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"THE HOW & WHY OF TECHNICAL DUE DILIGENCE"
by James F. Wright, PhD
Abstract:
- The purpose of this paper is to serve as a brief "how-to guide", with some examples, for accomplishing "Technical Due Diligence". The term "Technical Due Diligence" may seem mystical to many that are unfamiliar with the term "due diligence" - and/or the complex "technologies" that may be involved in their projects. The very nature of these Technical Projects increases their risk over that commonly seen in more traditional commerce. In order to help compensate for this increased risk, Technical Due Diligence should address whether a Technical Project will accomplish its technical and economic goals. This is accomplished by not only providing a pro forma, but also including a quantitative measure of the pro forma's accuracy.
Table of Contents:
| Section and Title |
Page |
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1. Introduction
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2
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2. Technical Due Diligence
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4
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- A. Technical Systems Analysis
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6
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- B. Technical Risk Analysis
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7
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3. The Due Diligence Team
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11
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4. The Written Report
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13
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5. Technical Tools of the Trade
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14
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- A. Hazards Identification
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14
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- B. Review of Probability Theory
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15
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- C. Probability and Failure Rates
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16
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- D. Event Trees
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19
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- E. Fault Trees
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22
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- F. Uncertainty & Error Propagation
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24
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- G. Distribution Functions & Probability
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24
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- H. Monte Carlo Techniques
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29
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6. Bibliography
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32
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Intended Audience:
The subject matter covered in this report is of such a nature that it is divided into a Non-Technical Section and a Technical Section.
Non-Technical Section
- A person that either has experience running and financing a business and/or has a non-technical university degree should be able to understand the processes of Technical Due Diligence, Technical Systems Analysis and Technical Risk Analysis as they are presented in Sections 1 through 4. These Sections provide a solid Primer for the subject of Technical Due Diligence.
Technical Section
- Those readers familiar with basic statistics will easily recognize most of the concepts presented in Section 5. This Section contains several examples that are meant to illustrate how to actually apply these individual analytical techniques to a "real life" Technical Due Diligence project. Some mathematical equations are included to give the bases of the processes, but nothing is rigorously derived.
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