If you’ve landed here searching for “technical due diligence,” you’re likely looking to evaluate the technology and software systems of a project or business. Whether you’re launching a new product, assessing a new technology to add your stack, or planning to make an investment, the stakes are high, since any overlooked vulnerabilities could lead to costly disruptions. This guide aims to alleviate your concerns by offering a detailed overview of technical due diligence (TDD).
Technical due diligence is essential for assessing the robustness and reliability of technology systems and applications. By adhering to best practices in technical due diligence, you can make well-informed decisions and implement new technologies more smoothly.
What is technical due diligence?
Technical due diligence is a comprehensive process that evaluates the technical aspects of a business or project. It aims to provide a clear understanding of the technological strengths, weaknesses, risks, and opportunities involved. This process is crucial for making informed decisions in mergers and acquisitions, investments, partnerships, or strategic planning.
The goal is to identify potential risks and ensure that the technology and systems in place are robust and capable of supporting the organization’s objectives.
For example, if a company is preparing for a product launch, technical due diligence would involve evaluating the following:
- Codebase – Is the codebase high-quality and maintainable, with proper documentation?
- Infrastructure – Is the infrastructure scalable and reliable?
- Security – Are there adequate security measures in place to protect against vulnerabilities?
- Development team – Does the development team have the capabilities to manage and support the technology?
This thorough assessment helps organizations reduce risks and get to know the new product from various angles, and it contributes to the successful launch and ongoing operation of the new product.
Key components of technical due diligence
Technical diligence can be detailed and time-consuming because it involves several critical areas, but it’s worthwhile. Here’s a deeper look at the key components of technical due diligence:
Risk identification and mitigation
Risk identification and mitigation involves identifying potential technical risks and issues that could impact the business. It includes assessing the feasibility and sustainability of the technology, since it should be able to operate long-term without sudden failures or inefficiencies. By understanding and addressing these risks early on, organizations can develop strategies to minimize them.
Example: A company is evaluating whether a new software system can handle peak loads without crashing. They also analyze historical performance data to predict future reliability.
Technology validation
Validating the technology is essential for checking the claims made about it, including its performance, scalability, and innovation. To remain competitive, it must align with industry standards and best practices to maintain competitiveness. This process involves rigorous testing and analysis to confirm that the technology performs as advertised and is capable of meeting the needs of the business. Validation helps build confidence in the technology’s capabilities and investment value.
Example: If a company claims their new machine learning algorithm can significantly improve predictive accuracy for credit risk assessment, validation would mean comparing the algorithm’s performance against existing benchmarks.
Assessment of technical team and processes
Beyond the product itself, the skills, experiences, and capabilities of the technical team are also a major factor in successful technology implementation. To check if the team is following best practices, their development methodologies, workflows, and quality assurance processes should be reviewed. Through a thorough assessment of the technical team, strengths and areas for improvement can be identified so they’re well-equipped to handle the technology’s demands and support its growth.
Example: You might review the development team’s past projects and their adherence to Agile practices and interview team members to understand their experience and workflow.
Infrastructure and operations
For the technology to handle current and future demands, it must have reliable infrastructure, including hardware, software, and network components. This area of TDD focuses on assessing the efficiency and reliability of operational processes. By thoroughly evaluating the infrastructure, organizations can identify potential bottlenecks and areas for improvement. A robust and scalable infrastructure is vital for supporting the organization’s long-term goals and growth.
Example: To analyze the reliability and scalability of the cloud infrastructure behind a new app, the technical due diligence team can conduct stress testing to see if the infrastructure can handle unexpected spikes in usage.
Security and compliance
For any technology product, security measures must be in place to protect data and systems and reduce legal and reputational risks. This includes verifying compliance with relevant regulations and industry standards. A thorough security and compliance review identifies vulnerabilities and looks for appropriate safeguards in place to protect against cyber threats and data breaches. The product must also be compliant with regulations such as GDPR, HIPAA, or industry-specific standards to maintain trust as well as avoid legal penalties.
Example: To confirm that a new e-commerce platform complies with GDPR and has robust data encryption, a thorough security audit is conducted.
Strategic fit and future roadmap
Over the long term, the technology must fit well with the strategic goals of the launching organization, company acquiring it, or investor. This involves assessing it against the future roadmap and plans for technology development and innovation. A clear future roadmap provides direction and guides the direction of development efforts so the technology continues to evolve and meet the organization’s needs.
Example: A company wants to incorporate advanced chatbots into its software, so the technical due diligence team evaluates its impact and how future updates might be implemented, such as more sophisticated natural language processing (NLP) capabilities.
The process of technical due diligence
Technical due diligence is a comprehensive process, so it involves several key steps as well as multiple teams and stakeholders. Here’s a summary of the process:
1. Initial planning
This is the first step in conducting technical due diligence. Before the actual assessments, you’ll have to decide on the goals and scope of the due diligence process and define areas to focus on. The objectives should be clearly outlined so the evaluation is precise and targeted.
Additionally, you’ll assemble a team of experts, including internal staff and external consultants. This team might include software engineers, data scientists, IT infrastructure specialists, cybersecurity experts, product managers, and project managers.
2. Data collection and documentation review
The next step involves gathering all the relevant technical documentation, such as codebases, architecture diagrams, infrastructure details, security policies, and compliance records. A detailed Request for Information (RFI) is sent to the target company or project team. The provided documentation is then reviewed for an initial understanding of the technology, infrastructure, and processes.
3. Interviews and site visits
You’ll also have to conduct interviews and site visits to get deeper insights and clarify any questions from the documentation review. Stakeholder interviews should be held with key personnel, including technical leads, developers, IT staff, and management. If applicable, there should also be site visits to the company’s facilities to observe the technology and infrastructure in action.
4. Technical and operational evaluation
The technical and operational evaluation lies at the heart of technical due diligence because this is when you’ll hold a detailed assessment of the technology and its supporting infrastructure. This covers conducting a thorough code review, performance testing, security audits, and infrastructure assessment. The technical team’s capabilities and methodologies are also evaluated.
5. Reporting and recommendations
The final step in the technical due diligence process is compiling a comprehensive report about the findings. This due diligence report includes the assessment results, along with specific recommendations for addressing identified risks and improving the technology and processes. These recommendations support the long-term success of the technology.
Streamlining your audits with a technical due diligence checklist
Why is a technical due diligence checklist needed?
Since technical due diligence requires thoroughness, attention to detail, and synthesis of plenty of data, having a specialized checklist can make the evaluation significantly clearer and faster.
This template helps you systematically review key areas such as software quality, infrastructure stability, and security measures. By using a template, you can ensure consistency and completeness in your assessments, reducing the risk of overlooking important details.
A checklist template serves you by providing a structured approach to your due diligence efforts. Incorporating a technical due diligence checklist template into your evaluation process not only saves time but also enhances the accuracy and reliability of your assessments. It’s easier to share the data with members of your organization and then get input from them.
How to use a technical due diligence checklist
To get the best out of technical due diligence, investors can apply best practices to enable an objective assessment of the investment objective. Insufficient due diligence may cause the investor to overlook critical factors that may be regretted after an investment decision is made. Here are some tips for making the technical due diligence process more seamless:
1. Prepare a tailor-made technical due diligence checklist
The technical due diligence checklist is carried out by investors from many industries. In the IT industry, for example, a technical due diligence checklist is performed to evaluate factors such as scalability, code quality, and security of the product. Adapting the technical due diligence checklist to specific circumstances helps investors develop a tailored list of questions and requirements to help them make an acceptable investment decision.
2. Prepare investment target according to your own expectations
It is more productive for all parties involved in the representative if the investment target is allowed to prepare documents and other requirements in advance. This helps to avoid delays in the technical due diligence examination. The investor will then find it easier to study the company in detail.
3. Go through the technical due diligence checklist
Although the technical due diligence checklist is only a list of requirements for the investment, this does not exempt investors from carefully going through each item on the checklist. Time should be taken to interview all key stakeholders in the investment target. The checklist may include notes of the interviews and photographs of the documents submitted. If necessary, follow-up meetings should be arranged.
A digital solution for your technical due diligence checklist
The assessment and implementation of the objectives of the final report form the basis for project closure. A checklist is helpful in the sense that it documents all the details about activities and interruptions of the project. Lumiform, the powerful app for inspections offers project managers the opportunity to avoid the hassle of disorganized documents, manual tracking of project deliverables as well as the cumbersome handover of project completion reports.
- Create your technical due diligence checklist and share it with your team in real time.
- The flexible checklist builder from Lumiform helps you to convert any individual paper list into a digital checklist without much effort.
All results, images and comments are automatically bundled in a digital report.