A system and method are provided for optimizing parameters of a plurality of selected diagnostic and/or prognostic algorithms in a tunable diagnostic algorithm library. A plurality of sensed data sets having an actual diagnostic label associated therewith is supplied to each of the diagnostic algorithms. A value for each parameter of each of the algorithms that are to be optimized is supplied. A computed diagnostic label is generated for each of the sensed data sets using each of the selected algorithms, a fault model, and the values for each parameter, each of the computed diagnostic labels and each of the actual diagnostic labels are supplied to a generic objective function, to thereby calculate an objective function value, and the value of one or more of the parameters is varied using an optimization routine that repeats certain of these steps until the objective function value is minimized.