Technology is critical to the growth of modern companies and has the power to help streamline many business processes. Unfortunately, not all businesses have the knowledge base needed to use technology to its full advantage. This is where IT due diligence can be a game changer.
IT due diligence is a process designed to provide organizations with a clear and concise picture of their company’s IT capabilities. Many businesses rely on it before investing in a new company, finalizing a merger or completing an acquisition. It typically involves a thorough investigation, review or audit to confirm facts and measure risks.
IT due diligence is a comprehensive assessment of an organization’s IT department. Once an assessment has been performed, the data is generally given to a prospective buyer during a merger or acquisition. It is most commonly performed as a way for investors to discover potential problems or risks in a company’s IT function that could cause issues in the future.
Incompatible, dysfunctional or risky systems can significantly impact the value and effectiveness of an acquisition. Most organizations want to be aware of problems that could potentially cost them money. With IT due diligence, companies can help ensure that any money spent on IT properly aligns with their strategic goals.
Benefits of IT Due Diligence
Due diligence can provide organizations with a variety of advantages. One advantage is that this process can be used as a risk management tool for both businesses and buyers. Through IT due diligence, buyers are able to make informed decisions before putting a large amount of money toward a financial transaction.
The due diligence process also makes buyers aware of potential risks and problems. This can help ensure that there are no hidden risks found after the transaction and that the transaction is completed smoothly and without delays. With IT due diligence, buyers know what they’re paying for up front.
Identifies Strengths & Weaknesses
One of the biggest benefits of IT due diligence is its ability to identify the strengths and weaknesses of IT departments. This can refer to nearly any area of IT, from processes and software to personnel and infrastructure. Buyers should always go through the process before completing a transaction. This examination can help analyze the organization’s risks as well as its strengths and weaknesses, which can ultimately guide businesses in making a decision.
A SWOT analysis, which stands for strengths, weaknesses, opportunities and threats, is a common component of IT due diligence. This four-part analysis can be completed by companies of all sizes and has been proven highly valuable among those looking to grow their organization in a safe yet effective way.
Compare Findings Against Competitors
An important part of the IT due diligence process involves looking at an organization’s competitors. Companies should gather information to determine how large a business is, how it operates and the level of competition they face. Ideally, organizations should compare the profit margins of at least two or three different competitors.
By performing IT due diligence on multiple competitors in the same industry at once, organizations can gain valuable insight into how the industry is performing and develop strategies to get a leading edge. Every organization has at least some competition. Learning about competing companies in detail before attempting a business transaction can be extremely helpful to a company’s bottom line.
Identify Room for Growth
No matter how long a company has been in business, business owners are always striving to grow. IT due diligence can help a company discover new or promising opportunities for growth. No organization wants to enter into a contract if they know from the start that there is no room for growth. Through the IT due diligence process, companies can determine and utilize ways that they can be more successful over time.
Work with the Risk Management Consulting Professionals at Hartman Executive Advisors
IT due diligence is commonly recommended when a business is going through the process to take over or merge with another company. With information gathered through due diligence, this transitional period can go much smoother. However, any organization considering refinancing, sales or acquisitions should speak with a risk management consultant before moving forward. For more information about IT due diligence or for assistance in managing business risks, contact the risk management consulting professionals at Hartman Executive Advisors.