This paper proposes a new methodology for constructing groundwater mod
els. The proposed methodology, which determines simultaneously both mo
del structure and model parameters, is based on the following ideas: (
1) When solving the inverse problem, different model structures always
produce different model parameters; (2) since the number of possible
model structures of an aquifer is infinite, the number of possible rep
resentative parameters is also infinite; (3) to obtain a set of approp
riate representative model parameters, we must have an appropriate mod
el structure; and (4) an appropriate model structure should be determi
ned not only by observation data and prior information but also by the
accuracy requirements of model applications. In this proposed methodo
logy we start with a homogeneous model structure and, step by step, gr
adually increase the complexity of the model structure. At each level
of complexity we calculate not only the fitting residual of parameter
identification but also the error of model structure to determine if a
more complex model structure is needed. The model structure error of
using one model structure to replace another model structure is define
d by a maximum-minimum (max-min) problem that is based on the distance
between the two models and is measured in parameter, observation, and
prediction (or decision) spaces. This proposed methodology is used to
solve a hypothetical remediation design problem in which the true hyd
raulic conductivity is a random field with a certain trend. We have fo
und that for the example problem: virtually identical pumping policy i
s obtained when a five-zone model with an optimized zonation pattern i
s used to represent the nonstationary random field. We have also found
that observation errors have minimum impact ori management solution i
n comparison with structure errors. To calculate the model structure e
rror for this example, the inverse solution is coupled with a manageme
nt problem. We have also developed an effective iteration method to ha
ndle nonlinear water quality constraints.