The major two concerns for planning a successful water strategy in Taiwan are the modification of water shortages and a total financial cost, construction, and operating costs. Therefore, the purpose of this study is to formulate an appropriate strategy to seek a balance between mitigating water shortages and total financial cost. Accordingly, we propose a process for combining a system dynamics approach and impact analysis to evaluate water strategy systematically and quantitatively. Water shortages and total financial cost are referred to, as governments are responsible for the management of regional water resources. System dynamics is one approach that can help decision makers build a simulation model of a complex water supply system. The value of a water shortage and total cost to all possible planning strategies for future water demand can be obtained from system dynamics model simulation. The content of proposed impact analysis is used to design indexes that are able to indicate (1) the severity of a water shortage and (2) total financial cost. Examining the performance of proposed indexes, we can understand the interactive impact between these two objectives in every strategy and then select appropriate strategies. Finally, the effectiveness of the proposed methodology is verified by solving a problem of water shortage and total financial cost in central Taiwan.