What Is a Corrective Action?

Corrective action occurs when an organization takes measures to rectify a problem. In many instances, corrective action addresses issues that have come to light as a result of complaints from employees, business partners, or customers. Depending on the severity of the issue, the process may involve minimal changes being made or necessitate the creation of a wide-ranging plan that could cause major upheaval at the company.

Most companies have some kind of internal control mechanism in place that is designed to highlight flaws in company policies and procedures before those problems exacerbate. Internal auditors conduct regular inspections of the company's finances on a department-by-department basis. The auditors look for mistakes that have been made as well as evidence of any improper reporting. Many firms also hire outside auditors to conduct annual audits on a firm's finances to ensure that everything is in order. When errors or problems are identified, the auditors report this information to the department managers, and those individuals work with their supervisors and the human resources department on formulating an action plan.

Manufacturing companies and energy firms are among the types of companies that are regularly inspected by government inspectors and regulatory agencies. Energy firms have to follow strict laws relating to energy production and emissions controls. Manufacturing firms are responsible for disposing of toxic waste and ensuring that the products being produced are made to the standards required by law. Regulators in many countries have the authority to produce corrective action plans, and companies are normally given a certain amount of time to resolve any issues that have been highlighted. Individuals and firms can face fines for failing to implement the recommended changes.

Corrective action does not always involve the exposure of mistakes and flaws. Many companies develop action plans that are designed to improve existing company procedures. Changes that enable a company to reduce its overheads or increase productivity are often part of a corrective action plan.

In many instances, corrective action involves a limited number of employees rather than the policies and procedures of a company as a whole. A department manager may formulate a plan in response to a drop in productivity or employee appraisals that suggest that certain employees are not performing to the level required by the firm. As with corrective action taken against companies, employees who are subject to such action are normally given a certain amount of time to implement recommended changes and prove that their performance has improved to the desired level.