Diagnostics is an important concept in system health and monitoring of space operations. Many of the existing diagnostic algorithms utilize system knowledge in the form of diagnostic matrix (D-matrix, also popularly known as diagnostic dictionary, fault signature matrix or reachability matrix) gleaned from physical models. But, sometimes, this may not be coherent to obtain high diagnostic performance. In such a case, it is important to modify this D-matrix based on knowledge obtained from other sources such as time-series data stream (simulated or maintenance data) within the context of a framework that includes the diagnostic/inference algorithm. A systematic and sequential update procedure, diagnostic modeling evaluator (DME) is proposed to modify D-matrix and wrapper logic considering least expensive solution first. This iterative procedure includes conditions ranging from modifying 0s and 1s in the matrix, or adding/removing the rows (failure sources) columns (tests). We will experiment this framework on datasets from DX challenge 2009.