AbstractThis research seeks to provide analytical tools and concepts to unify the disciplines of materials, structures, control, and signal processing. Deficiencies are noted in the existing theories of systems science that fails to provide a theory for system design, integrating the design of components. The biggest challenge is the lack of good systems modeling theories, as opposed to the excellent component modeling theories that exist. Mathematical algorithms are suggested to optimally locate the sensing and actuating functions within the structure to enhance the performance of the algorithms looking for faults. These same techniques can be designed to other objectives, such as heating and air conditioning, thermal detection of people movements and security issues. The ‘economic design problem’ discussed herein will determine both the required precision and the best location for sensors to enable the health monitoring or control algorithms to function within a predetermined precision. Copyright © 2002 John Wiley & Sons, Ltd.