In plain language, 'velocity' means the speed of something and in the case of agile, it is an indication of the amount of work an agile team can deliver in a sprint. The primary use of velocity is that it serves as a planning tool for a scrum/agile team. Scrum teams can look at their past performance in the last couple of preceding sprints, determine their average velocity, and predict the amount of work they'll possibly be able to deliver in the current sprint. Obviously, this is assuming that all other variables that impacted velocity in the past remain the same. The advantage of the 'velocity' approach is that it gives the development teams and business stakeholders a sense of how much value can possibly be delivered to the customer by the end of the sprint (sprint-planning forecast) or in the longer-term by the release date (release-level planning).
It's critical to note that velocity measures must not be used by management as a mechanism to gauge team productivity and rewarding or punishing teams on the basis of it; its use is internal to the scrum team.
Lastly, a sensible approach will be to consider a team's best case and worst case velocity because teams are always impacted by things beyond their control. In this case, velocity will be a story point range rather than a definite number.
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