Potential appraisal is used to identify employees' hidden talents and skills to predict their future performance potential. It evaluates employees' ability to assume higher positions. It aims to boost employee motivation and retention by informing them of career opportunities. Potential appraisal parameters include creativity, analytical skills, leadership, and vision. It involves clarifying job requirements, assessing technical and behavioral qualities, collecting indicators through ratings and tests, and establishing a feedback system to help employees develop.