Storage requirements necessary to supply a given demand are related to the streamflow characteristics, the magnitude of the demand, demand, and the runoff. Examination of these three components to streams with different flow variability disclosed that the particular sequence of streamflow was the primary factor in setting storage requirements. Ten samples of monthly streamflow, each years in length, were generated by a stochastic model for each stream. The storage requirements among the 50-yr samples varied by as much as a factor of 2.0. The relation between the seasonal demand schedules and the runoff significantly affected the storage requirements at the more stable stream and had little effect on storage requirements at the highly variable stream. The selection of a flexible operation rule which varied the withdrawal rate from the reservoir depending on the availability of storage increased the annual yield between 3% and 10%.