An operational due diligence programme sized from initial reviews, tiered monitoring and event-driven work.
An operational due diligence analyst's capacity is set by hours, not by a rule of thumb: initial reviews plus tiered monitoring plus event-driven reviews, divided by the hours an analyst actually spends on reviews. On an illustrative programme of 12 new managers a year and 60 under monitoring, the work is 2,144 hours, or 1.79 analysts: about 40 managers covered, but only 6.7 new reviews, per analyst. Sizing the team on new reviews alone gives 0.80 analysts and misses the 55.2 per cent of the work that is monitoring.
Worked in full in Operational Due Diligence in Private Equity by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
An institutional investor runs an ODD function covering private equity and private credit managers. Each year it reviews new managers before commitment and keeps the ones it has backed under monitoring, tiered by the risk rating from the last review. Hours are illustrative and should be replaced by your own time records: the request list alone runs to seventy documents and questions across ten domains, and an on-site visit with testing takes days, not hours.
| Review type | Managers | Hours each | Reviews a year | Hours |
|---|---|---|---|---|
| Initial review, new manager | 12 | 80 | 12 | 960 |
| Monitoring, high risk (full re-review annually) | 10 | 40 | 10 | 400 |
| Monitoring, medium risk (annual update) | 30 | 16 | 30 | 480 |
| Monitoring, low risk (update every two years) | 20 | 16 | 10 | 160 |
| Event-driven reviews (key person exit, new administrator, breach) | 24 | 6 | 144 | |
| Total | 72 | 2,144 |
A full-time analyst has around 1,600 productive hours a year after leave, holidays and training. Not all of it goes on reviews: policy updates, investment committee attendance, vendor and administrator oversight, and internal reporting take a share. At 75 per cent on reviews, review capacity is 1,200 hours.
Review capacity = productive hours × share on reviews = 1,600 × 75% = 1,200 hours
Hours = new reviews × hours + Σ (monitored × hours × frequency) + events × hours
= 12 × 80 + (400 + 480 + 160) + 6 × 24 = 960 + 1,040 + 144 = 2,144
Analysts = 2,144 / 1,200 = 1.79
Excel, with hours per review in C2:C6 and reviews a year in D2:D6: =SUMPRODUCT(C2:C6,D2:D6)/(1600*0.75)
The 72 managers spread over 1.79 analysts is 40.3 per analyst, an average of 29.8 hours a manager a year. That is the coverage ratio programmes quote. The figure that limits growth is different: each analyst can absorb only 6.7 new manager reviews a year once monitoring is staffed.
The two inputs that move the answer most are the depth of the initial review and the number of new managers the investment team brings.
| Hours per initial review | 8 new a year | 12 new a year | 24 new a year |
|---|---|---|---|
| 60 | 1.39 | 1.59 | 2.19 |
| 80 | 1.52 | 1.79 | 2.59 |
| 100 | 1.65 | 1.99 | 2.99 |
Doubling the pipeline from 12 to 24 new managers adds 0.80 of an analyst at 80 hours a review. Cutting the review to 60 hours to absorb the volume saves 0.40. The temptation is to cut depth, and that is exactly the trade-off an ODD function exists to refuse: a shorter review usually means less testing of cash controls and valuation, which is where the losses come from.
Every manager approved this year joins the monitored book next year. If the 12 new managers each year go into the medium tier and none leave, monitoring grows by 192 hours a year.
| Year | Managers monitored | Hours | Analysts |
|---|---|---|---|
| 1 | 60 | 2,144 | 1.79 |
| 2 | 72 | 2,336 | 1.95 |
| 3 | 84 | 2,528 | 2.11 |
| 4 | 96 | 2,720 | 2.27 |
| 5 | 108 | 2,912 | 2.43 |
A team sized for year one needs more than a third more hours by year five, without any change in the pace of new commitments. The relief valve is tiering: managers whose funds are fully realised come off the list, and a risk rating that has been stable for several cycles can move a manager from annual to biennial updates. Both are decisions to document, not to drift into.
Event-driven reviews are the line most often left at zero in a budget. A key person departure or a change of fund administrator at a monitored manager needs a review within weeks, not at the next scheduled update, and the time comes out of the planned work if it was not budgeted.
The common mistake is to size the ODD function from the investment pipeline: 12 new managers at 80 hours is 960 hours, 0.60 of a full analyst year on 1,600 hours, or 0.80 on review capacity. Monitoring and events are 55.2 per cent of the real workload, and they are the part that cannot be postponed without the programme quietly turning into a one-off gate at commitment. The second mistake is quoting coverage, 40 managers an analyst, as if it were throughput. A team can carry 40 monitored relationships each and still not have the hours for one more on-site initial review this quarter.
Capacity is also the frame for the scoring questions in why refining an ODD rubric makes it weaker: more domains mean more hours per review and, as that piece shows, no better decisions. The companion page offers the free workbook and working documents for this book, including the request list and the first ninety days of a new analyst.
It depends on depth, and your own time records are the only reliable source. In this illustrative programme an initial review, from request list to committee, takes 80 hours, a full re-review of a high-risk manager 40, and an annual update 16. Moving the initial review from 80 to 60 hours saves 0.40 of an analyst on 24 new managers a year.
Tier it by risk. A common pattern is a full re-review every year for high-risk managers, an annual update for medium risk, and an update every two years for low risk, with event-driven reviews on a key person exit or a change of administrator. On 60 monitored managers that pattern costs 1,040 hours a year here.
Coverage ratios vary widely between programmes, so compute your own. In this illustrative case 72 managers over 1.79 analysts is 40.3 per analyst, about 29.8 hours each a year. The ratio says nothing about capacity for new work: the same team can absorb only 6.7 new reviews per analyst a year.
This article is one calculation from Operational Due Diligence in Private Equity. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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