As usual, I like HLGEM's answer, but had some other thoughts:
360 vs. Traditional Review
First, verify what type of review you are being asked to do. There's an interested format gaining some degree of popularity called a 360. A good 360 review takes a collection of feedback from supervisors, peers, subordinates and other key interactions and then presents this information to the review recipient in a hopefully constructive way. My impression is that while many find this to be very helpful, it's crucial that the 360 be presented in a constructive manner and it not be a dirt flinging session.
That's in comparison to a traditional performance review where someone in a position of leadership within the company provides feedback largely from their own point of view. This is traditionally given by someone with some responsibility for supervising the review recipient. How much responsibility and what other responsibilities this person may have can be highly variable, but the general common sense guidance is that it really should be someone with some authority over the person as some sort of lead or manager. Doing this peer to peer or outside the traditional chains of hierarchy can get really messy.
So - Step #1 - figure out what kind of review feedback you are being asked to give and whether your related roles fit the bill. For a 360, it's also safe to ask about the anonymity and the general process so you have some clue of what you are getting into.
Is not being willing to do a review a career-limiting choice?
Regardless of the formality of the structure, it is unfair to expect to take on a role where you tell people what to do and yet don't have the onus of telling them whether they did what you asked with any degree of competence.
That's the essential nature of management or other forms of leadership.
Also - the work of honing the skills whereby you get people to do what you want, get a team moving in support of a bigger plan, contribute to the plan, and communicate with external stake holders about the plan is pretty much a full time job for a manager - while your work may be technically oriented, it's hard to argue that you will be less hands-on technical than you are as an individual contributor if this is the career goal you have.
As an alternative, many companies also offer career escalation options that are NOT managerial, for the technical person who just wants to be better technically, and not have the onus of all that communication and planning taking away from the tasks of researching and building solutions. Even in the higher levels of technically centered roles, you may be asked for assessments on the skills of others, but are less likely to be tasked with delivering this guidance. This falls into the realm of questions you would ask an expert - "how should the work be done? What skills must be used to do the job?" and this "was this person using the skills, process & technology the right way?" Often for a technical expert, this type of input is given to the actual manager who is in charge of figuring out how much it matters and whether or not or how to deliver it.
If I am to review others, what steps would you recommend?
Take a look at what each team member does every day/week and keep track of what they do?
Generally, yes that's pretty much it.
Start by knowing what you should be reviewing for - generally this is a mix of ability to perform tasks in a timely and efficient way, following any rules, demonstrating key technical skills, interpersonal skills, and other corporately defined characteristics as well as your own values.
Find some way of gathering info that is ongoing and regular. Most folks find it's a mix of using regularly available information and stored documentation (like emails, reports, etc), and also keeping personal notes. In any company, people will be completing tasks at a certain pace, which is easy to keep track of, but they will demonstrating key behaviors (or failing to demonstrate them) in an irregular way. So keeping track of this stuff is usually both regimented and ad hoc.
Keep in mind that whatever note-keeping mechanism you use, it has to be fairly fast and lightweight to collect and consume. You don't want to spend a huge chunk of time each week on this.
Timeliness of feedback
If I see that someone should improve on something, should I tell them beforehand rather than telling them at the review?
Would they consider it as none of my business to tell them for example to come to work on time?
This has a huge correlation to your relationship. If you are being asked to manage a review process, then you are taking on a leadership role. Prior to taking this one, make sure you have a clear understanding of how you will be communicating with any other supervisors or managers involved in the mix. If you are not responsible for some part of the day to day interactions, some parts of the tasking or giving general guidance, then you should not be in charge of doing a review for this person. You might contributed review feedback as in a 360 review, but you should not be "the reviewer" in charge of the general process.
If you are the reviewer/lead for this individual - then give feedback early and often. Most companies do formal reviews fairly infrequently, with the assumption that employees are getting feedback during the course of the year. With such a limited review frequency, it's down right damaging to give feedback only at review time - there's not much opportunity to clarify or change behavior in that model. In fact, the biggest train wrecks of a review cycle that I've ever seen is when the candidate is not given feedback in a time critical fashion.
With that said, scale the impact of feedback-giving to the occasion.
Small low-embarassment, very minor items can be mentioned in public, particularly if this is a case of reviewing a whole team effort. Sometimes public critique can't be avoided, such as when an error has caused a case of confusion.
Individualized repeated behavior should be addressed privately and pointedly.
- The bigger and more important the issue, the more it should be reinforced.
- Notice the good stuff too. Particuarly when someone's turned around a bad behavior to a good one - say "thanks!"
And make sure the desired outcome is clear.