Edinburgh, who are currently bottom of the Pro12 table after recording just one win in their opening five games, pulled off a shock victory over the two-time European champions at Murrayfield, thanks largely to 19 points from captain Greig Laidlaw.
"Edinburgh are a good side and deserved their win. We are ruing some poor mental preparation because you don't change from one week to the next like that physically in any way. Out mental application was nowhere near what it needed to be," PA quotes Penney as saying.
"I can't take anything away from Edinburgh at all. They nullified our threat, defended well and took their opportunities. Laidlaw kicked beautifully and the proof is in the pudding.
"If you leave after 80 minutes and you are behind on the scoreboard, then you don't deserve to win. We weren't good at all but that's not taking anything away from Edinburgh. We were not allowed to be good."
Munster will attempt to bounce back from the defeat when they face Gloucester at Thomond Park next Saturday.