Good Potential Appraisal system is vital for a success of the organization in the ever changing competitive business. An appraisal is not the corporate performance of the employees but of the individual’s potential, the mantra of every organization. The human potential is the crux of organization effectiveness. Appraising human potential in systematic and scientific manner paves way for enhance corporate performance. A new system of developing employees for occupying higher positions in an organization is called Potential Appraisal. Potential Appraisal is to identify the potential of a given employees to occupy the higher positions in the organizational hierarchy and undertake higher responsibilities. Potential Appraisal data provides a sound base for determining the promotion and training and development needs it works as ideal tools to identify potential of workers if it is implemented with real spirit. In this paper an attempt has been made to clearly define the meaning of potential appraisal, its purposes and suggestions for nurturing the potentialities of the employees in an organization.