This paper presents a simulation-based method for classifying failures in water distribution systems according to their impact on network operation. The method combines hydraulic simulation, element criticality assessment, flow-path analysis, valve-isolation analysis, and repair-time estimation to assign reported failures to three operational impact classes. The input data include a calibrated hydraulic model of the analysed water distribution system, valve allocation, failure type and location, and the location of critical infrastructure. The output is a classification of failures into classes representing high, moderate, and low operational impact. The method was implemented using WNTR, the EPANET solver, Python, and parallel computing tools, and was tested on a hydraulic model of a real water distribution system in Środa Wielkopolska, Poland. The classification results were compared with assessments prepared by domain experts and operators. The comparison shows high agreement, while disagreement cases indicate the need for further validation under broader operational and demand conditions.