The system dynamics approach is an object-oriented simulation method based on feedback loops, flow diagrams, and flow and state variables, which can be used in the development of a water system’s operational policies and water-resource management. In reservoir operation simulations, there are iterative procedures (feedback loops) due to the dependency of reservoir release on both initial and final reservoir storage. System dynamics can successfully satisfy this need. Given the complex implicit and nonlinear relationships that exist in hydropower reservoirs, the system dynamics approach can be efficient in the planning and management of those reservoirs. This paper develops a system-dynamics simulation model using Vensim for the operation of a hydropower reservoir system (Khersan 1, Karoon 4, and Karoon 3) that is located in series and in parallel in the Karoon river basin, Iran. Steps of the model design include definition of decision variables, formulation of model, and method of solution to compute the output of the hydropower reservoirs. To assess the effects of the reservoirs on each other and the importance of each reservoir, operational scenarios are considered. Reservoir performance criteria (reliability, resiliency, and vulnerability) and mean energy production over a 44-year simulation period are calculated for each operational scenario. The results show that addition of the Khersan 1 reservoir to the system composed of Karoon 4 and Karoon 3 reservoirs increases the average amount of energy production by 20% without a significant loss in performance criteria. The sensitivity analysis for Khersan 1 is conducted in two states. The amounts of installed capacity of the power plant and maximum storage volume of the reservoir are increased by 20% and decreased by 20%, respectively. The results show that, in terms of energy production, the effect of increasing the installed power-plant capacity of Khersan 1 is greater than that of increasing the maximum reservoir storage volume of this reservoir. Therefore, by considering the same percentage increase (20%) in both installed capacity and maximum storage volume, it is preferable to increase the installed capacity of the power plant at Khersan 1 reservoir.