The proposed research, through INCASS (Inspection Capabilities for Enhanced Ship Safety) FP7 EU funded research project tackles the issue of predictive ship machinery inspection by enhancing reliability and safety, avoiding accidents, and protecting the environment. This paper presents the development of Machinery Risk/Reliability Analysis (MRA). The innovation of this model is the consideration and assessment of components' risk of failure and reliability degradation by utilizing raw input data. MRA takes into account the system's dynamic state change, concerning failure rate variation over time. The presented methodology involves the generation of Markov Chains integrated with the advantages of Bayesian Belief Networks (BBNs). INCASS project developed a measurement campaign, where real time sensor data is recorded onboard a tanker, bulk carrier and container ship. The gathered data is utilized for MRA DSS tool validation and testing. Following research involves components and systems interdependencies and feed the continuous dynamic probabilistic condition monitoring algorithm.