In order to improve the accuracy of numerical simulation, a new heat transfer model is developed by using a modular approach in the Anstalt für Verbrennungskraftmaschinen (AVL)-Boost software. The improved heat transfer model mainly considers the effects of the swirl and boiling heat transfer inside the engine. In addition, a chemical kinetics mechanism including 475 reactions and 134 species is employed to predict the combustion of diesel engines fueled with biodiesel. The result shows that the boiling heat transfer will occur, especially in the high-temperature area. Analysis shows that the improved model is reliable and its precision is increased. Finally, the perturbation method is employed to investigate the relatively important inputs as the complex nonlinear function with a lot of output data and input data produced by the improved model. The relative effects of different parameters such as EGR, injection mass, injection timing, compression ratio, inlet air pressure, fuel injection pressure, exhaust pressure and inlet air temperature on performance and emission characteristics are compared. The eight parameters are investigated on four outputs of brake power, Brake Specific Fuel Consumption (BSFC), NOx and HC. The injected fuel mass plays an important role in emissions and performance. The EGR, compression ratio and inlet air pressure have a great effect on the HC and NOx emission.