This review of available literature on the benefits of action and costs of inaction of drought mitigation and preparedness shows that significant progress has been made over the past decade in improving understanding of droughts and their impacts. However, significant gaps in research, policy and practice remain, particularly regarding the merits of risk management compared with traditional crisis management approaches. The findings highlight the need for mutually compatible methodologies as a means of comprehensively assessing drought costs and impacts. Presently, many available estimates of drought costs are partial and difficult to compare. The problem is compounded by the lack of data on droughts and their impacts. Moreover, relatively little knowledge is available on the costs of indirect and longer-term drought impacts.