Supported
What it means
Baseline, mechanism, owner, investment, timing, and dependencies are evidenced.
Treatment
Include in the plan with normal execution monitoring.
Private equity operations
Operational due diligence for private equity: A practical checklist
Financial diligence can confirm what happened. Operational diligence tests whether the business can deliver what the deal model assumes happens next.
A practical seven-part review for deal teams, operating partners, and portfolio executives.
From thesis to execution
Deal model assumption
Growth, margin, cash, or integration upside
People
Process
Systems
Data
Capacity
Sequenced operating plan
Owners, investment, timing, dependencies, and measures
Quick answer
A useful process connects every material value-creation assumption to the people, processes, systems, investment, and time required to execute it. If those links are missing, the upside may be possible, but it is not yet underwritable.
The output
What operational due diligence should produce
Operational due diligence is not a longer document request list. It is a forward-looking test of the investment thesis.
Deloitte describes ODD as a bespoke, continuous, and iterative process that should shape an actionable value-creation plan and continue into the first 100 days. McKinsey similarly argues that the work should identify potential initiatives, implementation costs, timing, and the leaders required to deliver them. Deloitte · McKinsey
Which operating assumptions are supported by evidence
Which assumptions remain hypotheses
What each initiative will require
Who has the capacity to own it
When results could reasonably appear
What must happen immediately after close
It complements financial, commercial, legal, tax, cyber, and other specialist diligence. It does not replace them.
The checklist
Seven tests for the operating case
01
Start with the investment thesis
Do not begin with a generic list of functions. Begin with the operating assumptions inside the deal model.
If the thesis assumes revenue growth, test the capacity of lead generation, sales management, onboarding, fulfillment, and customer support. If it assumes margin expansion, trace labor productivity, pricing discipline, purchasing, scheduling, rework, and overhead. If it assumes an add-on strategy, test whether the platform can absorb new locations, teams, customers, and data without creating a second operating system beside the first.
Ask
What must become true operationally for each material assumption to hold?
Evidence
A thesis-to-operations map that names the workflow, baseline, owner, dependency, timing, and measure for every major value lever.
02
Map how value-critical work actually moves
Policy documents show how work is supposed to happen. Diligence needs to see how it happens under normal pressure.
Select a few workflows tied directly to the thesis, such as quote-to-cash, order-to-fulfillment, customer onboarding, field scheduling, purchasing, month-end close, or location launch. Follow each one from trigger to completion. Look for handoffs, duplicate entry, approval queues, exception paths, rework, and steps held together by one experienced person.
Ask
Where does work wait, loop backward, or depend on memory?
Evidence
A current-state workflow with cycle time, exception volume, system touchpoints, and accountable roles.
03
Test management capacity, not only the org chart
A complete org chart can still hide a thin operating bench.
Test where decisions concentrate, which managers can run cross-functional work, how much depends on the founder or CEO, and how many major initiatives the team can absorb while running the business. Bain’s integrated diligence work emphasizes management bandwidth because growth, cost, technology, and integration initiatives compete for the same leadership attention. Read Bain’s analysis.
Ask
Who can own each initiative without turning the CEO or sponsor into the project manager?
Evidence
Named initiative owners, clear decision rights, visible succession or backup coverage, and an honest view of leadership gaps.
04
Check the operating cadence and KPI integrity
A dashboard is not the same as a management system.
Review how metrics are defined, produced, discussed, and acted on. Confirm whether functions use the same definitions, whether reports arrive in time to change an outcome, and whether meetings result in decisions with owners and deadlines. Then tie the smallest useful set of measures directly to the investment thesis.
Ask
Which metrics cause a decision, and who is accountable when they move?
Evidence
Consistent metric definitions, source systems, owners, reporting frequency, decision thresholds, and a recurring review cadence.
05
Assess systems, data, and hidden manual work
The question is not whether the target owns an ERP, CRM, or business intelligence tool. The question is whether its systems support the operating model being underwritten.
Look for duplicate entry, spreadsheet reconciliations, weak integrations, poor master data, reporting latency, access concentrated in one person, and local workarounds that make performance look smoother than it is. For a multi-location or buy-and-build thesis, test whether new entities can be added to common processes, reporting, and controls without months of custom work.
Ask
Which growth or efficiency assumptions fail if the current systems remain unchanged?
Evidence
A systems-to-workflow map, data ownership, critical manual controls, known limitations, and a sequenced list of required changes. Specialist cyber and technical risks should remain with the appropriate diligence experts.
06
Quantify the initiative, not just the opportunity
“Improve purchasing” is an observation. It is not an underwritten initiative.
For each material opportunity, document the baseline, operational mechanism, estimated benefit, required investment, disruption risk, dependencies, owner, timing, and confidence level. McKinsey notes that operational diligence should estimate potential cash-flow improvement, approximate timing, and implementation cost. That discipline helps keep possible upside from becoming assumed upside. Read McKinsey’s analysis.
Ask
What has to happen before the modeled benefit can appear in the P&L or cash flow?
Evidence
Initiative charters with economics, sequencing, dependencies, milestones, and explicit confidence levels.
07
Convert diligence into the first 100 days
The report is not the finish line. The handoff is.
Deloitte describes ODD as continuous through the first 100 days, and Bain stresses building an implementation-ready agenda at close. Prioritize a small number of moves that protect the base business, validate the largest assumptions, and create visibility for later work. Assign owners before close where possible. State which hypotheses still need better access or cleaner data. Establish a review cadence that management can maintain without the diligence team. Deloitte · Bain
Ask
What must be decided, measured, or started in days 1 to 30, 31 to 60, and 61 to 100?
Evidence
A sequenced plan with owners, milestones, decision gates, and a short list of deferred initiatives.
Underwriting discipline
A simple confidence test
Attractive ideas should not quietly harden into operating assumptions.
Conditional
What it means
The opportunity is credible, but one or more material assumptions still need validation.
Treatment
Use a range, add a decision gate, and assign early validation work.
Aspirational
What it means
The benefit is not tied to a proven baseline, capable owner, realistic sequence, or required investment.
Treatment
Keep out of the base case until evidence improves.
This is not a substitute for the deal team’s underwriting standards. It is a practical way to separate evidenced, conditional, and aspirational value.
Watch for
Common failure modes
Functional silos
Commercial, operational, technology, and talent findings are never reconciled, hiding trade-offs between growth, cost, investment, and management bandwidth.
Management presentations treated as process evidence
A clean deck substitutes for observing workflows, exceptions, and actual decision routines.
Savings without implementation cost
The benefit is modeled, but systems work, change capacity, outside support, and disruption are not.
Too many first-year initiatives
The plan assumes leadership can run the company and launch every improvement at once.
No post-close owner
Findings remain in the report because the people expected to execute them were not involved in shaping them.
On integrated diligence and management bandwidth: Bain & Company
The practical test
Three questions the investment committee should be able to answer
If the answers are still broad, the diligence may have found issues without resolving the operating case.
- 01
Are the target’s current operations robust enough to protect the base case?
- 02
Which value-creation opportunities are supported, conditional, or still aspirational?
- 03
Does the management team have the capacity, systems, and operating cadence to execute the plan?
Sources
Forward-looking purpose, bespoke scope, co-creation, and continuation into the first 100 days.
Initiative economics, timing, costs, leadership, and KPI linkage.
Integrated diligence, interdependencies, trade-offs, and management bandwidth.
Alignment of growth and operations, management buy-in, and implementation-ready planning.
Portfolio operations
Turn operating assumptions into an executable plan.
Daloy’s Portfolio Operations Review examines how critical work moves, where execution depends on a few people, and what the team can realistically absorb. The output is a focused, sequenced operating agenda that management can own.