Operational due diligence

Assess whether a manager, target or transaction has the people, controls, systems and service-provider arrangements needed to operate reliably.

Quick answer

Operational due diligence evaluates non-investment risks in an organisation or transaction, including governance, legal and compliance, cash controls, valuation, accounting, technology, cyber security, business continuity, personnel, conflicts and external service providers. Its scope should match the structure and risk profile.

Use the worked example

Meaning and transaction use

An SEC filing describes independent operational diligence across legal, finance, technology, controls and risk culture, with veto rights over investment decisions. [S1]

Another SEC filing lists trading controls, systems, backup, valuation, compliance, conflicts, filings, personnel, assets, structure, disaster recovery, governance and service providers. [S2]

Proposed control method: maintain an issue register with evidence, severity, owner, deadline, mitigation and approval status.

Worked example

Illustrative issue register only. Assume 30 findings: 22 closed, five mitigated and accepted, two open high-risk items and one open low-risk item.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Closed	22 / 30	73.3%
Mitigated and accepted	5 / 30	16.7%
Open high risk	Given	2
Open total	30 - 22 - 5	3

The illustrative review has three open findings, including two high-risk items requiring a decision before proceeding.

Proposed transaction review process

Scope the review

Map entity, strategy, assets, jurisdictions and transaction risks.

Gather evidence

Interview staff and review policies, systems, records and providers.

Test controls

Trace cash, valuation, reporting, access and exception handling.

Resolve findings

Close, mitigate, condition, accept or decline with authority.

Evidence checklist

Governance

Ownership, committees, conflicts and delegated authority.

Operations

Cash, trade, valuation, accounting and reconciliation controls.

Technology

Access, cyber security, backup and business continuity.

Providers

Administrator, custodian, auditor, counsel and verification.

Decision framework

Situation	Proposed action
A critical control fails	Pause approval until closure or authorised mitigation.
A provider cannot be verified	Obtain independent confirmation or treat as a finding.
Key-person dependence is high	Set continuity and succession conditions.
The structure changes	Refresh the affected diligence scope.

Common errors to check

Treating a questionnaire as verification.
Combining investment and operational approval without independence.
Ignoring service providers.
Closing findings without evidence.

Run the operational controls review

Bring policies, control evidence and provider records to an operational due-diligence review. Reconcile findings and approval conditions.

Discuss the transaction

Primary references and editorial scope

SEC filing: Independent operational diligence
Example independent diligence of operations, compliance, legal, finance and technology with veto authority. Reference checked 17 September 2026.
SEC filing: Operational diligence scope
Detailed example of operational controls, systems, conflicts, continuity, governance and provider review. Reference checked 17 September 2026.

Editorial qualification

General transaction and investment education using public United States filings. Figures are hypothetical. Scope and conclusions depend on the entity, transaction, evidence and applicable legal and regulatory requirements.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.