WHAT IS THEORY OF CHANGE (TOC)?
Theory of Change (ToC) explains your organization's intended path to impact by outlining causal linkages in an initiative (i.e., its shorter-term, intermediate, and long-term outcomes). The identified changes are mapped in an “outcome map” that shows the logical relationship and chronological flow between long-term outcomes along the path to the desired impact. The links between desired outcomes are explained by “rationales” or statements of why one outcome is thought to be a prerequisite for another and can be updated based on evaluation evidence.
For example, it has been assumed that improving children's educational desired long-term outcomes in a region will lead to the community’s ability to adapt to new agricultural practices when these children reach adulthood, thereby improving the yield of mint.
This assumes that the children will remain in the region and work on farms. However, what if an unintended consequence of improved education was losing these young adults to higher-paying jobs in urban areas, thereby depriving the farming community of labor and skills?
By exploring the theory of change of this project, we clarify the underlying assumptions and know what supporting evidence to seek at each stage confirms that the project is on track to deliver the intended long-term outcome.
THEORY OF CHANGE MODEL
Currently, the two most accepted and widespread frameworks to document your impact measurement and management strategy are the Theory of Change and the 5 Dimensions of Impact by the Impact Management Project. We often recommend that social enterprises or nonprofits start with designing the organization’s Theory of Change.
The Theory of Change is the foundation for any mission-driven initiative solving the globe’s most pressing social and environmental issues. The primary use of the theory of change is to understand the desired outcome.
Theory of change or change theory referred to as T. O. C. The Theory of Change documents the impact your organization seeks to achieve and all the intermediate steps to ensure that your activities and resources are aligned with said change. The theory of evolution should be defined before starting any new initiative or project and needs to be revised periodically.
Let’s start by discussing what makes the Theory of Change such a fundamental step?
All the operational decisions around what outcome data to collect, assess, and analyze, AS well as the changes that need to be made to improve the effectiveness of your intervention, ALL depend on your Theory of Change.
The critical value of this framework is that it fosters accountability and awareness about the potential challenges that your organization might face while pursuing its mission.
Now, as mentioned before, the theory of change ideally needs to be defined before starting your initiative, project, or program.
These initiatives might have a broad scope, such as Higher Education, Health and Wellness, or Financial Inclusion. Or, they might have a narrow scope, such as Job Readiness, Maternal Health, or Housing Loans.
Whatever program structure you decide to use, make sure that it aligns with your Mission statement and not overcomplicating it. Even if you work with partner organizations across a broad spectrum of issue areas, stick to outcomes that are a significant part of the scope of your organization.
Now, we’re ready to create a sample Theory of Change for an organization called "AmericaWorks" with the program "Skills Development."
We’ll start from the desired impact and work our way backward to the resources we’re putting into our programs to make this impact or change happen.
THEORY OF CHANGE COMPONENTS
- 01 Impact
- 02 Outcomes
- 03 Outputs
- 04 Activities
- 05 Inputs
The impact is the systemic change that you expect to see in the long-term. Impact usually takes a few years to happen, which makes it difficult to measure, but it does give us a great foundation to define the outcomes which are within our reach to influence and measure.
Outcomes are the intended and unintended changes that your stakeholders are experiencing or might experience with your intervention. In other words, outcomes are the broader benefits we work to achieve. In our Skills Development example, one outcome could be “increasing job placement”. How do we know that we are increasing job placement? - By keeping an eye on the number of people placed and retained after their onboarding training.
A well-designed Theory of Change should include long term outcomes, mid term outcomes, and short-term outcomes. As you demonstrate a clear improvement in your outcomes, you are more likely to get other players such as government or public and private partners to step in to help you scale your mission.
Good outcome measurement requires designing a stakeholder survey that includes baseline, mid-line, and exit line results.
As per our Skills Development example, one output could be the “increase in the number of people graduating from our business training”. In this case, we are assuming that as more and more people go through quality marketable training, there is a greater possibility of an increase in successful job placements. To dig deeper, collecting some demographic data, along with service data can help to draw useful connections.
Providing people with high-quality training is one of the activities directly aligned with our sample output and outcome. Along with quality skill-building training, an activity can also include resume preparation or interview preparation. All of these increase the number of successful placement possibilities.
THEORY OF CHANGE CHEATSHEET
- The five components of a Theory of Change are- Inputs, Activities, Outputs, Outcomes, and Impact.
- The theory of change needs to be aligned to your initiative, project, or program and stated mission.
- The most important components to monitor are the Outputs and Outcomes, so make sure to define relevant metrics and track results over time.
- And, Everywhere possible, we should include stakeholder's data, such as demographics and surveys to capture their feedback.
- Involve your key stakeholders. A stakeholder is any person who benefited or affected by your activities.
- Communicate your intent to implement or improve your impact measurement and management strategy. In the beginning, this might be done through information sessions open to anyone interested in learning more about the new impact measurement process.
- Remember that the desired outcomes motivate people. Be sure to expose the need for change to the whole organization and clearly describe how the change will benefit each organization's area.
THEORY OF ACTION
Do not go overboard and spend months building a theory of change. The point is to just build a theory of change with clear immediate outcomes. Run effective impact experiments aligned to immediate outcomes. The goal is to listen to needs of your beneficiaries.
Impact Experiments - Short and Frequent
In the previous section, we discussed the fundamentals of the Theory of Change. Now it is time to test your theory of change. To understand our concept better, let us take a simple example. The Green Foundation is working towards breaking the cycle of poverty in America through job creation. One of the programs is skill-building classes for post-high school students from underserved communities. Now let us put the Theory of Change for this Skill Building Program to the test. As your put, your theory of change in action, make sure to focus on key message in this video.
- Who is benefiting from your work?
- And Why will it work?
Here stakeholders are identified as post-high school students from underserved communities in the USA. Why do you think your program is needed and will work for your stakeholders? We assume that underserved community students are most affected by the unemployment that your investment strategy or business aims to address. Do your due diligence. This is where you also have to follow existing evidence or ask your community for the gaps your program will solve by stakeholder feedback.
- Is unemployment is one of the burning issues of your community?
- Do they have demand for the skill training you are providing?
- Are local companies ready to hire students after they finish their training?
2. Program Goal
- What result are you seeking to achieve?
The goal of the Green foundation is to break the poverty cycle in the USA. Short-term goals will be the unemployment rate going down in communities they serve and other life skills. A good theory of change doesn’t simply reflect what an organization is already doing. It rather articulates what the organization wants to be held accountable for. Thus, make your goal specific and set an accountability target.
- How soon will you achieve the desired results?
Define your program's time period, and how soon will you be able to see the result? It depends on how long is the skill-building program. Many variables, such as resume building, interview preparation, hiring companies aligned, skills match to the industry requirements, no other social or cultural boundaries are identified. Plan to collect and analyze year after year data to see the progress
4. Input and Activities
- How will you achieve and demonstrate your results?
Describe the activities and resources you will allocate to address the problem and create an impact. Here identifying the students and their strengths, teaching skills, training teachers, engaging hiring companies, etc., all are key actions that you will take as part of your strategy for creating impact.
5. Context, Limitation, and Risk
- Where and under what circumstances will you do your work?
Describe any limitations to your theory. Consider your constraints such as economic distress and low hiring by the area companies or health outbreaks such as COVID19. There could be things outside your control. Consider the risks and limitations for achieving your goals. Make a plan to avoid and work-a-round the risks.
6. Identify the key agent of change
8. Invest in innovation
9. Verify assumptions fast
10. Evaluate, Evaluate, Evaluate
A theory of change must clarify what results will hold an organization accountable?
Iterate through your framework based on key assumptions.
THEORY OF CHANGE EXAMPLES
The Center for Theory of Change, a nonprofit organization dedicated to promoting best practices in ToC, has created a valuable database of existing Theory of Change models from organizations worldwide.
Here are a few direct links to some of those examples:
THEORY OF CHANGE TEMPLATES
To better demonstrate, we share a few TOC templates designed in the Impact Cloud™. As practitioners, you can review and start designing your impact measurement within minutes.
Theory of Change Education
What is the problem that we are trying to solve?
If we reach out to children in Crisis and Conflict-Affected Environments by having quality programs, trained teachers, and learning materials, it improves student learning outcomes, measured by the Average Student Test Score, and ultimately provides quality education.
Theory of Change Energy
What is the problem that we are trying to solve?
If we invest in clean energy by increasing investment and access to clean energy, then we can achieve environmental benefits, improved health of people, and economic growth of people, and ultimately we can improve the quality of life of people and the planet.
Theory of Change Agriculture
What is the problem that we are trying to solve?
If we Formalize the informal farm-to-market sector by providing a stable, fair market for horticulture crops, transporting goods using cold-storage, and distributing to food buyers, then it will improve productivity and incomes for smallholder farmers and informal vendors. and ultimately BUILD PROSPERITY
Theory of change in Impact Investment
While there is a relative consensus that impact management is critical to impact investing, mission-driven organizations tend to focus more on "impact measurement" than management. To have good impact measurement, it is essential to have systems, tools, and resources to manage impact at all levels.
The primary driver for impact management is to ensure investees or grantees better understand the social and financial effects of their product or services. In short, this helps encourage accountability to the Theory of Change of an organization and/or a funder.
Strong impact management also enables these actors to better align high-level outcomes with the lower level and drive impact learnings at the funder level.
Collaborative impact management, for example, when investors help investees improve their data management capacity, can improve both stakeholders' impact outcomes. Investees can make better data collection decisions, which will eventually inform important management decisions.
To promote Theory of Change accountability, there are many key questions that investors must address with investees in their portfolio:
The distinction between expected impact and realized impact. It is important to have normative benchmarks for impact performance to set realistic expectations and compare them with the actual.
The relationship between aggregation and financial incentives.
Not over claiming impact
Aggregation across asset classes and attribution.
The incentives, financial and otherwise, around all of this are key. If there is a (perceived) risk on the management team’s part that a stakeholder group will get pissed off if you engage them about their experience, they are generally wary of doing so unless there are perceived benefits of doing so (which may be in the form of encouragement to learning from board members).
Data collection has cost implications and thus requires some decisions up front. We need to define who the data's consumers are and their interests; we also need to determine what we want to influence and how we will do that. The challenge is balancing, prioritizing, and responding to all these data requirements at the same time.
There is much discussion about cost. But it is important to realize that the intended benefit of defining outcomes is not necessarily that you have an accurate accounting but that you are accounting for the organization by working with beneficiaries. Engaging them properly and having a system that properly understands beneficiaries' needs will improve overall outcomes for all involved.
THEORY OF CHANGE MODEL
Now that we know what is Theory of Change, why it is important to have one, and what are those essential elements it includes, the question is, how do we start? You can refer step by step guidance in Actionable Impact Management Guide.
Each step builds on the last you might have noticed, but each step is designed to inform the next. Skipping steps might lead to inconsistencies in the impact measurement strategy you are designing. You can use some of the templates provided in the Guidebook.
There is some Theory of Change tools available, and they can help in the initial strategy. They do not have a complete data management thought process behind them, so they only provide primary design.
Challenges of effective theory of change
If you work within a designated community toward its general improvement, you face some unique challenges when formatting your impact framework. You may find that funding's internal politics plays a particularly prominent role within such a condensed environment. You might also find that your organization’s focus areas are fluid and occasionally stretched to incorporate an organization whose scope rests outside the main categories.
Maybe you’re not worried about your program structure. After all, what’s the use of a well-defined program structure? Well, it all boils down to impact communication. Your organization's program structure is a blueprint of your organization’s impact identity. Program Structure is one of Actionable Impact Management's first activities.
A simple program structure might look like this:
It turns out that the structure of programming is not one-size-fits-all. This is especially true of organizations with a fluid set of focus areas. Community foundations, impact funds, or impact investors who focus on place rather than issue all have a similar problem regarding the program structure outlined above. Namely, that it does not account for their Vision and Mission. Your goal is to strengthen a community – not further education or safety.
To answer for this while continuing to communicate the importance of the focus areas, you might distinguish between what your organization cares about and how your organization cares by structuring your programs in the following way:
This helps to remind your staff, board, and advisors of the scope of your organization's activities while also embedding the focus areas that represent the intended community impact.
Program Theory Of Change
Once you have defined the complete program structure, you can start building a theory of change of each program. Each program needs to realize common indicators that can allow organizations to define aggregate results
Why go beyond traditional ToC tools to advanced ToC driven platforms?
Once you build ToC, the next step is selecting Metrics. It will become complicated when metrics have to be aligned with standards just as SDGs, IRIS, BOND, etc., collect data, analyze, get insight, and report.
Unlike many theory-of-change-based software or tools, Impact Cloud is the fastest way to build an overall impact strategy and start a data-driven impact journey.
Key Innovative Features include:
- Build multiple Theory of Change as per different program needs
- Use industry-aligned indicator sets or metrics sets.
- Use well-defined outcome and survey sets.
- Impact Statement to refine the impact strategy
- Impact Map as Impact Knowledge Graph
- Global Impact Metrics Catalog
- Align with Standard Global Indicators
- Create Custom Indicators
- Align with Impact Thesis (Custom vs. Sustainable Development Goals and Targets)
- Data Strategy
- Automatically calculate impact results.
- The broad range of reporting formats
THEORY OF CHANGE RESOURCES
The following list contains the most useful and researched theory of change resources.
- What is the theory of change?
- How does the theory of change work?
- About Theory of Change from DIY Toolkit
- Theory of Change for Development (course from edX)
- Summary of Theory of Change from USAID
- Theory of Change Online Software Tool
- Theory of Change Tool for Conservationists
- Online Theory of Change Tool
- Theory of Change vs. Logic Model
- ToC at NEF Consulting
- Theory of Change approach of the UN Environment
- A Guide to Outcome Mapping
- Introduction to Theory of Change (Video)
- Theory of Change Explainer (Video)
- How to Develop a Theory of Change (Video)
- 5 Ways to Improve TOC models for Non-Profit Organizations
- How to define Social Impact Outcome Metrics?
- Role of Impact Metrics and How to Choose the Right One
- How to Find the Right Impact Funds for Your Organization
- Impact Management Project Strategy - What is needed to make is
- Theory Behind Social Impact Experiments