What does it cost?
In past journals we have discussed scope of due diligence and purpose of due diligence, but we have not discussed cost.
For our example we are going to use an incident that occurred just today and is fresh in our minds. A new client had ordered a background check on a prospective comptroller for his medical practice. The first candidate had a problem that prevented her being hired, and the second had no disclosure problems. (In English, the first bombed the background and the second passed). When a background check is performed, a hiring decision has already been made. The background check reviews public records and credentials to check for personal, criminal, or veracity problems. When the background check was performed on the first candidate a felony arrest warrant was discovered in the first hour of research. In most cases this is a fatal flaw, and the employer is contacted to see if they wish to go any further with the investigation. In this case they did not and chose to find another person. The invoice for the work and expenses was $73.00.
The second candidate had no public record problems, had no arrest warrants and possessed the credentials claimed. The invoice for this was $252.10. The new client complained about the invoice for $252.10 (we are not making this conversation up.). “The previous background check was only $73.00 and you found a felony arrest warrant, but for $252.10 you found nothing on the new candidate.”
We explained to the client that, in most cases, a felony arrest warrant is a fatal flaw for hiring. As soon as one is discovered in a background check, we, as a matter of course, stop the investigation and call the client to discuss this information and the status of the background check. In the case of the new comptroller there were no fatal flaws and there were no problems throughout the process and the invoice properly reflected the time spent and the expenses incurred.
The value here is that the client “ducked” a potential disaster with the first candidate for $73.00, and for the investment of $252.10 has verified all of the claims of the second candidate, reinforcing the hiring decision. The cost of the background check was actually less that the advertising cost to generate applications. It was a very frustrating conversation. Due diligence is in fact a risk management tool, and, while it is always expressed as a cost, it is rarely discussed as a value. But we leave that for another time.