It is not known how and to what extent performance management system is practiced and thernchallenges at EMI and the main purpose of this study is to assess and describe the performancernmanagement practice and challenges in Ethiopian Management Institute. The study tries tornaddress the basic questions of how the alignment is made between organizational goal with thatrnof the departmental and individual goal, how the planning, execution, assessment and reviewrnprocess was handled and identifying the purpose of having PMS in EMI and challenges facedrnwhile implementing performance management. To answer these questions descriptive surveyrnresearch design has been deployed by using both quantitative and qualitative researchrnapproach. The total number of staff at EMI is 242 and for this study simple random samplingrntechnique was used by taking 75 employees to fill in the self developed questionnaire, which isrnthe main data collection instrument. The data gathered from the questionnaire were compiled byrnusing SPSS software. Descriptive statistics method was used for analyzing data obtained fromrnquestionnaire and data gathered from interview and focus group discussion and documentrnanalysis were analyzed contextually. The result of the analysis was presented using tables. Inrngeneral the finding of the study revealed that organizational goals were not fully aligned withrndepartmental and individual goals, participation of employee’s in the planning stage ofrnperformance management is not across all staff of EMI, lack of regular feedback, lack ofrnuniformity in gathering information about employee’s performance and lack of software forrnautomating the PMS are the major problems noted. Having this in mind the researcherrnconcluded that even though EMI has some good qualities in clearly defining the mission, visionrnand values and developing strategy map but a lot have to be made in making performancernmanagement system to be more useful for the organization. In order to fill the identified gap,rnrecommendations were forwarded to align organizational goals with departmental andrnindividual level, to improve the level of employee’s participation in the PMS process, to enhancernthe awareness of employees about the purpose of PMS, goals should be setted in mutualrnagreement, letting employees to assess their own performance using self-appraisal method,rngather information about the performance of an employee from different sources. Finally, it isrnsuggested to make the evaluation criteria to be very objective and conduct the evaluation at thernright time.