Tools for troubled times – The ‘Theory of Exit’

27 March 2025

Photo by Vlada Karpovich on Pexels

By Relativ Impact & Ethical Good

In recent years, many philanthropic foundations have recognised the importance of measuring their impact to better understand and manage the intended impact of their investments. The application of Impact Measurement and Management¹ (IMM) practice has raised the bar on reporting requirements for funders and their partners to ensure allocation and programme design decisions are more evidence-based and performance-oriented. With the correct tools and processes in place, IMM offers decision-makers a structured approach to assessing the efficiency and effectiveness of funding and programmes.

While foundations are increasingly leveraging data analytics for decision-making, they often face numerous challenges in implementation. These challenges include aligning metrics within a group of partners, balancing quantitative and qualitative insights, and finding appropriate tools and expertise that suit the needs and capabilities of their partners (Westover, 2024; Pierce, 2022). Overreliance on quantitative metrics can risk overlooking critical qualitative factors that add depth and context (Dimara et al., 2021). Both nonprofits and businesses grapple with identifying meaningful information, building technical capacity, and prioritising data work (Mayer & Fischer, 2022; Berntsson-Svensson & Taghavianfar, 2020). 

Despite these hurdles, funders that successfully implement IMM strategies achieve transformative benefits, including improved data quality, enhanced understanding of their portfolios’ success, and stronger performance management (Munhoz de Medeiros et al., 2020). IMM serves as the essential accounting practice for doing good, providing the foundation for accountability and transparency (Peterson, Yawson, Nicholls, & J. K., 2020).

IMM strategic and performance frameworks, including widely used tools like the Theory of Change, enable philanthropic foundations and their partners to find a common language, build consensus on collective goals and outcomes, and then guide implementation and stakeholder alignment. However, in the current circumstances the sector faces with funding cuts and uncertainty, could foundations and partners take a step further towards adopting an intentional approach to proactively respond to the impact of unforeseen and prevailing resource and time constraints? 

The importance of developing a ‘Theory of Exit’

A well-designed and stakeholder-informed Theory of Change, alternatively referred to as an Impact Thesis or Model, ensures that stakeholders (from the board level, through to executive teams, partners and recipients) are aligned on the substance and measures of success, and the steps envisioned to achieve co-created outcomes and goals are assessed over short-, medium-, and long-term periods.

With the current realities of funding cuts, spend-outs, and other planned funder exits, impact performance is too often evaluated according to funds deployed to programmes and the outputs connected to that expenditure, rather than the assurance of the long-term, durability of outcomes. A fundamental shift in that approach would be to plan beyond a theory that only considers changes in ongoing programme outcomes and specifically plans for an exit from the current funding relationship, adopting the philosophy and practice of private equity and venture capitalists. 

In light of the current funding crises, despite decades of foreign aid and international development projects, too many organisations and the communities they serve remain reliant on external expertise and funding. If the current model of development nurtures dependency, let’s consider what more could be done to be strategic, responsible, and ensure a truly sustainable exit for funders and participants. 

A Theory of Exit

A Theory of Exit, similar to a Theory of Change, maps out how a community’s activities lead to a collective, co-created, consensus-driven set of social and/or environmental outcomes, ensuring alignment between the extent of efforts of participating stakeholders, the community’s self-determined goals and, importantly the funding opportunities. It is an approach that presumes that the programme will end once it achieves its objectives, or may require radical redesign to ensure that it remains on track towards achieving the goals and outcomes of the community concerned. In effect, it is intended as a mechanism to create a common language and clarify performance expectations, communicating runways, not just pathways, by prescribing the duration of interventions linked to performance criteria.

A well-crafted, stakeholder-co-created Theory of Exit:

• Serves as a blueprint for expected stakeholder performance – to track progress, facilitate learning, and identify areas for improvement. 
• Enables stakeholders to understand and work within the runways of funding intended to catalyse long-term change and co-created impact goals. 
• Is iterative to adapt and change as new learnings are discovered, and support raised, accounting for performance against assumptions and prevailing risks.
• Serves as a communication tool to align and manage stakeholder expectations regarding what, when and how all stakeholders are seeking to achieve, and the exit plans for stakeholders that support the process to ensure self-sufficiency.
• Combines financial and non-financial indicators tailored to the target community to understand the dependencies related to impact performance.

Considerations for implementing a Theory of Exit

• Designing development for exit: An exit strategy can be integrated from the outset of a development initiative. Can foundations and organisations structure their interventions with a clear exit plan for ensuring the long-term durability of outcomes?
• Reimagining impact measurement: How can we move beyond traditional, donor-driven impact metrics and towards frameworks that prioritise local definitions and consensus-driven measures of success?
• Navigating the volatility of aid: How can foundations, NGOs and development agencies adapt to shifting funding priorities and the increasing politicisation of international aid?
• From service delivery to systemic change: How can foundations and organisations transition from intermediated service provision to working collaboratively to support community-led policy reform, institutional strengthening, and locally designed solutions?
• The role of funding models: How can international donors and agencies rethink funding structures to support long-term capacity-building rather than short-term project cycles?

Conclusion

In the current era where the social and environmental challenges are greater than ever, IMM tools serve as a compass, coordinator and catalyst. When implemented responsibly, they can build trust, empower stakeholders, and amplify the collective capacity of communities and their supporters to drive systemic change. 

Developing a Theory of Exit should centre on incorporating the vision, value and journey of change for participating organisations but with an emphasis on it being built from the perspective of communities and their leaders. This approach challenges conventional funding and development practices, explores innovative strategies for fostering local ownership, and examines the importance of milestones for the durability of outcomes, refining existing tools and approaches to development practice.

When communities build their own IMM capabilities and tools, they are able to share their knowledge and resources with their partners, as well as more confidently open up the conversation about reporting expectations that suit all parties. Having these conversations and providing IMM support means your partners also improve their impact capabilities. The result is easier and more reliable, dependable and credible impact reporting, which enables more effective decision-making between all stakeholders, manages funding expectations proactively, and catalyses enduring impact and self-sufficiency.

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1. Impact measurement and management (IMM) is integral to making effective funding decisions. It includes identifying and considering the positive and negative effects one’s funding approaches have on people and the planet, and then figuring out ways to mitigate the negative and maximise the positive in alignment with one’s goals. https://iris.thegiin.org/introduction/ 

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