There are generally considered to be three stages in the Due Diligence process. These are represented in the Generic Due Diligence Process illustration.

Due Diligence Phases

A comprehensive ‘Preparation’ phase is essential to ensure that all relevant documents are disclosed, that contact points within the target company or project are identified and that a full understanding of the sponsors perspectives and needs is obtained. The latter point is most important to ensure the Due Diligence concentrates on the important issues without being lost in the swamp of imperfections that will exist in any undertaking.

The ‘On Site and Data Review’ phase encompasses a major portion of the detailed work. This will generally include a visit to site to view the subject under review (be it a company, a project or an individual equipment), structured interviews with key staff, examination of further data and, potentially, identification of further areas or sites that require visits. The initial focus for this phase will have been driven by the sponsor perspectives and the work undertaken during the preparation phase, however expect things to change as further information is revealed.

A key aspect at all times during any Due Diligence is the need to establish and then maintain a positive relationship with all involved parties. The aim of the process is to add value and to improve the chances of project success, therefore early ‘buy-in’ and collaboration from the participants will ensure openness of discussions and improve the quality of the information provided.

The final stage of the process is that of ‘Analyse and Report’. All the information gathered is analysed in detail and the questions raised by the sponsor clearly addressed in a written report. Draft findings should ideally be reviewed with the participants to remove any errors in interpretation and a verbal presentation of the key findings given to the sponsor. Any risks to the project should be clearly identified together with recommended actions, and a timeline, for management attention.

Whatever framework is chosen for Due Diligence, it must be flexible enough to be adapted to the size and scope of differing assignments. Similarly, the team selected to undertake the work must have the appropriate blend of experience and skills directly relevant to each specific assignment. Therefore it is necessary to have personnel with a combination of industry experience, technology expertise and general business process and management expertise.

Due Diligence Outputs

The outputs from any Due Diligence study will clearly specific to the undertaking under review and the sponsor requirements, but can generally include any of the following:

• A determination of the driving factors for the project
• An evaluation of the project schedules, budgets and technical viability.
• The potential impact of any outside influences or assumptions (political or policy changes)
• A range of statistical analyses
• An assessment of the risks to successful project completion.

In addition, the role undertaken by the Due Diligence contractor may also lead towards a requirement to support contractual negotiations and, for example, the banks syndication process.

Health Checks or Risk Audits

A Due Diligence review or study is generally considered to a ‘one-off’ in order to answer the specific questions of the sponsor. These are often to determine the viability of a project prior to commitment or an investment decision. Once a project is underway there is often a further requirement to review the Due Diligence in order to ensure that the risks identified are being managed effectively, that the risk status of the project is reducing and that the undertaking continues to represent a good investment for the sponsor.