This paper addresses the design process of diagnosis and fault-tolerant control when a system should operate despite multiple failures in sensors or actuators. Graph-theory based analysis of systems structure is demonstrated to be a unique design methodology that can cope with the diagnosis design for systems of high complexity, and also analyze the cases of cascaded or multiple faults. The paper takes as example a ship with two CP propellers and a bow thruster as actuators, and instrumentation with a suite of global position sensors, inertial navigation units and conventional gyro units to provide motion information. A salient feature of the design method is the ability to analyze cases where faults have occurred and easily determine where in the faulty system diagnosability and controllability are retained