This interview question is quite often mistakenly perceived by the interviewee as illegitimate. A grave mistake and common behavioural pattern of many job applicants is to try and hide failures or mishaps. Job applicants often think the interviewer is trying to set them a trap; this is wrong - the interviewer is trying to get to know you.
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The assumption is that every one makes mistakes. Naturally, we are not referring to colossal failures - but none of us are immune to mishaps. For example, we may make a wrong estimation or fail to meet our goals (this can also happen for objective reasons). Other examples may be - inability to complete a project due to lack of resources or failure to meet a deadline because of overload.
Therefore, failure in a specific instance does not necessarily mean you are not a worthy candidate. Failure is part of work - certain mishaps are natural and we must not try to conceal them during an interview.
Moreover, your attitude towards your failures is paramount to the impression you make. If you treat failure as a learning experience then you will make a positive impression. However, if you feel that failing is just short of a catastrophe then you will come across as stressed out and nervous - a candidate that cannot deal with failure.
In summary, to answer this interview question in the best possible manner - you must answer in an honest and candid manner. Think of a real failure or mishap you had at work that is reasonable (nothing outrageous...!). Show how you learned from this mistake and how you improved your ways to avoid such mishaps in the future. Turn the negative experience into a positive one.
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