Story Points are a challenging topic of discussion for new and transforming teams. They challenge the status quo for teams, executives, and finance departments. This is beneficial in a transformation as it helps break old habits. However, people struggle because they try to apply the concept of “fixed” estimation in “relative” estimation situation.
In fixed estimation, a known unit such as dollars or hours is used. It is a defined quantity that everyone involved understands.
In relative estimation, there is no specific unit. Points are not units and do not have any inherent properties. In this scenario, we describe the size (effort), complexity, and risk of a story by comparing it to other stories we have completed in the past. Points enable us to make this comparison more efficiently.
But why use relative estimation? What is wrong with fixed estimation? Whether we use points, dollars, hours, or elephants, they are all units, and estimation inherently involves a degree of uncertainty.
The reason for using relative estimation may not be intuitive, but it becomes clear when considering capacity measures. If we estimate in dollars, our capacity is limited by our budget. We cannot exceed the budget, and estimation errors will result in spending variations. If we estimate in hours, our capacity is limited by the total person hours available in a given timeframe. Estimation errors will lead to missed targets or lower output, with no self-adjustment or reset. However, if we use points, our capacity is reflected in our velocity.
Velocity is the number of points a team can deliver in a sprint, typically two weeks. It represents what the team has accomplished in the past and will adjust to reflect the team’s estimation tendencies or biases. For example, if a team is typically optimistic and assigns fewer points to a story, underestimating the effort, complexity, and risk in that story, their velocity will be lower. This means they will complete fewer points per sprint than a diffrent team that assigned more points. In the following sprint, the team will use the velocity from previous sprints to measure their capacity, which is lower due to their estimation bias. The team’s estimation accuracy will significantly improve over time without needing to take corrective action or make changes.
Similarly, if a team is pessimistic with their estimation, assigning more points to a story and overestimating the effort, complexity, and risk, their velocity will be higher. This will result in completing more points in a sprint compared to a team that assigned less points, which means their velocity will be higher to compensate for their estimation biase.
Due to this unique characteristic, it is not advisable to compare teams based on velocity when using story point estimation.
In upcoming blogs, we will discuss what we can and cannot use story points for. We will also explore how to convert points to fixed units for roadmapping (forecasting), long-term planning, and budgeting purposes.
