The existence of several problems associated with the short‐term operation of multipurpose reservoirs has been demonstrated in the past. A principal difficulty arises from uncertainties inherent in the prediction of future stream flows which are required to effect the requisite reservoir operation. It has been shown that the performance of the reservoir operation, as determined by an optimization model, is a function of the operating horizon. This results from the existence of a relationship between the operating horizon and both the reliability of the inflow forecasts and the reservoir operation. With an increase in the length of the operating horizon, the reliability of the forecasts will necessarily decrease. However, the reservoir operation model yields an improved operation on the assumption that the forecasts are accurate. An improved methodology is presented which considers the operating horizon as a decision variable which can change in real time. The optimal value of the operating horizon is selected based on the trade‐off between more reliable inflow forecast for shorter horizons and better reservoir operation associated with the use of longer operating horizons. The benefits of the new methodology are illustrated through an application of the technique in simulating the operation of Green Reservoir in Kentu