For product owners and managers that are new to Scrum it is difficult to envision how defects will be managed. Its difficult because they expect that each sprint is going to be 100% focused on delivering new stories. This perception can be especially dangerous when the manager and/or product owner are trying to set expectations with upper management on project milestones.
You, as the Scrum Master, need to help the manager and product owner anticipate defects. We know that the software is going to take as long as it takes to build. Managers and Product Owners just can't live with a statement like that. Rather than fight this fact you need to find a way to lead in the face of it. You need to inject yourself into the milestone planning process and guide this planning in a way that anticipates defects by planning defect stories for the later sprints in the project. The following chart depicts a hypothetical reduction in new story velocity over time.
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