Carol has taught college Finance, Accounting, Management and Business courses and has a MBA in Finance.
How Does a Corrective Action Plan Work?
A corrective action plan is a document describing exactly how a specific situation will be changed to better meet the goals of a company. A corrective action plan is a response to a situation that is problematic for a company.
For example, a company's auditors may have found discrepancies in inventory figures stated in the financial statements. In this situation, the problem identified is poor inventory tracking, and the corrective action plan will state how this situation will be corrected.
Another situation might be sales coming in below the budgeted amount. The sales manager might be asked to come up with a corrective action plan showing how he's going to increase sales to meet the budgeted numbers for the year.
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Example Demonstrating the Process
To understand the corrective action plan process, we'll follow Joe, a sales manager whose team is not meeting budget. The plan should include the following information:
- A clear statement of the problem that has been identified. In this situation, the problem is that sales are below the budgeted amounts. A clear statement might be, 'Sales year-to-date are $535, 29% below budget.'
- A statement of the desired situation going forward. Joe has been asked to meet the budget for the year, so his statement of the desired situation might be, 'Sales for the rest of the year will ramp up rapidly, so that total sales for the year will meet the budget of $1,500.'
- A listing of specific steps that need to be taken to move from the problematic to the desired state. Each step should list the specific person who is responsible for completing the step and a due date of when this work should be completed. This is where Joe needs to develop a plan for meeting the desired objective and specify who will complete each step and when they will be finished.
Joe has come up with a list of actions to improve his team's results and, hopefully, meet budget by the end of the year. These actions include reviewing the performance of all salespeople and providing training and a performance plan. His plan states that all salespeople who are below quota year to date are required to bring their sales up to quota within two months or they will lose their jobs. Joe lists himself as the one assigned to this task and notates that he should complete this task within two weeks.
Another step in the corrective action plan includes training all salespeople on offering accessories to all purchasers, which will, in turn, increase the average sale amount. Joe assigns this task to himself and gives himself a completion date of one week.
Joe also decides that there needs to be an increase of 20% in the money spent on advertising. More advertising should result in an increase of the incoming leads for the sales team. Joe assigns this task to Margaret, the marketing manager. He gives Margaret a time frame of two weeks to complete the task of increasing the advertising.
Once the corrective action plan is created, it needs to be monitored to make sure all assignees meet their deadlines. In our example, Joe will report back to management at the end of the month with the progress against the goal plans. He'll also discuss sales results monthly to make sure they are increasing as planned toward the desired goal.
A corrective action plan is an organizational document that describes exactly how a specific problematic situation will be changed to better meet the goals of a company. The corrective action plan needs to include a clear statement of the problem as well as a statement of the desired outcome. The company manager must outline specific steps that need to be taken to move from the problem and bring the organization to the desired state. Once the plan is created, it needs to be monitored to make sure all deadlines are met.
Corrective Action Plan Review
- A corrective action plan outlines what is needed to solve a problem and help a company meet its goals.
- A corrective action plan should include a clear statement identifying the problem, a statement of the desired situation going forward, and specific steps to be taken to solve the identified problem.
When this video lesson on corrective action plans concludes, you may discover that you can:
- Discern the purpose of a corrective action plan
- Present some of the information that should be included in a corrective action plan
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What is a Corrective Action Plan? - Definition, Procedures & Examples
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