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Limitation of Performance Appraisal
By Arshi Naim
Limitations of Performance Appraisal
Performance is a relative term., It can be judged by comparing the data of different companies or industries or different years of the, same company. Since business conditions vary too much from company to company and from industry to industry, no attempt to assess business performance can provide firm results. Differences exist in location, products and services capital structure, calibre of management, to name but a few. Further complications have been added by the advent of multi-product and multi-business companies. On account of these differences, performance appraisal of a business becomes a very difficult task for an analyst. Therefore, while appraising the performance of business the analyst should keep the above mentioned differences in his mind.
"The success of an investment depends ultimately upon future developments, and the future may never be analysed with accuracy. But if you have precise information as to a company's present financial position and its past earning records you are better equipped to gauge its future possibilities51.
Whi1e appraising the business performance, the analyst must keep in mind that he is assessing the past performance by using historical data and yet he has to give his estimates and suggestions about the future. In this connection, Erich A. Helfert very rightly said, "The analyst must further realise that an assessment of performance deals with past data and conditions, from which it may be difficult to extrapolate future expectations. Yet, it is the future that can be affected by decision - the past is gone and cannot be changed"52. However, performance appraisal cannot give an absolute answer to every question of doubt but it can point the direction in which further enquiries should be made.
The Present Study
Public Enterprises play an important role in the Indian economy. The present study is confined to public enterprises engaged in the metal sector. For this purpose three important public enterprises viz., The Steel Authority of India Limited, Bharat Aluminium Company Limited and Hindustan Zinc Limited engaged in the production of Iron and Steel, Aluminium and Zinc respectively have been taken in the present study. Data relating to the past eight-years from 1981-82 ,to 1988-89 have been analysed. A comparative study of Iron and' Steel, Aluminium and Zinc Copper will help draw meaningful conclusions and will indicate out of line trends. This will help in suggesting improvements.
Methodology
The data relating to all the three public enterprises under study have been collected mainly from their published Annual Reports and Accounts for the years from 1981-82 to 1989-90 which were obtained directly from the registered offices of the respective concerns. Reports of Ministry of Steel and Mines for the period of the study were also collected. Some publications of Iron and steel Association, Aluminium Association and Non-Ferrous Metal Associations in India and abroad were also collected. Financial statistics and operational data along with other related information have been collected from various journals, periodicals and newspapers, such as the Financial such as the Economic Times, Express, the Reserve Bank of India Bulletin, etc. Books and various publications of financial institutions and reports of tariff commission etc., were also used in the present study.
Personal interviews with the important of SAIL, BALCO, and HZL were conducted to collect data regarding production and operating performance Enquiries were made to investigate financial affairs of these concerns. The main assistance was received from Shri S.D. Sorewala, of Hindalc:o and Mr. Bhandari of Balco.
All the financial data related to the present study have been rounded off in crores of rupees. The information contained in the Balance Sheet, Profit and Loss Account and various schedules enclosed to support these two statements have been re-arranged in a common way. With the help of the data contained financial statements various statements in a comparative form have been prepared and various analytical techniques have been applied to draw meaningful conclusions.
