A no-nonsense guide to the operational due diligence process

Posted by Andrew Borowiec on Dec 5, 2017 9:33:00 AM


Here at IMDDA we are privileged to work with, and be supported by, some of the most experienced and excellent minds in the due diligence universe. One of those shining stars is Kevin Eastwood, CDDA. Kevin is Operational Due Diligence Manager at the UK Pension Protection Fund and has over 30 years of experience to bring to bear on optimizing the operational due diligence process.

He recently spent an hour with us on a webcast, answering questions posed by our members. We’ve taken some of the highlights from this and created a 3-part tip-based series of which this is the first. Here we look at some of Kevin’s tips for a sound operational due diligence process.

Operational Due Diligence Questionnaires

Operational due diligence professionals are usually very curious as to what each other put in their questionnaires, and how they manage getting them filled out as part of their operational due diligence process. Here are Kevin’s top tips:

  • By all means, start with a template: Plenty of organizations supply templates or draft questionnaires that offer a reasonable starting point for your own. But you can’t leave it there. Your questionnaire needs to be tailored to the operational due diligence project you are undertaking.
  • Ask the right questions: Kevin says, “ask anything but don’t ask everything”. You need to identify the most relevant areas to that particular investment and use your questions to explore those. This gives your questionnaire focus and stops it running to 3000 questions which will make it tough to get it filled out.
  • Never stop learning: Kevin says he still learns from every ODD project, even after 32 years. Every project will give you more knowledge that will help you shape your questionnaire or ODD process next time.
  • Be a team player: Kevin and his team populate their questionnaires themselves. They fill in as much as possible in advance from the available documents and then work collaboratively with the fund managers to get the rest of the information. This allows them to ensure they get all the information they need and creates a better, more productive working relationship with the managers.

Operational Due Diligence On-site Visits

Another key area of the operational due diligence process are on-site visits. Here are a few pointers to help you get more out of yours:

  • Preparation: Your operational due diligence questionnaire should help you prepare your on-site visit. Design a questionnaire around thematic areas for the type of manager you are looking at. Begin by gathering publicly available information, then ask the manager for additional information and populate the questionnaire yourself. You’ll easily be able to identify areas where the responses aren’t adequate and these will form the areas of focus for your visit.
  • Tailoring: You can’t treat every site visit the same. Sure, there will be a list of people you expect to see on site, from C-suite to the actual managers of different elements of the processes. But, you need to shift the focus of your discussions with them according to your risk identification and assessment process. For instance, just because their documentation is first rate, you still need to look at the policy, protocol and processes underneath.
  • Collaboration: It is essential that the managers understand that you are there to work with them not against them and that the operational due diligence process is not there as a self-justifying exercise in “gotcha!” This may mean volunteering to go on site and go through all the documentation on a given day or it may be discussing your findings with the manager informally and agreeing a mitigation plan with them before you put anything down formally.
  • Feedback: Managers are generally very interested in your feedback, so do share it. They get a lot from it and take a lot on board. This enables you to deliver a secondary benefit of improving their controls and so serve your business and theirs better.

Get more tips on operational due diligence best practices, as well as whole load of interesting anecdotes and perspectives from Kevin when you listen to the full webinar recording:

View our Due Diligence Interview Recording

Image credit: Freepik

Tags: Due Diligence

Due diligence training?

Customer In-House Training Solutions