The Top 3 Trends in Operational Due Diligence to Watch For in 2022

Blog post Team CENTRL 2021-12-27

Operational due diligence has advanced and improved in recent years, largely as a result of technological and digital progress.

Previously, due diligence was hampered by manual processes and enormous quantities of paper records, but it is rapidly progressing into sophisticated, intelligent virtual data rooms complete with digital content libraries.

On a technical level, the advent of artificial intelligence (AI) and machine learning (ML) in technology has progressed the operational due diligence process which has resulted in streamlining the due diligence process for allocating capital to alternative investments.

This has resulted in greater speed, simplicity, and security in the ODD ecosystem, allowing investors to allocate capital more quickly.

We were interested to learn how ODD professionals on all sides of a deal - looked at the future of due diligence.

What are the key issues that today’s and future technologies might be able to address?

In this post, we’ll shed light on the difficulties practitioners face and the potential for technological advancements to the due diligence process in 2022.

The State of Operational Due Diligence in 2021

The following are the core challenges we’ve seen in ODD in recent years.

Achieving Maximum Velocity

Many ODD professionals state that the operational due diligence process takes, on average, less than three months.

The goal is for the process to speed up even more if several crucial concerns in diligence are overcome—namely, scalability.

Scalability is all about the ability for operational due diligence processes and systems to support a large volume of data across a significant number of investment managers with various strategies.

Data Analytics Have Become Crucial, Yet Underutilized

Most ODD professionals understand that utilizing data analytics will speed up their due diligence processes, yet they are unsure of how to implement it in their organization and are cautious of how a software rollout will impact their operations.

A lack of proper reporting and metrics that can be utilized for benchmarking operational due diligence reviews are among the biggest issues that hinder operational due diligence professionals today.

Investors often have large amounts of data about their underlying investment managers at their disposal but may use it sparingly in the decision-making process because of manual processes that make it challenging to collate and analyze the data properly.

Scalability Hampered by Improper Information Management

Overall, our clients state that document gathering, verification, and analysis are the most time-consuming aspects of the due diligence process.

Another deterrent is a lack of strategy, planning, and communication throughout the ODD process. This is often caused by manual processes that leverage spreadsheets to collect, store, and share operational due diligence data.

Manual operational due diligence processes often lead to problems with the management of reference documentation, which becomes a time-consuming issue when organizations try to move more quickly.

Slow Moving Contract Review Process

Finally, one of the core challenges that ODD practitioners face, according to those we’ve worked with, is evaluating and analyzing legal documentation pertaining to the investment.

Legal documents are often difficult to read due to their length and the use of dense legal jargon. Moreover, operational due diligence teams don’t have time for this process, yet without it, they could potentially invest under unfavorable terms.

As operational due diligence becomes more of a focus for investors demanding more transparency into operational risks - ODD teams will be under pressure to streamline their processes.

What We’re Expecting in 2022 for ODD

Based on the aforementioned challenges, we forecast an evolution for ODD that has already begun but will increase in adoption in 2022.

Teams Will Be Unified Through Technology Platforms

We anticipate that the use of technology in operational due diligence will allow ODD teams to evaluate more investments and get them over the finish line quicker as silos are broken down, and operational due diligence processes are streamlined and standardized.

The use of technology in the ODD process is a trend that is also increasing in urgency as a result of the global pandemic which forced ODD practitioners to transform their ODD processes away from conducting onsite due diligence meetings and instead conducting these meetings virtually.

Greater Adoption of AI in ODD

We also anticipate that Artificial Intelligence (AI) and Machine Learning (ML) technologies will have the most long-term potential to disrupt traditional due diligence, followed by data analytics and blockchain technology.

While operational due diligence is already becoming more data-driven, the next five years will likely see ODD teams make even more use of Internet of Things (IoT) technology, helping to integrate data streams and simplify process workflows.

Additionally, ODD practitioners will utilize this technology to become more efficient at gathering and analyzing data in order to mitigate operational risks with their investment managers.

Increasing Regulation Will Impact ODD Processes and Expectations

As greater operational risk spurs more intensive regulatory oversight, ODD professionals will face growing pressure to exercise appropriate oversight of data protection mandates, like those expressed in the EU’s General Data Protection Regulation (GDPR).

However, data privacy is just one area of concern for ODD practitioners.

The operational due diligence process will likely become more standardized in the future, with operational professionals expected to understand, communicate, and adhere to emerging requirements.

As operational risk continues to increase exponentially, technology platforms can make their operational due diligence processes easier, faster, and more auditable by providing a centralized repository for all ODD questionnaires and documentation as well as to automate much of the repetitive, error-prone manual processes that still exist today.

ODD360: A Forward-Thinking Operational Due Diligence Platform

Today, operational due diligence necessitates thorough knowledge gathering and time investment.

To simplify and ultimately scale ODD processes, investors, consultants, and investment managers must lean into technology that can help them achieve their strategic goals, meet compliance obligations, and scale across their entire portfolio.

This is where ODD360 can assist.

ODD360 is a cost-effective, multi-party operational due diligence platform that may be utilized by managers, consultants, and investors to streamline the entire operational due diligence process.

Our platform is designed to streamline many of your manual ODD procedures by providing an easy-to-use user interface with sophisticated automation and analytics.

ODD360, with the help of its automated collaboration, workflows, and report generation, can help you increase the efficiency when it comes to conducting operational due diligence by up to 50%.

With the aid of its comprehensive analytics capability, it can help you enhance the efficiency and quality of your ODD procedures.

If you are ready to take your ODD to the next level, you can learn more about ODD360 here or schedule a demo today.

Similar resources

More resources