An economic-engineering modeling approach is presented for integrating urba
n water supply reliability analysis with shortage management options such a
s dry year option and spot market water transfers, water reuse, and long- a
nd short-term water conservation. The integrated model uses a probability p
lotting position formula to link supply-side yield simulation to probabilis
tic shortage management optimization. The approach can help joint planning
of supply and demand management and estimate the economic value of expandin
g infrastructure and changing institutional constraints. Results from a cas
e study show that jointly managing supply capacity and operating rule decis
ions with shortage management decisions within a risk analysis framework ca
n create significant economic savings. The importance of hydrologic and ins
titutional uncertainties is explored. Tuning supply system and reservoir op
erating policies to match the seasonal and cost characteristics of availabl
e shortage management measures is shown to be essential to least-cost plann
ing.