These materials have been prepared to address the critical mistakes that are made in the formulation and implementation of performance appraisals. Emphasis is on practical considerations concerning issues raised in determining the type of performance appraisal to be used and the process of rating employees using this tool. The materials were prepared as a collaboration between an employment law attorney who regularly consults with employers about legal considerations raised by the performance appraisal process and an industrial and organizational psychologist who develops employee rating systems and is knowledgeable in the reliability and validity of these tools. First, critical mistakes in the development and use of performance appraisals will be briefly addressed, followed by an analysis of how the performance appraisal system is developed and implemented. Last, legal considerations will be examined to show how a properly developed system can make performance appraisals a significant tool in risk management for employers.