,543	117.52%
Non interest earning assets	280,587	66,501	321.93%
Return on Investment (ROI)	8.57%	3.73%	129.76%
Return on Assets (ROA)	0.99%	0.67%	47.76%
Return on Equity (ROE)	16.83%	7.65%	120.00%
Incomes from investments	166,967	94,790	76.14%
Earnings per share	23.16	12.09	91.56%

Source: BBL Head Office

Performance (New)

Year-to-Year Growth

Particulars	2004	2005	Growth
Loans & Advances	5820	11791	103%
Deposits	8169	13458	65%
FUM	13989	25249	80%
Interest Income	983	3030	208%
Interest Expense	441	2118	380%
Net Interest Income	542	912	68%
Non Funded Income	138	273	98%
Total Revenue	680	1185	74%
Staff Costs	176	310	76%
Other Operating Costs	182	283	56%
Total Operating Costs	358	593	66%
Total Profits	322	592	84%
Debt Charges	111	252	128%
PBT	211	340	61%

Source: HRD of BBL, from the booklet of Newsflash

Balance Sheet Performance

During the year, BBL has expanded their business rapidly and undertook significant operations in trade finance business (i.e. 750% growth in the year 2004 over last year) along with the same upward trend in SME, commercial and retail lending activities. Propelled by strong growth in both loans and deposits, the Bank’s operating income increased substantially in 2004.

BBL has a 134% growth rate on its deposits in the financial year 2004 comparing to its previous year’s (2003) and the same time it also has a 103% growth  over its loans and advances. Though the advance to deposit ratio i.e. 71.24% is comparatively comedown, but the parallel growth trend has made BBL comfortable with the ratio. These upward trends in both deposit and loans, helps the bank to increase its assets by 121% over its previous year’s (2003) assets. BBL has also enjoyed higher growth rate on its fixed and other assets (312% and 266% respectively) than loans or investments.

Profitability

In the year 2004 the bank has earned an operating profit of BDT 318.28 million compared to BDT 56.56 million in the previous year with a stunning growth rate of 463%. This was possible, as BBL has earned a 165% growth on its interest income where as its interest expense growth was 93% from the year 2003. This difference has basically occurred due to decrease in its cost of fund but simultaneously increase trend in return from its loan.

The growth rate of operating expenses has also gone up by 103%, but this trend is acceptable because the bank has earned growth rate of over 100% in all aspects. More over a growth of amount 228% in its profit after tax supports the rationality of such hike in operating expenses earned.

All this upward trends help BBL to almost double its earning per share (BDT 23.16 per share which was only BDT 12.09 per share in the year 2003) within one year.

Capital Adequacy: Capital adequacy focuses on the total risk weighted capital intended to protect the depositors from the potential shocks of losses that a bank might incur. In the year 2004 BBL has maintained capital adequacy ratio of 10.15% against standard of minimum 9.00% set by Bangladesh Bank.

Asset Quality: The asset composition of BBL shows a high proportion of loans and advances (63.13%) in total assets. A high proportion of loans and advances indicate vulnerability of assets to credit risk, since the portion of non-performing assets is significant in our country. But the classified loans against total loans and advances of BBL are only 1.97%. Though this ratio gone up by 86% from the year 2003, but compare to 103% increase in loans and advances this upward trend is still in acceptable level.

Management Soundness: Management Soundness is very difficult to measure because it requires a qualititative measurement rather than quantitative measurement. Nevertheless ratios such as total expenditure to total income are generally used to measure management soundness. In this regard BBL’s total expenditure to total income ratio is 53%, which shows that more than half of its total income need to expend for meeting operating expenses

Earnings and Profitability: Strong earnings and profitability profile of a bank reflect good health and its ability to support present and future operations. In the year 2004 BBL earned 16.83% return on equity (ROE) with a growth of 120% over last year. Where as return on assets increased in the year 2004 is 0.99% with a growth of 48%. Growth of ROA is comparatively lower than ROE or ROI (8.37% with a growth of 130%) because of increase in non-interest earning assets (322% growth rate in 2004) as BBL invested a lot in fixed assets (312% growth) in the year 2004.

Liquidity: At present BBL’s liquidity ratio is 24% out of Bangladesh Bank’s minimum requirement 20%. So the bank may feel comfort but the liquidity statement shows that for short period usually 1-3 months BBL has liquidity gap or in other words, for short period, the bank has a short fall to meet its liquidity.

How we are different

BBL is different from other banks for the following reasons,

· Mobilization of Fund from Urban to Rural Area

· Institutional Shareholding

· Pioneer in SME Banking

· Creation of Job opportunities

· Dividends are refinanced for poverty alleviation

· Market leader in SME Financing

· Real time Online Banking from its inception

· Centralized Banking

· Business unit are separated from operation

· Largest no. of Retail Products

· Educate rural people to use Banking service

· Fastest in Remitting Expatriates Fund

Internal Analysis of BBL

SWOT is an acronym of an organization’s strengths, weaknesses, opportunities and threats. The underlying assumption of SWOT analysis is that managers can better formulate a successful strategy after they have carefully reviewed the organization’s strength and weaknesses in light of the threats and opportunities, presented by the environment. With my little experience I would like to mention the SWOT of BRAC Bank Ltd. Bellow:

Strengths:

· Brand name (BRAC) reputation.

· Adequate financial resources as BRAC’s reputation as a financially sound organization.

· Fastest expanding distribution network comprising Branch, unit office, ATM etc.

· Emerged with the concept of modern and technology based banking system.

· Pioneer in SME financing.

· Product innovation skills.

· Better advertising campaign

Weakness:

· Limited Branch Network.

· Weak brand image to the anti-NGO group of people.

· Unacceptability of BRAC Bank as a commercial bank to the remote rural people.

· Full commercial banking service not yet providing.

· Relatively newly established bank.

· Not yet to the public.

· Relatively low salary structure for entry level position.

Opportunities:

· Grab the opportunities of untapped SME market.

· Enter new segments such as middle and lower middle income group.

· Customize product line to meet broader range of customer needs.

· Leverage BRAC Bank’s countrywide networks.

· Exclusive market leader in remittance service with the help of BRAC Bank’s wide range of unit offices.

· Faster market growth.

· Fulfill customer need providing more IT supports.

Threats:

· Entry of foreign competitors.

· Saturated product line by competitors

· Non-banking financial institutions are increasing with diversified products.

· Relatively higher salary is offered by competitors that can motivate personnel to leave BRAC Bank.

· Job quitting tendency of lower level personnel due to unsatisfactory compensation package in comparison with their work pressure.

BRAND AMBASSADORS

The brand ambassador for BBL is Mr. Dav What more, Coach Bangladesh National Cricket Team and all the employees of the bank.

Performance Appraisal System

General

An organization generally establishes and maintains a formalized system of appraisal and documentation of classified employee job performance including recognition of and response to individual developmental needs. This process is designated as the Performance Appraisal System. The objectives of the System are to:

• Provide employees with a sense of their work accomplishments relative to expectations and predefined performance indicators.
• Support employee development through discussion of assigned opportunities and training.
• Emphasize the Institute’s commitment to continuous improvement and learning.
• Encourage an appropriate relationship between pay levels and work performance.
• Avoid surprises; keep lines of communication open.
• Provide the option to document performance in a narrative format relative to specific accomplishments during the review period.

Features of Performance Appraisal

• Performance appraisal is a process, not a form. It structures your relationship with employees while providing legal protection for your company.
• A good appraisal system includes observation, documentation, and communication.
• A performance evaluation system can provide many benefits: It can improve employee performance and morale, identify poor performers and ways they can improve, and lay the groundwork for legally defensible discipline and termination.
• A manager’s attitude is a key ingredient in whether a performance appraisal system will succeed. If the manager is enthusiastic about the chance to work with employees to improve their performance and their work experiences, the employees will share that enthusiasm.
• A good evaluation system includes support, motivation, communication, collaboration, fair treatment, documentation, formality, and accountability, and is consistent with the company’s core values and purpose.
• Managers should use evaluation systems to improve future performance, not punish employees for poor past performance.
• Employees must participate in every aspect of the evaluation process. Bringing employees into the loop, giving them power and responsibility for directing and assessing their own performance will increase their job satisfaction and engender their trust in the process.
• Managers must give ongoing feedback, not just at the year-end meeting. Managers must document employee performance as it occurs throughout the year.
• While communicating negative information is difficult, not communicating it can be much worse.

Performance Appraisal History

The history of performance appraisal is quite brief. Its roots in the early 20th century can be traced to Taylor’s pioneering Time and Motion studies. But this is not very helpful, for the same may be said about almost everything in the field of modern human resources management. As a distinct and formal management procedure used in the evaluation of work performance, appraisal really dates from the time of the Second World War – not more than 60 years ago. Yet in a broader sense, the practice of appraisal is a very ancient art. In the scale of things historical, it might well lay claim to being the world’s second oldest profession! There is, says Dulewicz (1989), “… a basic human tendency to make judgments about those one is working with, as well as about oneself.” Appraisal, it seems, is both inevitable and universal. In the absence of a carefully structured system of appraisal, people will tend to judge the work performance of others, including subordinates, naturally, informally and arbitrarily. The human inclination to judge can create serious motivational, ethical and legal problems in the workplace. Without a structured appraisal system, there is little chance of ensuring that the judgments made will be lawful, fair, defensible and accurate.

Performance appraisal systems began as simple methods of income justification. That is, appraisal was used to decide whether or not the salary or wage of an individual employee was justified. The process was firmly linked to material outcomes. If an employee’s performance were found to be less than ideal, a cut in pay would follow. On the other hand, if their performance was better than the supervisor expected, a pay rise was in order.

Modern Appraisal

Performance appraisal may be defined as a structured formal interaction between a subordinate and supervisor, that usually takes the form of a periodic interview (annual or semi-annual), in which the work performance of the subordinate is examined and discussed, with a view to identifying weaknesses and strengths as well as opportunities for improvement and skills development. In many organizations – but not all – appraisal results are used, either directly or indirectly, to help determine reward outcomes. That is, the appraisal results are used to identify the better performing employees who should get the majority of available merit pay increases, bonuses, and promotions. By the same token, appraisal results are used to identify the poorer performers who may require some form of counseling, or in extreme cases, demotion, dismissal or decreases in pay. (Organizations need to be aware of laws in their country that might restrict their capacity to dismiss employees or decrease pay.) Whether this is an appropriate use of performance appraisal – the assignment and justification of rewards and penalties – is a very uncertain and contentious matter.

Performance Appraisal Purposes

Effective performance appraisal systems contain two basic systems operating in conjunction: an evaluation system and a feedback system. The main aim of the evaluation system is to identify the performance gap (if any). This gap is the shortfall that occurs when performance does not meet the standard set by the organization as acceptable. The main aim of the feedback system is to inform the employee about the quality of his or her performance. (However, the information flow is not exclusively one way. The appraisers also receive feedback from the employee about job problems, etc.) One of the best ways to appreciate the purposes of performance appraisal is to look at it from the different viewpoints of the main stakeholders: the employee and the organization.

Employee Viewpoint

From the employee viewpoint, the purpose of performance appraisal is four-fold:

(1) Tell me what you want me to do

(2) Tell me how well I have done it.

(3) Help me improve my performance

(4) Reward me for doing well.

Organizational Viewpoint

From the organization’s viewpoint, one of the most important reasons for having a system of performance appraisal is to establish and uphold the principle of accountability. For decades it has been known to researchers that one of the chief causes of organizational failure is “non-alignment of responsibility and accountability.” Non-alignment occurs where employees are given responsibilities and duties, but are not held accountable for the way in which those responsibilities and duties are performed. What typically happens is that several individuals or work units appear to have overlapping roles. The overlap allows – indeed actively encourages – each individual or business unit to “pass the buck” to the others. Ultimately, in the severely non-aligned system, no one is accountable for anything. In this event, the principle of accountability breaks down completely. Organizational failure is the only possible outcome. In cases where the non-alignment is not so severe, the organization may continue to function, albeit inefficiently. Like a poorly made or badly tuned engine, the non-aligned organization may run, but it will be sluggish, costly and unreliable. One of the principal aims of performance appraisal is to make people accountable. The objective is to align responsibility and accountability at every organizational level.

Benefits of 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.

The Appraisal Process

In order to effectively administer the performance appraisal process, it is imperative that employees understand their job expectations and the way in which those expectations relate to the performance indicators outlined above. This can be accomplished through direct, ongoing communication between supervisor and subordinate.

Performance expectations should be communicated at the beginning of the review period and reinforced periodically during that period. Additionally, it is encouraged that the supervisor review the performance indicators used in the appraisal process and they ways in which they relate to job expectations. In this way, the employee will have an ongoing perception of the level of performance he or she is delivering and the basis upon which that performance will be rated. This will avoid the “surprise” factor often associated with performance appraisal system.

Performance Appraisal Means evaluating an employee’s current and past performance relative to the person’s performance standards.

Appraisal involves: Setting work standards assessing the employee’s actual performance relative to these standards. Providing feedback to the employee with the aim or motivating that person to eliminate deficiencies or to continue to perform above par.

This ongoing performance appraisal process involves communication about goals/duties; it seeks to foster a culture of quality employee performance appraisals and continuous improvement through performance reviews with a focus on internal and external customer services.

Employee appraisals and also employee performance evaluation includes feedback from direct reports, peers, and/or customers that is intended to help employees improve and develop their performance. These employee review program with employee evaluation forms designed so that employees are aware of what is expected of them, receive timely feedback about their performance, and receive recognition in a fair manner.

Performance Appraisal In respect of Purpose, Application & Provisions

Purpose, Application and General Provisions

This procedure establishes a process for appraising the performance of staff and administrators at Chapman University. Performance Appraisals have the following objectives:

· Encourage continuing supervisor-employee communications about job-related and professional matters. Forms of communication include coaching, counseling, training and feedback on job performance.

· Provide a means whereby the supervisor and employee may establish workplace goals and objectives.

· Provide guidance for employees on professional and job development.

· Provide a means for supervisors to recommend employees’ salary increases based on merit and job accomplishments.

This procedure applies to staff and administrative employees who have achieved “regular employment status” and who occupy positions other than “temporary”.

All supervisors and employees are required to participate in the appraisal process at least annually. Salary merit increases may occur only after the completion of the performance appraisal process.

Conducting Performance Appraisal

• At the end of the appraisal period, the supervisor will ask the employee to complete the employee’s self-appraisal portions of the appraisal form. The supervisor in turn will complete the supervisor’s portions of the form.

· Supervisor and employee then will meet to review and discuss the appraisals, the respective “ratings”, the employee’s accomplishments and any problems the employee has experienced in achieving the goals and objectives established at the beginning of the appraisal period.

· The supervisor will coach or counsel the employee on performance enhancement or improvement techniques, especially if performance problems have occurred during the reporting period. Several meetings may be needed to reach mutual understanding and, if possible, agreement.

· The supervisor and employee will re-initiate the appraisal cycle by mutually discussing goals, objectives and standards for the coming year.

· The supervisor and employee then will sign the appraisal form. The supervisor will provide the employee with a copy of the form and forward the original to the Vice Presidents, Dean of Students, Dean of Enrollment or the Dean, College of Lifelong Learning as appropriate. Both the employee’s and supervisor’s ratings and comments must be forwarded.

· The Vice President, Dean of Students, Dean of Enrollment or the Dean, College of Lifelong Learning will forward the performance appraisal form to the Human Resources Department where it will be filed in the employee’s personnel records.

Why Essential; Performance Appraisal

Performance appraisals are essential for the effective management and evaluation of staff. Appraisals help develop individuals, improve organizational performance, and feed into business planning. Formal performance appraisals are generally conducted annually for all staff in the organization. His or her line manager appraises each staff member. (Directors are appraised by the CEO, who is appraised by the chairman or company owners, depending on the size and structure of the organization). Annual performance appraisals enable management and monitoring of standards, agreeing expectations and objectives, and delegation of responsibilities and tasks. Staff performance appraisals also establish individual training needs and enable organizational training needs analysis and planning. Performance appraisals data feeds into organizational annual pay and grading reviews, and coincides with the business planning for the next trading year. Performance appraisals generally review each individual’s performance against objectives and standards for the trading year, agreed at the previous appraisal meeting.

Performance appraisals are also essential for career and succession planning. Performance appraisals are important for staff motivation, attitude and behavior development, communicating organizational aims, and fostering positive relationships between management and staff. Performance appraisals provide a formal, recorded, regular review of an individual’s performance, and a plan for future development. In short, performance and job appraisals are vital for managing the performance of people and organizations.

Steps in Appraisal of Performance

The performance appraisal process contains three steps. These are:

Appraisal Methods

Managers usually conduct the appraisal using a predetermined and formal method like one or more methods of performance appraisals described below. It is predetermined for most firms do (or should) decide ahead of time what tools and processes they are going to use. Generally performance appraisal contain 6 methods, these are:

A scale that lists a number of traits and a range of performance for each. The employee is then rated by identifying the score that best describes his or her level of performance for each trait.

Graphic Rating Scale Method

	Ranking employees from best to worst on a particular trait, choosing highest, then lowest until all is ranked.

Alternation ranking method

Ranking employees by making a chart of all possible pairs of the employees for each trait and indicating which the better employee of the pair is.

Paired comparison method

Similar to grading on a curve; predetermined percentages of rates are placed in various performance categories.

Forced distribution method

	Keeping a record of uncommonly good or undesirable examples of an employees work related behavior and reviewing it with employee’s work-related behavior and reviewing it with the employee at predetermined times.

Critical incident method

	An appraisal method, that aims at combining benefits of narrative critical incidents & qualified ratings by anchoring a quantified scale with specific narrative examples of good & poor performance,.

Behavioral anchor rating scales

The most commonly used Appraisal Techniques

1. Essay appraisal.
2. Graphic rating scale.
3. Field review.
4. Forced-choice rating.
5. Critical incident appraisal.
6. Management-by-objectives approach.
7. Work-standards approach.
8. Ranking methods.
9. Assessment centers.

Essay appraisal

In its simplest form, this technique asks the rater to write a paragraph or more covering an individual’s strengths, weaknesses, potential, and so on. In most selection situations, particularly those involving professional, sales, or managerial positions, essay appraisals from former employers, teachers, or associates carry significant weight. The assumption seems to be that an honest and informed statement -either by word of mouth or in writing- from someone who knows a man well is fully as valid as more formal and more complicated methods.

Graphic rating scale

This technique may not yield the depth of an essay appraisal, but it is more consistent and reliable. Typically, a graphic scale assesses a person on the quality and quantity of his work (is he outstanding, above average, average, or unsatisfactory?) and on a variety of other factors that vary with the job but usually include personal traits like reliability and cooperation. It may also include specific performance items like oral and written communication.

Field review

When there is reason to suspect rater bias, when some raters appear to be using higher standards than others, or when comparability of ratings is essential, essay or graphic ratings are often combined with a systematic review process. The field review is one of several techniques for doing this. A member of the personnel or central administrative staff meets with small groups of raters from each supervisory unit and goes over each employee’s rating with them to (a) identify areas of inter-rater disagreement, (b) help the group arrive at a consensus, and (c) determine that each rater conceives the standards similarly.

Forced-choice rating

Like the field review, this technique was developed to reduce bias and establish objective standards of comparison between individuals, but it does not involve the intervention of a third party. Although there are many variations of this method, the most common one asks raters to choose from among groups of statements those which best fit the individual being rated and those which least fit him.

Critical incident appraisal

The critical incident technique looks like a natural to some people for performance review interviews, because it gives a supervisor actual, factual incidents to discuss with an employee. Supervisors are asked to keep a record, a “little black book,” on each employee and to record actual incidents of positive or negative behavior.

Management by objectives

To avoid, or to deal with, the feeling that they are being judged by unfairly high standards, employees in some organizations are being asked to set – or help set – their own performance goals. Within the past five or six years, MBO has become something of a fad and is so familiar to most managers that I will not dwell on it here.

Work-standards approach

Instead of asking employees to set their own performance goals, many organizations set measured daily work standards. In short, the work standards technique establishes work and staffing targets aimed at improving productivity. When realistically used, it can make possible an objective and accurate appraisal of the work of employees and supervisors

Ranking methods

For comparative purposes, particularly when it is necessary to compare people who work for different supervisors, individual statements, ratings, or appraisal forms are not particularly useful. Instead, it is necessary to recognize that comparisons involve an overall subjective judgment to which a host of additional facts and impressions must somehow be added. There is no single form or way to do this.

Assessment centers

So far, we have been talking about assessing past performance. What about the assessment of future performance or potential? In any placement decision and even more so in promotion decisions, some prediction of future performance is necessary

• Formal annual performance appraisals
• Probationary reviews
• Informal one-to-one review discussions
• Counseling meetings
• Observation on the job
• Skill- or job-related tests
• Assignment or task followed by review, including temporary job cover or transfer.
• Assessment centers, including observed group exercises, tests presentations, etc.
• Survey of opinion of others who have dealings with the individual
• Psychometric tests and other behavioral assessments
• Graphology (handwriting analysis)

Rating Scale

The appraisal process involves assessing the employee’s work performance during the review period relative to specific indicators and an overall rating. The following rating categories are employed:

· Highly Successful

· Fully Successful

· Making Progress

· Unsatisfactory

Communicating Results of Appraisal

Employees are to be informed, through face-to-face communication as well as documentation, of how their performance has been rated. Additionally they should be informed of perceived developmental needs and plans for ways to meet those needs.

The performance discussion should be scheduled approximately one week in advance. The purpose of the meeting should be explained to the employee to allow him or her time to prepare

Prior to the discussion the supervisor should have:

• Completed and signed the Appraisal Record form.
• Reviewed the results with his or her immediate supervisor and obtained approval.
• Developed a discussion outline to follow during the interview.
• Reserved a location where the discussion can be conducted in private without interruption.

Behavioral Anchored Rating Scales (BARS) typically requires 5 steps

1. General critical incident method: ask persons who know the job to describe specific illustration of effective or ineffective performance.
2. Develop performance dimensions: have these people clusters the incidents into a smaller set of (5 to 10) performance dimensions, and define each dimension, such as “conscientiousness”.
3. Reallocate incidents: another group of people who also know the job then reallocate the original critical incidents.
4. Scale and incidents: this second group then rates the behavior described by the incident as to how effectively or ineffectively it represents the performance on the dimension (7 to 9 point typically)
5. Develop the final incidents: choosing abut six of seven of the incidents as the dimension behavioral anchors.

Advantages of BARS

· A more actual gauge.

· Clear standards.

· Independent dimensions.

· Consistency.

Management by objectives

Involves setting specific measurable goals with each employee and then periodically reviewing the progress made.

Organizational goal settings and appraisal program consisting of 6 steps:

· Set the organization’s goals.

· Set departmental goals.

· Discuss departmental goal.

· Define expected results.

· Performance reviews.

· Performance feedback.

Balanced Scorecard

A new approach to strategic management was developed in the early 1990’s by Drs. Robert Kaplan (Harvard Business School) and David Norton. They named this system the ‘balanced scorecard’. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to ‘balance’ the financial perspective.

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

Balanced Scorecard is used to measure the performance matters of employees’ as it evaluates the management approaches and provide adequate feedback from employ