Internal Failure CostsInternal fail

Internal Failure CostsInternal failure costs result from defects that are discovered during the production of a service or product. Defects fall into two main categories: (1) rework, which is incurred if some aspect of a service must be performed again or if a defective item must be rerouted to some previous operation(s) to correct the defect; and (2) scrap, which is incurred if a defective item is unfit for further processing. For example, an analysis of the viability of acquiring a company might be sent back to the mergers and acquisitions department if an assessment of the company’s history of environmental compliance is missing. The proposal for the purchase of the company may be delayed, which may result in the loss of the purchase opportunity.