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Due Diligence

The Importance of Human Reviews in Vendor Due Diligence

Apr 29, 2020 by Branan Cooper

Let’s face it, automation really helps drive efficiency. It speeds up processes, allows full-time employees (FTEs) to focus on strategic business initiatives and helps catch errors, but it’s certainly not perfect. The truth is, we can’t just cut human review out of the due diligence process altogether. When I managed fraud automation a dozen or so years ago, we had these glorious dreams that somehow, we could simply turn it over to the machines and rest easy at night. Easy enough, right? Wrong.

Why You Need Human Reviews in Vendor Due Diligence

Here are three major reasons we need human reviews in order to maintain thorough due diligence:

  1. Computers Can’t Replace Human Expertise

An experienced due diligence analyst or manager knows intuitively where to look to find things that don’t make immediate sense. Perhaps it’s because the item under review is being deliberately misrepresented or overstated, or perhaps it’s just an inadvertent misstatement of the facts.

Additionally, with the complicated items such as financial reviews and SOC reports, you actually must have someone with the appropriate credentials review the items. Not just gather them, but actually assert they have reviewed them and are comfortable (or not) with the results.

And, in some cases, a computer can’t actually read certain parts of these complicated documents. For example, in a financial statement, there’s a notes section that includes extremely important information. A computer algorithm can’t read those, but a human can.

  1. Automation Isn’t Capable of Creative Problem-Solving

There may also be times when a vendor either can’t, or won’t, share information with you. These types of situations require a bit of ingenuity or the kind of problem-solving that computers just aren’t capable of (at least not yet anyways).

For example, certain organizations may not be willing to directly share its business continuity plan,  network data flow diagram, marketing plans or customer activity; however, they may be willing to answer questions if an on-site visit or video call is scheduled. This is a level beyond simple automation tasks, requiring both nuanced critical thinking and more importantly, relationship-building skills.   

  1. Machines Aren’t a Stand-in for Nuanced Analysis

As much as we try to create intuitive systems that can account for a plethora of scenarios, there will always be exceptions. Regulators establish best practices and standards that aren’t practical for all businesses – often due to factors like the organization’s size or industry. Sometimes, all it takes is a conversation to understand why a small business might do things a little differently than a larger, more robust corporation.

Additionally, these scenarios may require a little extra analysis and critical thinking to determine if this aligns with your own expertise or regulatory understanding. In the end, these kinds of evaluations may save a small business a lot of time, money and stress trying to meet expectations that may otherwise be unnecessary.

Thorough Vendor Due Diligence Requires the Art of Human Nuance

The human component of due diligence is so critical and there’s quite a bit of risk involved when we relegate it to just another thing to cross off the to-do list. I’ve said it many times in webinars and presentations: we often pay a price when we allow automation to collect documents without adequate review, or when we simply allow the vendor to submit it without further review (been there, done that - ouch!)  

Additionally, when we skip this step, we may later find we could have headed off a huge problem — long before it occurred. Unfortunately, treating due diligence as a simple “check-the-box activity” can lead to this exact situation.

While human intervention may take a little more time, and occasionally runs counter to the efficiency argument, it should be treated as a necessary requirement. Think of it this way, while my laptop is responsible for directing the processes that help get my work done, I’m still doing the typing. Or, in other words, the computer creates efficiencies, but the human is still the brains behind the whole operation.

The coalition of automation and human review is not always a perfect science. Rather, it’s an art — a dance between both human and technological proficiencies, just like the rest of the due diligence process.

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Branan Cooper

Written by Branan Cooper

Branan Cooper is the Chief Risk Officer at Venminder. Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan leads the Venminder delivery team as the third party risk management subject matter expert in residence. Branan also serves as an industry thought leader. He's a member of InfraGard and the Professional Risk Management Industry Association (PRMIA). And, he was selected in 2018 as an advisor to the Center for Financial Professionals (CEFPro) and board member for the Global Sourcing Resource Network (GSRN).

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