Water resource development requires development and operation of expensive facilities. Planning, design, and execution of water resource projects in Iran have been taking a period of time much longer than what is considered as a normal time. In addition, the projects are costing much more than normal. This paper presents a system dynamics model to analyze the behavior of the water resource development system. The paper shows that high cost and long construction time are results of policies that govern decisions related to budget allocation, start of new projects and price of water. The paper shows that how alternative policies could improve the behavior of the system. It is argued that appropriate planning approach for water resource development should consider the feedback mechanism in the water resource development system and concentrate on design policies that control the behavior of the system through those feedback loops.