Best Practices for Investing in Due Diligence Software

Blog post Team CENTRL 2022-04-18

Due Diligence Software

When it comes to investments, operational due diligence (ODD) is crucial because it enables potential investors to investigate these complex investments and assess their operational infrastructure. They can also better understand their risk exposure and act appropriately to maximize their returns from the investment.

Unfortunately, ODD can be a resource-hungry and time-consuming process with old-fashioned, manual methods and spreadsheet-based tools. These older methods make it harder to gather and analyze all data for due diligence, coordinate with multiple stakeholders and meet DDQ and RFI demands.

Since taking shortcuts during due diligence is not an option, ODD professionals need an easier way to simplify the process, minimize risk, and maximize investor returns. Here’s where automated due diligence technology comes in.

This article explores how consultants and investors can benefit from automated ODD technology.

What is Operational Due Diligence?

ODD is sometimes used synonymously with financial due diligence, although the two concepts are different. Financial due diligence is about looking back at a fund’s past performance to assess where it stands today. ODD is a forward-looking, investor-initiated process that enables the investor to evaluate the operations of an investment manager.

The goal is to detect any operational risks that may have a negative impact on investors’ returns. Investors can act early to mitigate these risks before investing by conducting ODD.

What is Operational Due Diligence Technology?

ODD technology provides a high level of automation to speed up many ODD tasks and minimize the need for manual inputs. It dramatically improves manual processes and allows users to de-risk the investment roadmap and meet new due diligence and reporting demands.

An integrated ODD platform automates DDQ (due diligence questionnaires) and RFI (request for information) workflows, streamlines issue management, and supports ODD scalability.

Thus, they can save time and speed up due diligence outcomes. These tools provide a single, centralized document repository and real-time data to provide a single source of truth essential for multi-party, collaborative ODD processes.

The Challenges of Manual Due Diligence

Typically, ODD professionals face several challenges during the ODD process:

Information Overload

To comprehensively appraise a fund’s operational infrastructure, ODD professionals need to gather and analyze substantial amounts of information and relevant documents. These documents include:

  • DDQs
  • Marketing presentations
  • Regulatory filings
  • Audited financial statements
  • Operational policies
  • Offering Memorandums

ODD team members also need to understand the implications of all this information and ensure it remains accessible to all relevant stakeholders. But this is hard to do if they have to search through multiple folders, Excel spreadsheets, Word documents, or PDF files. Further, sharing information via email makes it difficult to trace information or get real-time data.

These issues affect user productivity, introduce errors, and ultimately hinder ODD efficiency.

Poor Collaboration

Legacy ODD methods affect collaboration between multiple parties. Without automation, version control, and centralized data repositories, users find it hard to share data and get visibility into ODD activities, issues, and resolutions.

These problems also slow down ODD and create confusion, affecting risk management and the quality of decision-making.

Audit Challenges

During the ODD process, teams require timely, updated information to ensure that they can respond appropriately. But with manual methods, they can only get this information by taking device screenshots or going through masses of emails.

Often, they have to review hundreds of documents stored in different locations and many different formats. This effort is time-consuming, creates confusion, and prevents teams from getting the necessary information to pass the audit successfully.

The Benefits of Due Diligence Technology

An integrated, cloud-based ODD platform quickly eliminates the challenges highlighted above. For years, investors relied on manual processes, email, and spreadsheets for operational due diligence, making the ODD process time-consuming, resource-intensive, and error-prone.

There’s no need to wade through a mountain of confusing documents, emails, or communication channels with ODD technology. Instead, ODD practitioners can leverage digitization and automation to effortlessly collaborate with others.

They can easily access the needed information to quickly complete ODD with centralized document repositories, libraries, customizable templates, and pre-populated questionnaires. These features also provide a single source of truth so that everyone is on the same page.

With due diligence technology, teams can:

  • Automate and accelerate DDQ and RFI workflows
  • Preview contents without opening them to save time
  • Automate email flow by tagging and uploading emails with key metadata
  • Improve risk scoring and see changes to risk thresholds

They can also prepare for audits, track compliance with detailed analytics, and eliminate the risk of error in reporting and data entry.

The Key Features to Look For in Due Diligence Software

Adequate due diligence is much more than a tick-the-box exercise. It requires lots of information, detailed analyses, and effective collaboration. ODD practitioners need an easy way to collect data, organize documents, and speed up DDQ and RFI processes. Automated ODD software can help them achieve these objectives.

It should include dynamic dashboards, question-level benchmarking, and enhanced time series analytics to improve ODD effectiveness and output quality. Further, it should have a frequently-updated document library so users can manage frequent uploads and maintain version control.

The ODD software solution should be customizable so practitioners can add new fields, entities, or layouts as required. A customizable database should provide a single location for all funds and manager information. Plus, it should provide an intuitive interface and a centralized document repository, allowing users to get relevant information quickly.

A cloud-based, mobile-ready ODD platform is very useful for remote ODD teams. It also provides a single source of truth with centralized files, real-time data, version control functionality, audit trails, and document classification.

Buyers should look for ODD tools that also include these crucial features:

  • Industry-standards DDQ templates from AIMA, ILPA, etc.

  • Fully configurable industrial rules and workflow engine

  • Automatic report generation

  • Real-time analytics to support deep benchmarking across managers, DDQs, time series, etc.

  • Support for Enterprise Risk Management, KPI analyses, and quality controls

An ODD tool with these features eliminates spreadsheet-based DDQ, email communications, and manual portfolio analytics. It thus streamlines the due diligence process, improves collaboration, and enhances investment decision-making.

Introducing the ODD360 from CENTRL

One key ODD trend we foresee for 2022 is the increased adoption of ODD technology platforms. There are many good reasons for this, as we have already seen.

CENTRL is leading the way with its cutting-edge ODD automation platform – ODD360. This multi-party tool provides an intuitive data collection and document management system. ODD practitioners and hedge fund or private equity investors can access all information, schedules, and assignments from one centralized library. They can also collaborate internally and with clients, delegate DDQ sections, and automatically generate reports.

ODD360 offers advanced automation, document digitization, analytics, and cloud-based operation to simplify ODD for investors, fund managers, and ODD practitioners. It automates DDQ and RFI workflows, provides audit trails, and eliminates the need for email communication and multi-format documentation.

ODD360 can increase the efficiency of their ODD workflows by 50% or more and deliver average cost savings of 30-40%.

To see ODD360 in action, book a demo.

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