Performance evaluations serve several vital functions within an organization's management system. The primary purpose isto assist management in making human resource decisions. These decisions include identifying who should receive promotions, who is eligible for salary increases, and who might need to be transferred or even terminated.

Beyond administrative decisions, evaluations provide essential feedback to employees about how the organization views their performance. This feedback acts as a basis for personal development and career planning. Furthermore, evaluations help identify training and development needs by pinpointing specific skill deficiencies that an employee may have. They also provide a criterion against which the organization can validate its selection and development programs; for instance, if employees who scored high on a hiring test perform poorly on their evaluations, the hiring process may need to be adjusted. Therefore, rather than being a psychological diagnostic tool (Option B) or a pre-hiring screen (Option C), the performance evaluation is a retrospective and developmental tool used to manage the existing workforce effectively.