Water availability significantly affects development of agriculture, industry and urban services. Thus, the water industry is among the fundamental industries. Yet, most countries, especially developing countries, are suffering from water deficit, water pollution and flood hazards.  These problems are more severe in Iran due to improper management of water resources. Integrated water management is a systematic process for sustainable development and water monitoring which considers socioeconomic and environmental needs. The objective of this study was to evaluate the capability of Harsin dam reservoir on Babazaid River, located 45 km east of Kermanshah, Iran for storage of surface water and groundwater recharge. Water productivity and the results of simulation were analyzed through LINGO and WEAP software using 42 years’ data. Water sustainability index was also calculated via the WEP model and Excel while taking into account the water needs of agriculture, environment and urban supply. The results indicated that the annual water deficit for urban supply, agriculture, environment and industry were 1.74, 14.2, 6.04 and 0.4%, respectively. The water need for agriculture sector in summer was considerable.