BEGINNING WITH THE END IN MIND: HOW TO DESIGN A THEORY OF CHANGE

OVERVIEW

This Practical Giving Guide introduces the Theory of Change Framework. It provides an overview of the five key components and the three critical steps needed to contextualise the Theory of Change Framework for an organisation and support its drive towards outcomefocused philanthropy. More detailed guides on related topics including how to effectively utilise the framework are also available for everybody.

INTRODUCTION

When your corporate giving strategy is set with an established budget, allocated staff time, and your organisation has reached a consensus around the type of impact it would like to have, the most difficult question that lies ahead is: how can you tangibly translate these resources into something meaningful? How do you ensure that, at this time next year, you are celebrating initial success instead of wondering how you can demonstrate what you have to show for the time, money, and effort invested into your corporate giving? A Theory of Change (ToC) framework can be a step in the right direction towards achieving this.

In its generic form, a ToC framework is simply a theoretical tool used to align up-front investments to end results. To be useful, the framework must be contextualised by customising the components for a single grant, project, or collection/combination thereof.

• Embarking on a Theory of Change process:

Forces an organisation to be disciplined in clarifying the overarching impact it desires and the tangible outcomes it seeks to achieve.

• (ii)           Allows organisations to identify where course corrections in programmes or grant making may be needed.
• Assists with resource allocation and provides a comprehensive picture of the investments neededthroughout

Establishing a ToC framework is an initial step towards ensuring that your corporate giving is outcome-focused, meaning it is centred upon creating impact instead of responding to impulse. Undertaking the ToC process enables your organisation to have crystal clear clarity around:

1. The outcomes desired;
2. How they will be achieved; and
3. Through what level of investment.

The benefits of undertaking the ToC process are wide reaching and are summarised below.

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Embarking on a Theory of Change process:

1. Forces an organisation to be disciplined in clarifying the overarching impact it desires and the tangible outcomes it seeks to achieve.
2. Allows organisations to identify where course corrections in programmes or grant making may be needed.
3. Assists with resource allocation and provides a comprehensive picture of the investments needed throughout the giving process, be them financial, human capital, or otherwise.

Historically, the ToC framework was utilised predominantly by organisations that interfaced directly with beneficiaries including non-profits, major donors, and other community or development organisations. The ToC is now more widely adopted by grant-making organisations as a mechanism to provide greater insight into the inputs and outputs of their giving.

FUNDAMENTALS

The Theory of Change framework has five key components and can be established through a three-step process. Like many planning tools, the ToC begins ‘with the end in mind’. An organisation works ‘backwards’ across the three steps to establish its very own framework, meaning it first defines what it would like to achieve and then details the efforts it will undertake and the resources it will commit in order to do so.

Steps for Establishing the Theory of Change Framework

Step 1: Creating an Impact Statement

An Impact Statement is the first component of the ToC framework. Creating an Impact Statement as the initial step allows an organisation to crystalize the longer-term impact it desires to achieve through its giving. Through an impact statement, an organisation essentially defines what success looks like over the long term. They can be drafted for either a single or collection of related projects or grants.

Your organisation might envision that the impact from its giving to be, for example, eradication of hunger amongst the community within ten years of operation. Whatever your impact statement entails, it should at least be clear on what is to be achieved, for whom, and in a timebound manner. Often organisations view this as their social responsibility or sustainability mission or as a compliment to their business vision.

If an impact statement characterises the end goal, then the remaining components of the theory of change collectively signify the strategy to arrive there. The first of these remaining components, outcomes and outputs, are effectively the results of the final two components, activities and inputs. Activities and inputs are the firm’s investments and are, as such, squarely within an organisation’s control while outcomes and outputs are subject to some externalities. Aside from the Impact statement which outlines longer term goals, the theory of change by design sets a strategy for achieving medium term results with near term investments.

Time horizon and level of control across Theory of ChangeComponents

Step 2: Defining the Results (Components: Outcomes and Outputs)

The second step in establishing the ToC framework is defining your results. The ToC characterises results by two components, outcomes and outputs. It is easy to confuse impact statements and results, but a simple way to differentiate between them is by considering their time horizon and method of measurement. While both impact statements and results define what an organisation hopes to achieve, impact statements are relevant for long term, loftier objectives that often rely on proxy indicators to measure success. Proxy indicators are employed because direct indicators are difficult to identify or collect data against. If your impact statement is to eradicate hunger, you mightuse statistics around stunted growth or students enrolled in free-lunch programmes to serve as a proxy for levels of hunger, as you would not necessarily have access to a household survey explicitly evidencing daily food insecurity. Results are comparatively shorter term and more intermediary in nature. They can also be more readily and tangibly measured via more precise indicators.

Outcomes: Outcomes are essentially your medium-term results. You establish your outcomes by defining what you must achieve in 2-5 years to bring you closer to realising your impact statement. You then assign an indicator through which to measure results. An example of an outcome would be to reduce the number of low-income seniors reliant on community food pantries within three years. You can assign a target for the outcome at a 50% reduction.

Practically, to best define outcomes it is often helpful to think of your mid-term objectives from the prospective of various stakeholders. Your board, your beneficiaries, your organisational leadership, your customers may all have different perspectives on what they might like to see achieved through corporate philanthropy.

Success against outcomes is measured first by selecting a set of indicators and then establishing a baseline. For the example above, your direct indicator to measure your outcome could be the number of registered seniors across food pantries in a ten-mile radius. The baseline would be measured at the start of a programme or grant, and then data would be collected to monitor progress at predefined intervals. You can select the intervals that make sense to your collection capacities and the rate at which information changes. Collecting too often can be a strain on human resources particularly where IT systems are not in place. Collecting too infrequently can yield insufficient data to assess results.

Outputs: The third component of the ToC framework is outputs. Outputs can be described as short-term results that collectively deliver outcomes. They are the direct result of the investment components, namely the resources committed and activities carried out. To draft outputs, consider them to be the direct levers to achieve outcomes. If your outcome is to reduce the reliance on food banks, then the outputs needed might be financing a cash assistance programmes for seniors. While establishing a set of outputs, it is important to assign a target and actively measure against that target. Carefullymonitoring outputs is an efficient way to identify if course corrections are needed.

If output targets are consistently unmet, this should be seen as a welcome warning sign that allows an organisation to more easily diagnose and correct issues. For example, perhaps your organisation planned a major fundraising event that featured celebrity guests. The money raised (output) fell significantly short of your target Because you had the signal sent by an unmet target, you can begin to investigate what you invested into the event. You might discover that your PR budget for the event was unrealistically low and hence few people heard of the fundraiser and your celebrity guests. You may notice that invitations went out extremely late and many would-be attendees were committed elsewhere. That is not to say that outputs cannot be swayed by externalities that are completely outside of an organisation’s control. For example, even the most carefully planned fundraisers can flop due to something as simple as poor weather.

Step 3: Defining the Investment Components (Activities and Inputs)

Perhaps the most straightforward pieces of the ToC are the investment components that include the activities and inputs. Unlike the results components that can be swayed by externalities and are measured over time, investment components are firmly within your control and can be measured immediately. To detail the investment component, simply focus on the outputs you’ve targeted, and identify the efforts and resources you believe are necessary to achieve them.

Activities: Activities refer to any efforts your organisation, or even your grantee, makes on behalf of the results sought. Establishing a grants process, hosting events, devising awareness campaigns, are all examples of activities. It is important to note that setting targets for your activities is extremely helpful in developing budgets and allocating the final component of the ToC, inputs.

Inputs: Inputs are the building blocks of the ToC. These refer to the resources allocated to your activities. If you have targeted three fundraising events, you automatically know that you will require a venue or perhaps a budget to lease a space. If you are planning to participate in mentoring sessions at schools, you will need a group of senior employees to volunteer their time.

It is important to note here that, upon completion, the ToC will look very much like a funnel in that there are many investments that translate into few results. Each outcome may have a handful of related outputs, and those outputs will have a long list of related activities and even longer list of inputs. If you end up having a very similar ratio of inputs to activities or outputs to outcomes, then likely you may need to revisit your framework. It is almost impossible for an outcome to be driven by a single output or an output to be driven by a single input.

Balancing the Theory of Change Framework Components

The ToC framework is an important tool for driving outcomes-focused philanthropy, however, establishing the framework is only half the exercise. Consistent measurement of indicators and targets is as important as establishing them. Only through active monitoring can the framework assist in identifying necessary changes that yield improvements. Please consult additional Practical Giving Guides for more information on monitoring your Theory of Change framework.

Each ToC framework will be unique to the specific needs and requirements of the organisation that designs it. While there are no ‘correct’ answers when it comes to detailing each component, there are some common mistakes that should be avoided.

• Results Components: Resist the urge to define many outcomes and outputs. The ToC is designed to help you focus your resources on achieving specific outcomes. While there is nocorrect ‘number’ of outcomes, having too many areas of focus will only overwhelm and distract the process. If your organisation gives to a multitude of causes, it is recommended that you design a separate framework for each unrelated set of outcomes.

• Investment Components: Investment components should be aligned with the intended results. It is important to check your final framework for extraneous investments. If you find that there are investment components that do not align directly with results, this is a signal that your efforts and resources are not contributing to your intended results and will likely be wasted. Similarly, having too few investments can be problematic. Inaccurately accounting for your inputs gives an incomplete view into the levels of investment and can lead to inaccurate assumptions and budgeting later.

• Implementation: As previously mentioned, consistent measurement of indicators and targets is as important as establishing them. At a minimum, it is recommended that you implement a quarterly or bi-annual review process of your progress, particularly the output targets. During this process, you can identify any corrections needed to better position your program to achieve the intended results.

KEY TAKEAWAYS

• The key benefits of engaging the ToC process are that it: forcesan organisation to be disciplined in clarifying the impact it desires; allows an organisation to identify where course corrections are needed; and assists with resource allocation.
• The three steps in contextualising the ToC framework include: creating an impact statement, defining the results components, and defining the investment components.
• The ToC has five key components: Impact Statement, outcomes, outputs, activities, inputs.
• An Impact Statement should be clear on what is to be achieved, for whom, and in a timebound manner
• Detailing the ToC components sets a strategy for achieving medium or near-term objectives.
• An organisation has firm control of investment components; however, results components are influenced but externalities that may be outside of its control.
• It is important to assign output targets and actively measure against them.
• In a well-balanced ToC framework, many investments translate into few results.
• Consistent measurement of indicators and targets is equally as important as establishing them.

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