This paper presents planning techniques which can be used by water managers in assessing the need for, and cost-effectiveness of, efficient water use. A procedure is outlined for a cost-effectiveness evaluation of water conservation and wastewater reuse compared to new water supply source development. Water conservation is usually found to be less expensive than new source development because of reduced operating and maintenance costs for water and wastewater treatment and transmission facilities and because of the significant savings in energy used to heat water for domestic use. In addition, combining water use and water supply relationships for neighboring communities will illuminate possible advantages of water supply interchange agreements for neighboring communities. These agreements would become operative in times of drought in lieu of stricter water rationing programs.