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What is burn rate in Agile?

Burn rate is a common performance metric used to describe the rate at which a company is losing money. If a business has a high burn rate, that means it is rapidly burning through cash — this can potentially lead to a negative budget and project failure.

But what is burn rate in Agile project management? This is a metric used to measure the productivity of an Agile team. It shows how quickly Agile team members are burning through the hours set aside to complete their tasks. Within each Agile iteration or sprint, there will be several user stories that need to be completed. Agile teams must ensure that all deliverables are ready by the end of the iteration, so they measure burn rate to stay on track.

Story point estimation is another commonly used Agile estimation technique. Its goal is to determine the effort required in each user story. To find out more about this technique in detail, click here

How to calculate burn rate

Agile teams have a set amount of days in each iteration. When calculating burn rate, they must determine two factors:

  • How many productive hours are available each day to work on a task
  • What percentage of the workday will be spent on this task

To convert task duration to actual effort, use the following formula:

Days x (Hours x Percentage)

Let’s look at an example. Carrie has five days to complete a task. She has six hours of productive hours within each day. She will dedicate 75% of each day to this task. So, her effort will be:

5 x (6 x 0.75) = 22.5 hours 

Once you have your effort in hours, you can calculate the burn rate. As the Project Management Institute outlines, there are two formulae to be applied here:

  • Proposed burn rate (PBR)

Divide the budgeted person hours scheduled (BPHS) by the budgeted percentage of completion scheduled (BPCS)

BPHS ÷ BPCS = PBR

  • Actual Burn Rate (ABR)

Divide the actual person hours generated (APHG) by the actual percentage of completion generated (APCG)

APHG ÷ APCG = ABR

What is a burn rate chart?

The Agile burn rate is represented on a burn rate chart, more commonly known as a burndown chart. This is a graph that highlights the iteration timeline and the work to be completed. The information is presented as follows:

  • Horizontal (X) axis: Iteration timeline, measured in days
  • Vertical (Y) axis: Iteration workload, measured in hours

A burndown chart will help an Agile team to track their progress and determine if they will finish by the time the iteration period ends. If this seems unlikely, they will have to reassess the number of user stories in this particular iteration.