Safety, availability and reliability are the main concern of many industries. Thus, fault detection and isolation of industrial machines, which are in most cases switched systems, is a primary task in many companies. The presented paper proposes a new diagnostic approach for switched systems using two powerful tools: bond graph and observer. A diagnostic layer detects model errors using bond graph, and a smart algorithm identifies and locates faults using observer. Although observers serve as fault detectors, they also have their own errors caused by convergence delay of calculations; even in the case of no sensor defect, the residue does not converge to zero. In this paper, we propose a new method to solve this problem by integrating dynamic thresholds in the detection procedure, which helped to avoid false alarms and ensure a highly reliable diagnosis.