An employee of ACME Corporation noticed that every loan application that gets approved is copied four times and is stored in different locations in the company for no apparent reason. This would be…

Question

Options

• AInternal Failure Costs
• BAppraisal Costs
• CExternal Failure Costs
• DPrevention Costs

• A
  71% (22)
• B
  10% (3)
• C
  3% (1)
• D
  16% (5)

Explanation

Internal Failure Costs capture any waste or inefficiency that occurs inside the organization before the product or service reaches the customer - redundant document copying with no business purpose is textbook waste, consuming resources without adding value, which fits squarely in this category. Appraisal Costs (B) are wrong because those involve inspecting or measuring work to detect defects (e.g., auditing loan files), not storing copies pointlessly. External Failure Costs (C) are wrong because those arise after the customer is affected - such as loan errors discovered by borrowers - whereas this waste happens entirely within ACME's walls. Prevention Costs (D) are wrong because those are proactive investments to stop defects from occurring in the first place (e.g., employee training or process redesign).

Memory tip: Use the acronym PAIC in order of when costs occur - Prevent it → Appraise it → Internal failure (caught inside) → External failure (customer catches it). Unnecessary internal waste like redundant copying sits at the "I" stage: the process already failed, but the customer hasn't seen it yet.

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