Back in the early mid-90s when I still had some dark hair, I started saving for retirement using the typical approaches of mutual funds and some stocks. My advisor was my Dad's business partner in an insurance and estate planning company they founded in 1981, so I figured he wasn't going to steer me wrong. One thing he said really struck me:
Whatever you do, DON'T look at the stock and mutual fund markets every day - you'll drive yourself crazy and make bad decisions! You have to take a long-term view of your investments, and then you'll be fine.Now, he wasn't saying don't look at your investments, but rather don't make rash decisions based on small sample sizes.
This same attitude should apply to how we view Velocity in Agile processes. Velocity is very interesting - it shows value delivered in a certain time period. Maximizing velocity is also interesting, since more points completed indicates more value delivered to stakeholders (although it's not a direct correlation), and that's a good thing, right? Sure, but you have to take a medium to long-term view of a team's velocity rather than making decisions based on the velocity of an iteration or two.
Consider this velocity bar chart showing 17 iterations:
This chart shows constant fluctuations in velocity per sprint, which may lead people inside or outside the team to spend time & effort determining why they only achieved 8 points in iterations 1 & 6 and only 7 points in iteration 7! Similarly, seeing 16 points in iteration 5 could lead to optimistic planning with the expectation of completing more in a release than a team is capable of delivering.
Contrast that view with this chart showing the same data in a line chart format:
You can still see small "ripples" in the line, but this long-term view of how a team is progressing towards a release doesn't show the large fluctuations of the bar chart. In other words, the bar chart shows a short-term view while the line chart shows the long-term one. If you were a decision maker for this project, which view would allow you to make better informed decisions about the overall direction?
The work that a team completes represents the investments of a project's stakeholders. Watching those investments within a very small window of time will "drive them crazy and can cause them to make bad decisions". Velocity provides an indication of the performance of those investments, but good investment decisions only come when looking at the medium to long term view of their performance.