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Water Supply vs. Water Demand
It is important for drought indices to have a term for water demand (evaporation or evapotranspiration, ET) as well as water supply (precipitation). Drought indices like the Standardized Precipitation Index (SPI) or precipitation percentiles measure only water supply, while indices like the Palmer Drought Index incorporate a balance between water supply and water demand. Indices that measure just water supply tell only part of the story. Indices that are based on the hydrological balance between water supply and water demand give a more complete picture. Water supply is easy to measure -- it is just precipitation, maybe with some component that looks at soil moisture. Water demand is harder to calculate and is frequently based on temperature. Warmer temperatures generally result in more ET and greater water demand, increasing the risk of drought.