For safety critical complex systems, reliability and risk analysis are important design steps. Implementing these analyses early in the design stage can reduce costs associated with redesign and provide important information on design viability. In the past several years, various research methods have been presented in the design community to move reliability analysis into the early conceptual design stages. These methods all use a functional representation as the basis for reliability analysis. This paper asserts that, in non-nominal system states, the functional representation limits the scope of failure analysis. Specifically, when failures are modeled to propagate along energy, material, and signal (EMS) flows, a nominal-state functional model is insufficient for modeling all types of failures. To capture possible failure propagation paths, a function-based reliability method must consider all potential flows, and not be limited to the function structure of the nominal state. In this light, this paper introduces the Flow State Logic (FSL) method as a means for reasoning on the state of EMS flows that allows the assessment of failure propagation over potential flows that were not considered in a functional representation of a “nominally functioning” design. A liquid fueled rocket engine serves as a case study to illustrate the benefits of the methodology.