Faced with concerns that students in the American educational system are failing to learn critical thinking, problem solving, and reasoning skills, and do not have the ability to apply these skills to real-world situations, educators and psychologists are researching methods of improving student learning and assessing student performance. In order to acquire accurate and useful information about student performance, classroom teachers have moved from traditional summative evaluation methods toward a formative method of assessment; teachers now have the role of teacher-researcher. This paper focuses on a systematic method of developing an authentic assessment instrument that incorporates a three-phase question: (1) What is to be assessed?; (2) How is it to be measured?; and (3) How does one observe and interpret verbal and non-verbal messages or data? In the first phase, teachers identify the purpose of assessment, recognize the uniqueness of the learners, and ensure that they possess a knowledge base in the relevant subject matter. In the second phase, teachers formulate learning outcomes and the criteria and standards that will be applied to them. In the third phase, teachers train themselves to play the role of objective observer. As teachers strengthen their observational skills and recognize their roles as teacher-researchers, they will experience an increase in confidence and professionalism, and there will be a direct positive effect on daily instructional and social classroom activities. (Contains 20 references.) (SWC)