Reservoir sedimentation is a serious problem that threatens the water storage capacities across the world. Extending a dam's life requires adopting a new design and operational paradigm that focuses on managing the reservoir and watershed system to bring sediment inflow and outflow into balance by including reservoir sediment management facilities in dam and reservoir. However, the cost of methods that remove the sediment from reservoirs is usually prohibitive and is a serious factor preventing sustainable sediment management. This thesis considered a case study, Paonia Reservoir in Colorado, to investigate two aspects of reservoir operation, sediment management and economic assessment. The purpose is to determine how sediment management (sluicing using a low-level gate) effectively reduces sedimentation and whether this management is economically viable. The SRH-1D will be implemented to model the reservoir sedimentation, and RSEM evaluate it economically. The result comparison of current Paonia operation with hypothetical Paonia (added low-level gate) proved sluicing incoming sediment-laden flow effectively reduces sedimentation without interruption in the reservoir targeted functions like irrigating downstream. The deposited sediment volume could decrease more by monitoring the possible peak flow time and keeping the low-level gate open to pass high incoming flow downstream. This thesis applied RSEM to evaluate and compare the benefits and costs of continued sedimentation and eventual dam decommissioning (the existing Reservoir condition) to sediment management costs and benefits (hypothetical Paonia Reservoir). The results illustrated that sediment removal is advantageous because it contributed to decrease rate of decline of reservoir capacity, which made this capacity, and the associated instantaneous net benefits exceed those in the without sediment management alternative. The preserved benefits from sustainable sediment management offset the additional costs of incorporating sediment management. One of the key messages of this thesis is that incorporating sediment management into the planning and design phases of dam projects is essential for ensuring that the benefits of reservoir storage are sustained over the long term. This means fairness between current and future generations to enjoy the benefits of the facility while spreading the cost of ownership, operations, and maintenance over generations.