In simplest terms velocity is the sum of story points completed in one sprint. From my perspective, velocity is like other metrics of the scrum which should be used for planning purposes i.e. how many user stories can be incorporated for any release or sprint. Velocity should remain constant if the team conditions remain the same. If there is any change with respect to the team, the change in velocity is also expected.

But, how to calculate the team’s first velocity during planning.

The GENERAL rule is to plan one-third of the capacity of the total team members.

Example: If there are 6 programmers and 2 weeks iteration then there will be 60 programmer days, one-third of this will be 20 story points which we need to plan. As this is a new sprint and a new team, it will take some time to stabilize. And also some time may be for meetings, emails, designs etc.

The second way is to take the history of the team progress in other projects. (Condition-If the team is the same or at least have the same skill set and worked on a similar project before.)

Also, remember that velocity will quickly emerge during the first iteration. If underestimated, velocity in the first iteration will rise as new features are included; and if overestimated, velocity will decrease as features are removed. For the second iteration, the Scrum team should then use the first iteration as a guideline.

The graph shown below shows different velocities in different sprints. If we take the average velocity (GREEN line) then it comes out to be 13 story points.

“Velocity is more of a quantity of work completed metric. Useful and important, but not the SOLE measure of success. I think you WOULD want a set of metrics that together help US understand our current capabilities to deliver as well as if those capabilities are changing from one point in time to another. I don't believe there is one magic "agility number" to measure [productivity].”- Paul Hodgetts, Agile Coach

Which is important because according to the Agile Manifesto, “Working software is the primary measure of progress.”