Types of due diligence
Summarize
Summary of Types of due diligence
Due diligence in third-party risk management involves multiple types of assessments to gather relevant information and evaluate different facets of the third party. The specific types of due diligence you conduct depend on the engagement’s nature, criticality, and associated risks. This process helps ensure informed decision-making and risk mitigation when working with third parties.
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Types of Due Diligence
- Information Security Due Diligence: Assesses data protection practices, cybersecurity, incident response, encryption, and employee training to protect sensitive information and reduce risks of breaches or unauthorized access.
- Financial Due Diligence: Evaluates financial health by reviewing statements, profitability, liquidity, debt, and cash flow to confirm the third party’s ability to meet obligations.
- Legal Due Diligence: Reviews contracts, licenses, permits, and legal compliance to identify risks, liabilities, litigation, or regulatory issues that could affect your organization.
- Operational Due Diligence: Examines infrastructure, supply chain, production, quality controls, and capacity to ensure the third party can deliver required products or services effectively.
- Compliance Due Diligence: Verifies adherence to laws, regulations, and industry standards including anti-corruption, data privacy, environmental, and labor practices to prevent legal or reputational problems.
- Reputation Due Diligence: Investigates reputation, integrity, references, media coverage, and ethical history to confirm alignment with your organization’s values and expectations.
Financial Due Diligence in ServiceNow
ServiceNow’s Third-party Risk Management (TPRM) supports financial due diligence through:
- Prebuilt questionnaire templates and document requests for financial evaluation, which can be sent to third parties via assessments on the third-party portal.
- Due Diligence Request (DDR) workflows that coordinate internal reviews, external assessments, approvals, and contract risk checks.
- Reports and dashboards to monitor active due diligence requests, track aging items, and manage completion timelines.
These features are accessible in the Vendor Management Workspace under the Risk tab’s due diligence management section. You can manage workflows, track statuses, and send financial questionnaires through this interface.
Note: To utilize preconfigured workflows and advanced risk visualization, activate the Third-party Risk Due Diligence plugin (com.sntprmdd) in your ServiceNow instance.
In the due diligence process, you typically conduct several types of due diligence to gather relevant information and assess various aspects of the third party. The particular types of due diligence that you conduct vary depending on the nature and criticality of the engagement and the risks involved.
- Information Security due diligence
Information security due diligence is critical. It involves evaluating the third party's data protection practices, cybersecurity measures, and information handling processes. This includes assessing their data security policies, incident response capabilities, encryption practices, and employee training on data protection. The objective is to safeguard sensitive information and mitigate the risk of data breaches or unauthorized access.
- Financial due diligence
Financial due diligence involves assessing the financial health and stability of the third party. It includes reviewing financial statements, analyzing profitability, liquidity, debt levels, cash flow, and other financial indicators. The goal is to understand the financial viability of the third party and help ensure that they have the capacity to fulfill their obligations.
- Legal due diligence
Legal due diligence involves examining the legal and regulatory compliance of the third party. It includes reviewing contracts, agreements, licenses, permits, and legal documents. The purpose is to identify any legal risks, liabilities, ongoing litigation, or regulatory non-compliance that could impact your organization's interests.
- Operational due diligence
Operational due diligence focuses on assessing the operational capabilities and processes of the third party. It involves evaluating their infrastructure, facilities, supply chain, production processes, quality controls, and capacity to meet your organization's requirements. The goal is to help ensure that the third party can effectively deliver the desired products or services.
- Compliance due diligence
Compliance due diligence involves verifying the third party's adherence to applicable laws, regulations, and industry standards. It includes assessing their compliance programs, policies, and procedures related to areas such as anti-corruption, data privacy, information security, environmental practices, and labor standards. The objective is to identify any compliance gaps or risks that could result in legal or reputational issues for your organization.
- Reputation due diligence
Reputation due diligence focuses on evaluating the third party's reputation, integrity, and past performance. It involves conducting background checks, reviewing references, searching for news or media coverage, and assessing any past controversies or ethical issues. The purpose is to help ensure that the third party has a positive reputation and aligns with your organization's values and expectations.
Financial due diligence example
Financial due diligence evaluates a third party or engagement's financial health and stability. Third-party Risk Management supports this process by providing:
- Questionnaire templates with financial questions and document requests that you can send to the third party or engagement using an assessment through the third‑party portal.
For more information see, Sample questionnaires and Create an external assessment.
- Due Diligence Request (DDR) workflows that orchestrate internal review, external assessment, approvals, and contract risk checks.
For more information see, Due diligence workflow.
- Reports and dashboards to track active requests, aging items, and completion timelines.
For more information see, Monitoring the due diligence request process.
Access these features by navigating to the Vendor Management Workspace:
- Go to . On the Risk tab, select the due diligence management icon
. - On the Due diligence management page, select a stage (IRQ, Due diligence, Approvals, Contract risk, Final review, Closed) to view actionable lists.
- Open a Due diligence request record to manage the workflow.
- To send financial questionnaires or document requests from a DDR or an Assessment record, create an assessment.
- Use the Due Diligence Management page to monitor status and aging.
For more information see, Monitoring the due diligence request process and Create an external assessment.