A prognostic and health accuracy maintenance system and method for a system following on-site replacement of a component in the system is provided. A system characterization model of at least portions of the system is generated and embedded within a controller in the system. The system characterization model is adapted to receive a plurality of signals that are each representative of an operational parameter within the system and is responsive to each of the signals to generate simulation response data and determine system health based, at least in part, on the simulation response data. When a component within the system is replaced, a determination is made as to whether the replacement component exhibits one or more operational performance characteristics that differ from the component it replaced. If so, the embedded system characterization model is updated in-situ.