A Better Due Diligence Process, Part 3

[Charles Bacon]

Perform an Economic Analysis

The comprehensive Due Diligence Audit, Part 2 of A Better Due Diligence Process, is used to estimate the costs and rewards for prospective decisions, and also is the starting point to compare future improvements. Part of this system is an economic analysis that should show how such a comprehensive due diligence policy and procedures system reduces risk and increases profits for the organization. It should also confirm that the new system does not create a burden on the corporation’s core business. Elements of the economic analysis establish what additional resources are needed to support any necessary changes. The economic analysis also must include:

• How Each Part of the System will be Integrated, along with the Expected Results;
• The Value Expected for Each Change;
• Whether Each Current Decision-Making Process Produces Revenue, Cash Flow and a Profit, is Revenue/Cash Flow/Profit Neutral, or has a Negative Financial Impact for the Organization.

Competent outside professional service firms should be involved to assist in determining change requirements and acceptable expenditures of budget and time. Such firms play an integral role in the overall corporate due diligence process.

The due diligence department is, in essence, an “intelligent mirror” for all corporate operations. It does not replace or displace anyone on staff or from outside services firms. This is not the fawning, sycophantic “mirror, mirror on the wall” of Snow White’s wicked witch fame. This mirror must not lie. Rather, the due diligence department should perform a “conductor” function, ensuring a harmonious orchestral function, helping everyone involved in the organization develop a more efficient, cost-effective and, most important, more comprehensive due diligence process to use with every major and minor corporate decision.

Next: A Better Due Diligence Process, Part 4: Objectives of the Due Diligence System