Theory of Change

How to create an effective theory of change based impact strategy?

Theory of Change is a foundation. 

While I admit that not everyone is familiar with the theory of change, this is one foundational element for those who want to demonstrate impact evidence. The first step to build a theory of change is the Impact Statement

Impact Statement starts with, “What is the problem that we are trying to solve?” Impact Statement is often derived from your mission and vision but is quite definitive.
Impact Statement leads to Impact, Outcome, Output, Activities, and Input. Building this out creates a systematic theory of change. You can use our free actionable impact management eBook on SoPact website, which gives you step by step guide for building program structure and theory of change.

What is the theory of change?

All the operational decisions of what outcome data to collect and analyze? Which changes need to be done in your intervention to achieve better results, depending on your Theory of Change.

The critical value of this framework is to bring accountability and awareness about the potential challenges that your organization might face while achieving 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 like Higher Education, Health and Wellness, Financial Inclusion, etc. 

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 that you are not overcomplicating it. Even if you work with partner organizations across a full spectrum of issue areas, stick to outcomes that are part of the scope of your organization. 

Now, we are ready to create a sample Theory of Change for an organization called "AmericaWorks" with the program, "Skills Development."  We will start from the impact and work our way backward to the resources we are putting into our programs to make this impact or change happen.

Step One: Impact

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. 

Step Two: Outcomes

Outcomes are the intended and unintended changes that your stakeholders are experiencing or might experience. 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 kept the job after the training.

A well-designed Theory of Change should include long term, midterm, and short term outcomes. As you demonstrate definite improvement in your results, you are more likely to get other players such as government or public and private partners, to step in to help scale your mission.

Good outcome measurement requires designing a stakeholder survey that includes baseline, mid-line, and exit line results.

Step Three: Outputs

The outputs are the immediate results of our activities or products, and they are necessary for achieving the outcomes. Think of them as indicators that the outcome are on track. 

As per our Skills Development example, one output could be the “increase of people graduating from the business training”. In this case, we are assuming that as more and more people go through quality marketable training, more possibilities they have of being placed in a job. To dig deeper, collecting some demographic data along with service data can help. 

Step Four: Activities

In this step, we answer the question, “What activities need to take place for each output to happen?” 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 placement possibilities. 

Step Five: Inputs

Inputs refer to the resources or investments needed to ensure that the activities take place. According to our example, we need to need quality course materials, skilled trainers, a physical venue, or an online host, investment, etc.  

So, to recap:

  1. The five components of a Theory of Change are Inputs, Activities, Outputs, Outcomes, and Impact.
  2. The TOC needs to be aligned to your initiative, project, or program and stated mission. 
  3. The most critical components to monitor are the Outputs and Outcomes, so make sure to define relevant metrics and track results over time. 
  4. Everywhere possible, we should include stakeholder data, such as demographics and surveys, to capture their feedback. 

Finally, it is important to highlight that implementing an impact measurement and management strategy requires some change management. Here are some quick tips to ensure success throughout this process:

  • Involve your key stakeholders. A stakeholder is any person 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 outcomes motivate people. Be sure to expose the need for change to the whole organization and clearly describe how the change will benefit each area of the organization.

How to create an effective theory of change?

Step by step actionable approach to build a theory of change.  Start with Simple Theory of Change Checklist 

  • Describe the problem you are trying to solve through your investment strategy or your business strategy
  • Describe the key stakeholders you are aiming to affect through your strategy
  • Describe your entry point to creating impact for key stakeholders - people and/or planet
  • Describe the steps needed and the assets you will allocate to address the problem and create impact
  • Describe the short-term and long-term change(s) you see as your goal
  • Build effective Impact Statement
  • Build effective Impact Map and Chain Impact, Outcome, Output, Activities and Input
  • Align Long term, Midterm, and Short term outcomes
  • Align the theory of change with effective impact metrics, monitoring, and evaluation indicators

Theory of Change Examples

Are you a non-profit, foundation, accelerator, or an international development agency? What is your idea of the Theory of Change? Is it simply putting boxes and lines down on paper? Organizations make the Theory of change either because EVERYONE is making it or because funders, board members, or other parties are asking them to do so. Sounds familiar?

Let's review a few examples of how to build an effective theory of change.