Since July 1993, the financial and risk effects of drought management strategies for farmers have been the subject of a study by CARE (UNE)t NSW Agriculture and the WADA. In this study the relative effectiveness of investing in different forms of reserves (including lEDs/FMBs and feed) is being evaluated in a whole-farm stochastic budgeting framework. The approach is to simulate the post-tax financial performancc of regionally-based farm models under alternative investment scenarios over a 4-ycar sequence of random climatic events. The parameters of the models and their functional relationships arc derived from historical records and consensus group data. In this paper, some preliminary findings arc presented and discussed. These findings arc interpreted in terms of both their farm management and policy implications. Attention is also given to the strengths and weaknesses of the modelling technology and the benefits of the consensus group approach. It is noted that benefits arc also derived simply from the process of conducting drought research in that it encourages farmers and policy makers to carefully consider the range of issues associated with drought management.