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This study advances an empirically-grounded theory of teacher-led assessment innovation—i.e., how teachers innovate in response to systemic classroom assessment challenges. In a two-phase study including a survey of 168 educators and in-depth interviews with 19 Canadian teachers, we identified a five-phase process: identifying challenges, interrogating beliefs, imagining responses, enacting solutions, and reflecting on outcomes. Teachers described addressing issues such as diverse learner needs, grading pressures, and technology integration through context-specific innovations. Findings highlighted how teachers’ professional capital and reflective practice drive meaningful change in assessment. The proposed framework offers practical guidance for supporting teacher-led innovation and informs professional development and policy. This work underscores the value of small-scale, context-driven innovations in enhancing teaching and learning.