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What is a Corrective Action Plan? - Definition, Procedures & Examples | Education Portal

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What is a Corrective Action Plan? - Denition, Procedures &


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Instructor: Carol Woods

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Carol has taught college Finance, Accounting, Management and Business courses and has a MBA
in Finance.

What is a corrective action plan, and when would you need one? In this lesson we'll
discuss what it is, why it's used, and how to develop one if you need it.
We also recommend watching Action, Linking and Auxiliary Verbs: Denitions,
Functions & Examples (/academy/lesson/action-linking-and-auxiliary-verbs-denitionsfunctions-examples.html) and Action Research in Education: Methods, Examples &
Quiz (/academy/lesson/action-research-in-education-examples-methods-quiz.html)

What Is a Corrective Action Plan?


A corrective action plan is a document describing exactly how a specic situation will
be changed to better meet the goals of the company.

How Does the Process Work?


A corrective action plan is a response to a situation that is problematic for the
company.
For example, the company's auditors may have found discrepancies in the inventory
gures stated in the nancial statements. In this situation, the problem identied 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.

What Should Be Included In a Corrective Action Plan?


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What is a Corrective Action Plan? - Definition, Procedures & Examples | Education Portal

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:
1. A clear statement of the problem that has been identied. 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.'
2. 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 meet the budget of $1,500.'
3. A listing of specic steps that need to be taken to move from the problematic to the desired
state. Each step should list the specic 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 nished.

Here is the list of actions Joe has come up with to improve his team's results and
hopefully meet budget by the end of the year:
Continue reading...

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