Part 2. Ops Management/Finance
Make recommendations after analyzing infrastructure, e-commerce platform update, and free shipping (up to 500 words)
The infrastructure/e-commerce portion of the report asks your team to present the business case for investing in the MAD Hats IT infrastructure and e-commerce site.
For this part of the assignment, you are asked to draw on the case information as well as to conduct outside research to understand the reasons why people abandon e-commerce shopping carts before completing their transactions. Refer to the memo below from Dean Tacker about “The Business Case for Improving MAD Hats’ E-commerce Platform” for information that you need to complete the analysis. Also, refer to the Excel spreadsheet template accompanying this assignment.
Your assignment includes completion of a capital budgeting spreadsheet as well as a response to Dean Tacker (see memo below). This section of the report should address the following points:
(1) Recommendations: Should MAD Hats proceed with these projects as described? To what extent will these projects help MAD Hats achieve its growth and profit goals over the next 5 years?
(2) Analysis. Summarize the analysis requested by Dean Tacker and provide justification for your estimate of the total cost of free shipping and email outreach program. In addition, provide a summary of your investment analysis.
As always, provide references for any estimates that you make in your analysis.
The Business Case for Improving MAD Hats’ E-commerce Platform

To: team@Deloitte.com
From: Dean Tacker
Subject: MAD Hats Consulting Project February 28, 201X
Deloitte Team,
Thank you for the detailed analysis of our current situation. It is clear that we must consider both revamping our e-commerce platform as well as looking at our marketing strategy. This memo, however, is focused on the infrastructure and e-commerce platform.
In order to fully understand the benefit of improving our e-commerce platform, we are asking you to prepare a business case analysis for investing in the three IT initiatives I detailed in my memo dated January 12, specifically the projects named Infrastructure 2.0, Site 2.0, and Promotions. Our leadership team has decided not to pursue the patch of our current platform because it is obvious this will not allow us to reach our five-year goals.
We see from our initial analysis that the estimated revenue lost due to online shoppers abandoning their shopping carts is significant. Our overall goal is to increase the number of online transactions by reducing the number of abandoned carts. Specifically, we need to increase the “conversion” rate; that is, the percent of cart items converted to actual orders. Based on our research we’ve determined the three most significant ways to accomplish this goal are:
1. Improving our e-commerce platform. We know that our current e-commerce platform is extremely slow, and by increasing the speed of our platform there will be increased transactions.
2. An email outreach campaign. We also want to incorporate an email outreach campaign that will send an email within 24 hours to each shopper that abandons their cart. I need your team to research this matter and estimate costs involved in conducting these types of e-mail campaigns and incorporate it in your analysis.
3. Free shipping. Our third initiative is to offer free shipping for all customer purchases. Again, your team will need to research and estimate this cost, probably on a cost per unit basis, to include in the analysis.
I’ve started the analysis to estimate the incremental revenue gained from these improvements including information MAD Hats already knows. Please see the attached spreadsheet with my initial inputs. We have estimated the projects above should bring our conversion rate up from 32% to 40% the first year, rising to 48% in year 5. For simplicity, use straight line depreciation to zero salvage value over the 5-year project.
We don’t expect salvage value to be much, if anything. The tax rate to apply is 20%. The required return to apply to the decision tools is 14%.