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Performance Management Cycle: How to Build Yours in 4 Steps

7 min read

The performance management cycle is a four-step process that managers use to evaluate employee behaviour and performance. But performance management is not just about measuring the execution of tasks; it’s about creating an environment where employees feel valued and motivated. When done correctly, performance management leads to better employee engagement and decreased turnover rates.

Throughout this cycle, you’ll be able to plan, monitor, review, and coach your employees to reach company goals. But also, it’s a great way to identify growth opportunities and build company culture, as everyone in your team must be involved in the process. Today, we explore what is the performance management cycle, and how can you implement it in your organisation with ease.

What Is a Performance Management Cycle?

A performance management cycle is a process that helps managers set goals and expectations for employees, help employees meet those goals, and give feedback about how well the employee did. It is a process that helps you continually monitor and improve the performance of your team by reviewing results regularly and determining when is necessary to address workplace issues.

Performance management cycles are essential for your organisation because they:

  • Help you identify problems before they become major issues.
  • Give you a chance to develop ideas for improvements.
  • Provide feedback on where your employees are succeeding and where they need help.
  • Help you identify those who are ready for promotion or other opportunities within the organisation.
  • Provide an environment where employees can chase professional development to grow their careers.

The purpose of a performance management cycle is to provide clear expectations for employees so that they can work on improving their performance. But also, to help managers address issues with accurate data and work towards employee wellbeing.

Performance reviews should be conducted at least once per year, but as the workplace dynamics change, companies are becoming more agile to promote constructive feedback and employee engagement. The demand for more inclusive, and employee-focused workplaces has driven the need for regular performance reviews.

The numbers speak for themselves: 85% of employees would consider quitting if they felt they received an unfair performance review (source: Gallup). But what’s included in a solid performance management strategy? That’s what we are going to address in the next lines.

A performance management cycle must include:

  • Setting goals and expectations: This should be done at the beginning of each year (or quarter, depending on your business model). You should also review these with your employees throughout the year or quarter as necessary. You must assign clear responsibilities and goals to each team member and stay close to measuring the outcomes.
  • Providing feedback: Give your employee regular feedback on how he or she is doing against their goals — this will help them improve performance over time. In addition, you should open channels where employees can send you their thoughts on performance. This will help you build better working environments, which will help you retain talent by offering employees opportunities for professional growth.

To improve your company’s accountability, ask your employees to submit self-appraisals that track their accomplishments.

  • Evaluating results: This is something you do at the end of each cycle. You’ll want to evaluate whether your employee achieved his or her goals, and if not, why? Did something happen that prevented employees from reaching targets? Did they achieve some of their targets but fall short elsewhere? The evaluation phase is key to determining whether your cycle was successful in terms of the goals you set in the first stage.

Benefits of Effective Performance Management

A performance management cycle is a way to align your organisation’s business strategy and objectives with individual employee goals. When done properly, it can help you lift your team’s productivity and boost morale. It’s also one of the most challenging aspects of being a manager, as it requires strong communication and leadership skills.

The goal of the performance management cycle is to help people improve their performance by increasing their knowledge, skills, and motivation. Some of the benefits of performance management cycles include:

  1. Improved productivity and job performance: Employees who are provided with the resources they need to perform well will be more productive than those who are not. They will also be more motivated and enthusiastic about their jobs because they feel valued by their employers. Performance management cycles allow you to be an inclusive leader who works towards building a great place to work for all.
  2. Improved employee retention rates: Employees who feel like they’re being treated fairly and given the tools they need to do their jobs well tend not to leave their employers very often — if at all. This translates into lower costs for companies that don’t have to constantly replace employees due to high turnover rates. A survey by Gallup found that 81% of employees who left their organisations did so because they didn’t feel appreciated by their managers or organisation as a whole. Low morale can lead to higher staff turnover rates which can cost businesses time and money when new employees have to be recruited and trained up. The cost of replacing an employee who leaves can be up to 30% of their annual salary!
  3. Improve engagement: Performance management is a way of helping employees to grow and develop, by setting goals and providing feedback on their performance. It’s also an opportunity for managers to give recognition for good work and to address any issues that may be holding people back. This can help to build a culture where people feel motivated and engaged in their work.
  4. Identify opportunities for improvement: Performance management can help you pinpoint areas where employees could be doing better or where there are growth opportunities. This can help you develop a more effective strategy for improving employee performance. It’s easy to discover when it’s time to train your employees if you can document their strengths and weaknesses.
  5. Increases accountability: When employees know they’re being evaluated on their performance, they’ll be more likely to take ownership of their work and follow through with projects that matter most to your business goals.

Stages of the Performance Management Cycle

A performance management cycle is a repeating process that involves the following activities:

1. Performance Planning

This is the first stage of the performance management cycle, where you identify your objectives and set goals. The planning phase must include the individual goals for each employee, but also the overall company goals.

To plan effectively, it’s key to define who is involved in the strategy (employees, teams, and departments), and identify the responsibilities for each. And after the managers have decided on these foundational goals, it’s time to discuss the strategy with the teams and employees involved.

At this stage, you will also determine how to measure progress, and establish action plans for collecting and receiving feedback.

To plan effectively, you need to:

  • Set SMART goals: Define specific, measurable, achievable, relevant, and time-bound goals.
  • Make a list of tasks: Craft a detailed list of the tasks you expect your employee to do and define in which periods (weekly, monthly, or annually).
  • Prioritise your list: Assign urgency to the tasks you defined and decide what needs your attention first.
  • Set deadlines: Set up a calendar with deadlines for each task.

2. Performance Monitoring

Once you plan your strategy and everyone is working on their assigned tasks, it’s time to monitor progress. At this phase, you can check how well you’re doing in relation to your objectives and adjust as needed. When monitoring your outcomes, you’ll need to record progress against goals regularly. It’s your job as a manager to stay updated with the overall progress and identify issues that demand attention and adjustments.

To monitor progress effectively, you need to set deadlines for reviewing the work done. These review meetings can occur on a monthly, quarterly, or annual basis. But some companies chose to share weekly sessions to keep everyone on the same page and increase motivation. Remember that performance reviews are really important to keep your team motivated. In fact, 92% of employees want feedback more often than just once a year. So, chances are you’ll need to review performance several times per year instead of just once.

This phase is essential in the overall performance cycle because it is your chance to address the issues that might come up during strategy implementation. By reviewing the goals you set in the first phase and comparing them with your actual results, you can identify a growth crisis and help your team overcome any obstacle.

On the other hand, if you are underperforming, you may want to consider areas where you need to implement training programs for your employees. As a manager, you’ll need to write reports and reviews regarding each employee’s performance, including:

  • Whether goals were achieved or not
  • Reasons why goals were not achieved (do your employee needs additional training?)
  • Skills used to perform each task.

3. Performance Review & Feedback

The third phase is about giving feedback to your team members, but also about receiving feedback to improve your work. At this stage, you must coach your employees and review their overall performance, give both positive and negative feedback, and listen to the obstacles they encounter on their way.

Collecting feedback from your employees is a powerful way to discover internal issues which might affect your team’s productivity and morale in the future. Managers are responsible for the performance of their employees, and they should be able to determine whether or not they are doing a good job. The performance management cycle can be used to help with this task. When dealing with it, it’s important to record progress individually. You should review results with each employee and discuss ways to improve performance.

With Factorial, you can easily create HR reports for performance management for your team with data from customisable surveys and performance reviews. The software will allow you to leverage data to set employee goals and support development 👉 Try Factorial for free

If you have done right on the monitoring stage, chances are reviews will come out organically. You should have an overall idea of if goals were met. At this stage, you can ask yourself and your organisation:

  • Which can be improved?
  • Are goals aligned with the company’s mission?
  • Did the workforce gain new skills during implementation?
  • Does the team need more training or external help?

4. Development Planning & Rewarding

Once you’ve evaluated them based on their performance over the previous year or so, it’s time to create a development plan so that they can continue developing into more effective team members who deliver results that meet or exceed expectations!

The final stage of the performance management cycle is about planning what comes next and keeping employees motivated. At this point, you can create plans for developing your employee skills and competencies based on what you learned from the feedback process. You’ll also be in charge to reward and recognise your team for their hard work.

This is often underrated by managers, but employee recognition programs actually impact productivity in the workspace. Indeed, research has shown that 83% of employees enhanced their work experience when participating in recognition programs, and they play an important role in decreasing turnover rates.

How to Develop a Performance Management Cycle in Your Company?

Performance management is a process of appraising employees’ performance and helping them improve it. As we discussed throughout this article, it’s important to establish a clear performance management process in your organisation. You can do this by following these steps:

  1. Define the goals of performance management.
  2. Assess your current state.
  3. Set expectations.
  4. Develop an action plan.
  5. Measure outcomes and motivate your people.

In each stage of your performance management cycle, it’s key for your company to rely on a solid system that allows you to understand your current state and plan your next step with ease. At Factorial, we provide software to deal with employee data and organisational charts. We have the paperwork covered for you, so you can focus on developing strategies to increase performance and productivity 👉 Discover Factorial for HR teams.

Content and Outreach Marketing Specialist with experience in the Marketing industry since 2015.

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