The Future of Operational Due Diligence (ODD) Automation: A Framework For the Next Gen Platform

ODD (Operational Due Diligence) is an investor initiated process for monitoring the operational oversight of investment managers and funds. With rising risks and increasing regulatory pressure, the value and necessity of ongoing monitoring will only continue to grow.

As the CEO of CENTRL, I know due diligence, its incredible importance, and how to balance the need for detailed attention to this process with the overall needs of a company—without sacrificing time and energy that could be used more effectively elsewhere. We’ve dedicated past blog posts to discussing due diligence best practices. But there’s more to the equation than stepping up efficiency. For reference please see: Transformation through automation.

In our current business climate, the ODD process seems largely dominated by manual Excel and Word assessments, back and forth email communications, and offline scoring and reporting. And that’s just on the investor side. The burden is even greater for managers who have to answer hundreds of questionnaires that are a part of any due diligence process—in multiple disparate formats with similar but custom questions.

This process is both tedious and prone to inconsistencies. Not only that, the use of out-of-date technology can make it worse: this is the 2020s, not 1995. The due diligence process should mirror the technological progress of our companies and our world. At least, that’s what I believe.

At CENTRL we’ve spent the last five years building a highly effective, and automated Operational Due Diligence platform, which we call DD360. Why? Because we believe that due diligence is an incredibly important process and one that can be transformed through the intelligent use of technology. We’ve done our research and used our learnings from DD professionals to create a platform that works with investors and managers better than anything in the market.

The Automated ODD Framework

How can a company create software that innovates in a critical area where the current processes have been overtaken by growing complexity and pressure? By thinking forward, of course. At CENTRL, we believe that the future of ODD automation will be driven by four key themes:

• Deep and Radical Workflow Automation
• Automated Analytics and Flexible Reporting
• A Shared Network Platform
• Leveraging AI to Redefine the Process

This is a lot to cover, so we’re creating a four-part series to explain. This is the first article in the series—each will outline one of the four themes above. Today, we’re talking about workflow automation, a true time and energy saver for due diligence in the digital age.

Radical and Deep Workflow Automation

The ODD process is complicated and multi-step, which spans the workflows of both investors and managers. For the investor, the due diligence process consists of several steps: design, execution, evaluation of assessments and management of issues and risks. When done at scale and without the use of proper tools, this end-to-end process can be highly tedious and prone to errors. In addition, it can drain time and energy away from assessing and managing risk which is the true purpose of the process.

We at CENTRL believe that transforming the ODD process requires deep and radical workflow automation. We use the words “deep” and “radical” carefully—to differentiate the right solution from semi-automated tools that fall in the category of “paving the cowpaths.” That partial automation of legacy processes yields, at best, incremental benefits. At worst? It makes a mess of the entire process by creating a patchwork solution. In our view, radical and deep workflow automation can prevent this. This type of automation consists of the following components:

• Configurable and flexible workflows for investors and managers. On the investor side, this involves flexible workflows for DDQ template creation. This should leverage a comprehensive question data bank, automated distribution of questionnaires to managers with rules-based events (both on-demand and for future dates), and automated scoring and evaluation. For enterprise-level implementations, automated assignment and delegation workflows for investors work best. And for managers? This automation can bring great efficiency for the IR team.
• A focus on “what has changed.” Targeted workflows aimed at eliminating repetitive question answering are key to transforming ODD—for both managers and investors. A smart tool must never require the repetition of work from one assessment to the next. By pre-populating a DDQ with responses from the last time, you automatically eliminate well over 50% work for the manager to answer repetitive questions. Likewise, for the Investor the ability to focus on “what has changed” and see the changes side-by-side is not just an efficiency booster but a sharp tool for risk analyses.
• Automated DDQ data extraction for risk analyses and comparisons. Ultimately, the DDQ is an artifact which contains an enormous amount of data. A powerful ODD tool should automatically extract data from DDQs for risk reporting and comparisons. This capability transforms the DDQ process from a static event to a true data gathering process which enables big data analytics at a manager or portfolio level.
• Internal and external collaboration in context and in app. The world of enterprise applications has been transformed by collaboration software. Tools like Slack and Jira have changed the way teams work and collaborate. We believe the same applies for the next generation of ODD platforms. The ability to collaborate within the ODD teams and with the Manager - all within the app and in context of the DDQ process - can be powerful drivers of efficiency and increasing control and oversight. Nothing is more exasperating than wasting time searching for critical information lost in disparate email threads.

In our view, these updated processes are some of the key features that will define the future of ODD. This type of deep workflow automation has been yielding 60%+ efficiency improvements for ODD groups, according to our reporting. And it’s just the beginning of the changes that we are proposing.

Have we caught your interest with our explanation of deep and radical workflow automation? If so, we hope you’ll check back for future posts on different aspects of how DD360 can revitalize and streamline the entire operational due diligence process.