Abstract: A diagnostic method and apparatus according to the invention locates faulty components in complex real systems in which a high level function can be allocated into lower functional levels with each lower functional level including a plurality of functions. Functional level allocation is repeated until functions correspond to line replaceable units, shop replaceable units, or individual circuit components. A virtual model according to the invention can be defined with parallel functional levels and functions using virtual components so that point-to-point comparison of signals generated by the real system functions on each functional level can be made with signals generated by corresponding virtual components to isolate faulty line replaceable units, shop replaceable units, or individual circuit components. Inputs to the virtual components are the same as the real system inputs provided to the real system functions.